Filed
pursuant to Rule 424(b)(4)
Registration No.
333-239534
Registration No.
333-240062
MARATHON
PATENT GROUP, INC.
6,666,667
Shares of
Common Stock
Marathon
Patent Group, Inc. is offering 6,666,667 shares of common stock at
an offering price of $0.90 per share.
Our
common stock is listed on The Nasdaq Capital Market under the
symbol “MARA.” On July 24, 2020, the last reported sale price of
our common stock on The Nasdaq Capital Market was $1.04 per
share.
You
should read this prospectus, together with additional information
described under the heading “Where You Can Find More
Information,” carefully before you invest in any of our
securities.
Investing
in our securities involves a high degree of risk. See “Risk
Factors” beginning on page 6 of this prospectus for a
discussion of information that should be considered in connection
with an investment in our securities.
Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal
offense.
|
|
|
Per
Share |
|
|
Total |
|
|
Public
offering price |
|
$ |
0.90 |
|
|
$ |
6,000,000 |
|
|
Underwriting discounts
and commissions(1) |
|
$ |
0.063 |
|
|
$ |
420,000 |
|
|
Proceeds,
before expenses, to us |
|
$ |
0.837 |
|
|
$ |
5,580,000 |
|
|
(1) |
In
addition, we have agreed to issue to the representative of the
underwriters warrants to purchase common stock equal to 7% of the
shares issued in this offering and to reimburse certain expenses of
the representative in connection with this offering. See
“Underwriting” beginning on page 50 for additional disclosure
regarding the compensation payable to the underwriters. |
We have
granted the underwriters an option to purchase up to an additional
999,999 shares of common stock from us at the public offering
price, less the underwriting discounts, for a period of 45 days
from the date of this prospectus.
We
anticipate that delivery of the shares against payment will be made
on or about July 28, 2020.
H.C.
WAINWRIGHT & CO.
The
date of this prospectus is July 23, 2020.
TABLE
OF CONTENTS
You
should rely only on information contained in this prospectus or in
any free writing prospectus we may authorize to be delivered or
made available to you. Neither the delivery of this prospectus nor
the sale of our securities means that the information contained in
this prospectus or any free writing prospectus is correct after the
date of this prospectus or such free writing prospectus. This
prospectus is not an offer to sell or the solicitation of an offer
to buy our securities in any circumstances under which the offer or
solicitation is unlawful or in any state or other jurisdiction
where the offer is not permitted. The information contained in this
prospectus is accurate only as of its date regardless of the time
of delivery of this prospectus or of any sale of common
stock.
No
person is authorized in connection with this prospectus to give any
information or to make any representations about us, the securities
offered hereby or any matter discussed in this prospectus, other
than the information and representations contained in this
prospectus or in any free writing prospectus we may authorize to be
delivered or made available to you. If any other information or
representation is given or made, such information or representation
may not be relied upon as having been authorized by
us.
For
investors outside the United States: Neither we nor the
underwriters have done anything that would permit this offering or
possession or distribution of this prospectus in any jurisdiction
where action for that purpose is required, other than in the United
States. You are required to inform yourselves about and to observe
any restrictions relating to this offering and the distribution of
this prospectus.
Unless
otherwise indicated, information contained in this prospectus
concerning our industry and the markets in which we operate,
including our general expectations and market position, market
opportunity and market share, is based on information from our own
management estimates and research, as well as from industry and
general publications and research, surveys and studies conducted by
third parties. Management estimates are derived from publicly
available information, our knowledge of our industry and
assumptions based on such information and knowledge, which we
believe to be reasonable. Our management’s estimates have not been
verified by any independent source, and we have not independently
verified any third-party information. In addition, assumptions and
estimates of our and our industry’s future performance are
necessarily subject to a high degree of uncertainty and risk due to
a variety of factors, including those described in “Risk
Factors.” These and other factors could cause our future
performance to differ materially from our assumptions and
estimates. See “Cautionary Note Regarding Forward-Looking
Statements.”
SUMMARY
This
summary highlights selected information from this prospectus and
does not contain all of the information that you should consider in
making your investment decision. You should carefully read the
entire prospectus, the applicable prospectus supplement and any
related free writing prospectus, including the risks of investing
in our securities discussed under the heading “Risk Factors”
contained in the applicable prospectus supplement and any related
free writing prospectus, and under similar headings in the
documents that are incorporated by reference into this prospectus.
You should also carefully read the information incorporated by
reference into this prospectus, including our financial statements,
and the exhibits to the registration statement of which this
prospectus is a component.
The
terms “Marathon,” the “Company,” “we,” “our” or “us” in this
prospectus refer to Marathon Patent Group, Inc. and its
wholly-owned subsidiaries, unless the context suggests
otherwise.
OUR
BUSINESS
About
Marathon Patent Group, Inc.
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. 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 and we commenced our IP
licensing operations, at which time the Company’s name was changed
to Marathon Patent Group, Inc. On November 1, 2017, we entered into
a merger agreement with Global Bit Ventures, Inc. (“GBV”), which is
focused on mining digital assets. We purchased cryptocurrency
mining machines and established a data center in Canada to mine
digital assets. We intend to expand its activities in the mining of
new digital assets, while at the same time harvesting the value of
our remaining IP assets. As we mine bitcoin, we receive a daily
reward from ViaBTC, the mining pool to which we point our miners.
When we choose to liquidate our bitcoin, we trade with Cumberland
DRW, LLC. Cumberland is a global leader in cryptoasset trading.
Founded in 2014, Cumberland is a part of DRW Holdings, a
diversified principal trading firm with more than 25 years of
experience across asset classes, instruments and strategies in
markets around the world. Cumberland provides 24⁄7 access with
their Marea electronic trading platform, which provides streaming,
real-time, two-way pricing.
On
June 28, 2018, our Board has determined that it was in the best
interests of the Company and our shareholders to allow the Amended
Merger Agreement with GBV to expire on its termination date of June
28, 2018 without further negotiation or extension. The Board
approved to issue 3,000,000 shares of our common stock to GBV as a
termination fee for us canceling the proposed merger between the
two companies.
All
share and per share values for all periods presented in the
accompanying consolidated financial statements have been
retroactively adjusted to reflect the 1:4 reverse stock split which
occurred on April 8, 2019.
Mathematically
Controlled Supply
The
method for creating new bitcoins is mathematically controlled in a
manner so that the supply of bitcoins grows at a limited rate
pursuant to a pre-set schedule. The number of bitcoins awarded for
solving a new block is automatically halved every 210,000 blocks.
Thus, the current fixed reward for solving a new block is 12.5
bitcoins per block and the reward decreased by half to become 6.25
bitcoins around May 10, 2020 (based on estimates of the rate of
block solution calculated by BitcoinClock.com). This deliberately
controlled rate of bitcoin creation means that the number of
bitcoins in existence will never exceed 21 million and that
bitcoins cannot be devalued through excessive production unless the
Bitcoin Network’s source code (and the underlying protocol for
bitcoin issuance) is altered. The Company monitors the Blockchain
network and, as of June 5, 2020, based on the information we
collected from our network access 18.2 million bitcoins have been
mined.
Digital
Asset Mining
We
intend to power and secure blockchains by verifying blockchain
transactions using custom hardware and software. We are currently
using our hardware to mine bitcoin (“BTC”) and expect to mine BTC
and ether (“ETH”), and potentially other cryptocurrencies. Bitcoin
and ether rely on different technologies based on the blockchain.
Wherein bitcoin is a digital currency and ether is generally
associated with smart contracts and digital tokens, we will be
compensated in either BTC or ETH based on the mining transactions
we perform for each, which is how we will earn revenue.
Blockchains
are decentralized digital ledgers that record and enable secure
peer-to-peer transactions without third party intermediaries.
Blockchains enable the existence of digital assets by allowing
participants to confirm transactions without the need for a central
certifying authority. When a participant requests a transaction, a
peer-to-peer network consisting of computers, known as nodes,
validate the transaction and the user’s status using known
algorithms. After the transaction is verified, it is combined with
other transactions to create a new block of data for the ledger.
The new block is added to the existing blockchain in a way that is
permanent and unalterable, and the transaction is
complete.
Digital
assets (also known as cryptocurrency) are a medium of exchange that
uses encryption techniques to control the creation of monetary
units and to verify the transfer of funds. Many consumers use
digital assets because it offers cheaper and faster peer-to-peer
payment options without the need to provide personal details. Every
single transaction and the ownership of every single digital asset
in circulation is recorded in the blockchain. Miners use powerful
computers that tally the transactions to run the blockchain. These
miners update each time a transaction is made and ensure the
authenticity of information. The miners receive a transaction fee
for their service in the form of a portion of the new digital
“coins” that are issued.
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 held on November 15, 2019, the
Company issued 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
issued an additional 474,808 at $0.90 per share on December 27,
2019. On March 30, 2020, the Seller agreed to reduce the total of
number of shares to be issued to 2,101,500 shares, and the balance
of 350,250 shares was issued at a price of $0.49 per
share.
As of
April 6, 2020, the Company received notice from the Nasdaq 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
Nasdaq 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.
On May 5,
2020, the Compensation Committee of the Board of Directors 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 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.
On May 11, 2020, the Company announced the purchase of 700 M30S+
(80 TH) miners. On May 12, 2020, the Company announced the purchase
660 Bitmain S19 Pro Miners and on June 11, 2020, the Company
announced the purchase of an additional 500 of the latest
generation Bitmain S19 Pro Miners, bringing the Company’s total
Hashrate to approximately 240 PH/s when fully deployed.
On May 19,
2020, the Company amended its note, originally dated August 31,
2017, with Bi-Coastal Consulting Defined Benefit Plan to reduce the
conversion price to $0.60 per share. The current principal balance
of the Note was $999,105.60 and accrued the interest was
$215,411.30. The Company agreed to the reduction in the conversion
price from $0.80 to $0.60 to incentivize the Note holder to convert
the Note to common stock. As the Note has been fully converted to
common stock, the Company has no Long-Term debt.
Competition
Subject
to raising additional capital, our digital asset initiatives will
compete with other industry participants that focus on investing in
and securing the Blockchains of bitcoin and other digital assets.
Market and financial conditions, and other conditions beyond the
Company’s control, may make it more attractive to invest in other
entities, or to invest in bitcoin or digital assets directly.
Companies have raised substantial capital this year seeking to
enter the digital assets business. Our lack of ready access to
capital and limited size are competitive disadvantages.
Patent
Enforcement Litigation
As of
June 26, 2020, we were not involved in any active patent
enforcement litigation.
Employees
As of
June 26, 2020, we had 3 full-time employees. We believe our
employee relations to be good.
Corporate
Information
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. The address and phone number
of our principal office is 1180 North Town Center Drive, Suite 100,
Las Vegas, NV 89144; 702-945-2773. Our corporate website
is www.marathonpg.com. Our website and the information
contained in, or accessible through, our website will not be deemed
to be incorporated by reference into this prospectus and does not
constitute part of this prospectus.
The
Offering
|
Common
stock offered by us |
|
6,666,667
shares at
an offering price of $0.90 per share. |
|
|
|
|
|
Assumed
Offering price |
|
$0.90
per
share. |
|
|
|
|
|
Option
to purchase additional shares |
|
We
have granted the underwriters an option to purchase up to an
additional 999,999 shares of common stock at the public offering
price, less the underwriting discounts, for a period of 45 days
from the date of this prospectus. |
|
|
|
|
|
Common
stock outstanding after this offering |
|
28,447,330
shares
(assuming no exercise of the underwriters’ option to purchase
additional shares of common stock). |
|
Use
of proceeds |
|
The
net proceeds from our sale of shares of our common stock in this
offering will be approximately $5,405,000 after deducting
underwriting discounts and commissions and estimated offering
expenses payable by us. If the underwriters exercise their option
in full to purchase additional shares of common stock, our net
proceeds from this offering will be approximately $6,242,000. We
currently expect to use the net proceeds from this offering for
general corporate purposes and to fund ongoing operations and
expansion of our business.
For
additional information please refer to the section entitled “Use
of Proceeds” on page 32 of this prospectus.
|
|
|
|
|
|
Risk
Factors |
|
Investing
in our securities involves a high degree of risk. You should
carefully review and consider the “Risk Factors” section of
this prospectus for a discussion of factors to consider before
deciding to invest in shares of our common stock. |
|
|
|
|
|
Representative’s
Warrant |
|
We will
issue to H.C. Wainwright & Co., LLC, as representative of the
underwriters, or its designees at the closing of this offering
warrants to purchase the number of shares of common stock equal to
7% of the aggregate number of shares of common stock sold in this
offering. The representative’s warrant will be exercisable
immediately and will expire five years after the effective date of
the registration statement for this offering. The exercise price of
the representative’s warrant will equal 125% of the public offering
price per share. See “Underwriting.”
|
|
|
|
|
|
Market
Symbol and trading |
|
Our
common stock is listed on The Nasdaq Capital Market under the
symbol “MARA”. |
The
number of shares of common stock that will be outstanding after
this offering set forth above is based upon 21,780,663 shares of
common stock outstanding as of June 29, 2020, and excludes the
following:
|
|
● |
164,222
Warrants outstanding to purchase common stock, 190,182 stock
options and 3,233,163 restricted stock units; and |
| |
● |
466,667
additional shares (536,667 shares if the representative exercises
its option to purchase additional shares in
full)which
may be issued upon exercise of the representative’s warrants issued
in this offering. |
SUMMARY
FINANCIAL DATA
The
following table summarizes our financial data. We derived the
summary financial statement data as of and for the years ended
December 31, 2019 and 2018 and three months ended March 31, 2020
and 2019, set forth below from our audited financial statements and
related notes appearing in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2019, and our Quarterly Report on
Form 10-Q for the three months ended March 31, 2020, each of which
are incorporated by reference in this prospectus. Our historical
results are not necessarily indicative of the results that may be
expected in the future. You should read the information presented
below together with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” our financial
statements, the notes to those statements and the other financial
information appearing in each of our Annual Report on Form 10-K for
the fiscal year ended December 31, 2019, and our Quarterly Report
on Form 10-Q for the three months ended March 31, 2020, each of
which are incorporated by reference in this
prospectus.
Summary
of Operations in U.S. Dollars except share and per share
data)
|
|
|
Years
ended December 31, |
|
|
|
|
2019 |
|
|
2018 |
|
| |
|
|
|
|
|
|
|
Revenue |
|
$ |
1,185,227 |
|
|
$ |
1,562,372 |
|
| |
|
|
|
|
|
|
|
|
|
Total
operating expenses |
|
|
5,424,338 |
|
|
|
13,638,708 |
|
| |
|
|
|
|
|
|
|
|
|
Loss from
operations |
|
|
(4,239,111 |
) |
|
|
(12,076,336 |
) |
| |
|
|
|
|
|
|
|
|
|
Other
income (expense) |
|
|
722,046 |
|
|
|
(668,854 |
) |
| |
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(3,517,065 |
) |
|
$ |
(12,745,190 |
) |
| |
|
|
|
|
|
|
|
|
|
Weighted
average number of shares issued and outstanding |
|
|
6,664,238 |
|
|
|
5,315,944 |
|
| |
|
|
|
|
|
|
|
|
|
Loss per
common share - basic and diluted |
|
$ |
(0.53 |
) |
|
$ |
(2.41 |
) |
Condensed
Audited Balance Sheet in U.S. Dollars
|
|
|
As of
December 31, |
|
|
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
692,963 |
|
|
$ |
2,551,171 |
|
|
Total
Current Assets |
|
|
1,494,128 |
|
|
|
3,015,177 |
|
|
Total
Assets |
|
|
6,619,962 |
|
|
|
5,194,507 |
|
|
Total
Current Liabilities |
|
|
1,852,705 |
|
|
|
2,273,633 |
|
|
Total
Non-Current Liabilities |
|
|
1,119,585 |
|
|
|
- |
|
|
Total
Liabilities |
|
|
2,972,290 |
|
|
|
2,273,633 |
|
|
Additional
paid in capital |
|
|
109,705,051 |
|
|
|
105,461,396 |
|
|
Accumulated
Deficit |
|
|
(105,607,506 |
) |
|
|
(102,090,441 |
) |
|
Total
Stockholders’ Equity |
|
$ |
3,647,672 |
|
|
$ |
2,920,874 |
|
Summary
of Operations in U.S. Dollars (except share and per share
data)
| |
|
Three
months ended March 31, |
|
| |
|
2020
|
|
|
2019
|
|
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
592,487 |
|
|
$ |
230,694 |
|
| |
|
|
|
|
|
|
|
|
|
Total
operating expenses |
|
|
1,684,289 |
|
|
|
1,215,603 |
|
| |
|
|
|
|
|
|
|
|
|
Loss
from operations |
|
|
(1,091,802 |
) |
|
|
(984,909 |
) |
| |
|
|
|
|
|
|
|
|
|
Other
income (expense) |
|
|
33,871 |
|
|
|
(59,953 |
) |
| |
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(1,057,931 |
) |
|
$ |
(1,044,862 |
) |
| |
|
|
|
|
|
|
|
|
|
Weighted
average number of shares issued and outstanding – basic and
diluted |
|
|
8,655,525 |
|
|
|
6,338,418 |
|
| |
|
|
|
|
|
|
|
|
|
Loss
per common share – basic and diluted |
|
$ |
(0.12 |
) |
|
$ |
(0.16 |
) |
Condensed
Balance Sheet in U.S. Dollars
|
|
|
As
of March 31, 2020
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
Cash |
|
$ |
474,546 |
|
|
Total
Current Assets |
|
|
1,503,597 |
|
|
Total
Assets |
|
|
5,668,117 |
|
|
Total
Current Liabilities |
|
|
1,404,275 |
|
|
Total
Non-Current Liabilities |
|
|
1,094,124 |
|
|
Total
Liabilities |
|
|
2,498,399 |
|
|
Additional
paid in capital |
|
|
110,284,952 |
|
|
Accumulated
Deficit |
|
|
(106,665,437 |
) |
|
Total
Stockholders’ Equity |
|
$ |
3,169,718 |
|
RISK FACTORS
Investing
in our securities involves a high degree of risk. Before making an
investment decision, you should consider carefully the risks,
uncertainties and all risk factors set forth in this prospectus
supplement and the base prospectus to which it relates, as well as
any documents incorporated by reference in this prospectus,
including the risk factors discussed under the heading “Risk
Factors” in our most recent Annual Report on Form 10-K for the year
ended December 31, 2019, as amended, and each subsequently filed
quarterly report on Form 10-Q and current reports on Form 8-K,
which may be amended, supplemented or superseded from time to time
by the other reports we file with the Commission in the
future.
Risks
related to this offering
Future sales or other issuances of our common stock could depress
the market for our common stock.
Sales
of a substantial number of shares of our common stock, or the
perception by the market that those sales could occur, whether
through this offering or other offerings of our securities, could
cause the market price of our common stock to decline or could make
it more difficult for us to raise funds through the sale of equity
in the future.
We have broad discretion to use the net proceeds from this offering
and our investment of these proceeds pending any such use may not
yield a favorable return.
Because
we have not designated the amount of net proceeds from this
offering to be used for any particular purpose, our management will
have broad discretion as to the application of the net proceeds
from this offering, as described below in “Use of Proceeds,” and
could use them for purposes other than those contemplated at the
time of the offering. Our management may use the net proceeds for
corporate purposes that may not improve our financial condition or
market value of our common stock.
Purchasers in this offering will experience immediate and
substantial dilution in the book value of their
investment.
The
public offering price of our common stock is substantially higher
than the net tangible book value per share of our common stock as
of March 31, 2020, before giving effect to this offering. At public
offering price of $0.90 per share, and after deducting estimated
offering expenses and underwriter discounts and commissions payable
by us, our as adjusted net tangible book value per share after
giving effect to the sale of shares of our common stock in the
aggregate amount of $6,000,000 at the offering price would be
$0.472. Accordingly, purchasers of shares of our common stock in
this offering will incur immediate and substantial dilution of
approximately $0.428 per share, representing the difference between
the as adjusted book value per share of our securities after the
offering and the book value per share of our securities prior to
the offering as of March 31, 2020. Furthermore, if the remaining
outstanding note is converted, or if outstanding options or
warrants are exercised, you could experience further dilution. For
a further description of the dilution that our stockholders will
experience immediately after this offering, see the section in this
prospectus supplement entitled “Dilution” in this
prospectus.
Our stock price can be volatile, which increases the risk of
litigation, and may result in a significant decline in the value of
your investment.
The
trading price of our common stock has historically been, and is
likely to continue to be, highly volatile and subject to wide
fluctuations in price in response to various factors, many of which
are beyond our control and may not be related to our operating
performance. These fluctuations could cause you to lose part or all
of your investment in our common stock. These factors include, but
are not limited to, the following:
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price
and volume fluctuations in the overall stock market from time to
time; |
| ● |
changes
in the market valuations, stock market prices and trading volumes
of similar companies; |
| ● |
actual
or anticipated changes in our net loss or fluctuations in our
operating results or in the expectations of securities
analysts; |
| ● |
the
issuance of new equity securities pursuant to a future offering,
including potential issuances of preferred stock; |
| ● |
general
economic conditions and trends; |
| ● |
positive
and negative events relating to the overall blockchain and crypto
mining sector; |
| ● |
major
catastrophic events, including the effects of COVID-19; |
| ● |
sales
of large blocks of our stock; |
| ● |
additions
or departures of key personnel; |
| ● |
changes
in the regulatory status of cryptocurrencies, cryptocurrency
exchanges, and miners of cryptocurrencies; |
| ● |
announcements
of new products or technologies, commercial relationships or other
events by us or our competitors; |
| ● |
regulatory
developments in the United States and other countries; |
| ● |
failure
of our common stock to maintain their listing on the NASDAQ markets
or other national market system; |
| ● |
changes
in accounting principles; and |
| ● |
discussion
of us or our stock price by the financial and scientific press and
in online investor communities. |
In
addition, equity markets in general, and the market for blockchain
companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to
the operating performance of companies traded in those markets.
These broad market and industry factors may materially affect the
market price of our common stock, regardless of our development and
operating performance. In the past, following periods of volatility
in the market price of a company’s securities, securities
class-action litigation has often been instituted against that
company, including Marathon. Due to the volatility of our stock
price, we are currently and may be the target of securities
litigation in the future. Securities litigation could result in
substantial costs and divert management’s attention in the future
attention and resources from our business.
General Risks
We may be classified as an inadvertent investment
company.
We
are not engaged in the business of investing, reinvesting, or
trading in securities, and we do not hold ourselves out as being
engaged in those activities. Under the Investment Company Act of
1940, as amended (the “1940 Act”), however, a company may be deemed
an investment company under Section 3(a)(1)(C) of the 1940 Act if
the value of its investment securities is more than 40% of its
total assets (exclusive of government securities and cash items) on
a consolidated basis.
We
have commenced digital asset mining, the outputs of which are
cryptocurrencies, which may be deemed a security. In the event that
the digital assets held by us exceed 40% of our total assets,
exclusive of cash, we inadvertently become an investment company.
An inadvertent investment company can avoid being classified as an
investment company if it can rely on one of the exclusions under
the 1940 Act. One such exclusion, Rule 3a-2 under the 1940 Act,
allows an inadvertent investment company a grace period of one year
from the earlier of (a) the date on which an issuer owns securities
and/or cash having a value exceeding 50% of the issuer’s total
assets on either a consolidated or unconsolidated basis and (b) the
date on which an issuer owns or proposes to acquire investment
securities having a value exceeding 40% of the value of such
issuer’s total assets (exclusive of government securities and cash
items) on an unconsolidated basis. We are putting in place policies
that we expect will work to keep the investment securities held by
us at less than 40% of our total assets, which may include
acquiring assets with our cash, liquidating our investment
securities or seeking a no-action letter from the SEC if we are
unable to acquire sufficient assets or liquidate sufficient
investment securities in a timely manner.
As
Rule 3a-2 is available to a company no more than once every three
years, and assuming no other exclusion were available to us, we
would have to keep within the 40% limit for at least three years
after we cease being an inadvertent investment company. This may
limit our ability to make certain investments or enter into joint
ventures that could otherwise have a positive impact on our
earnings. In any event, we do not intend to become an investment
company engaged in the business of investing and trading
securities.
Classification
as an investment company under the 1940 Act requires registration
with the SEC. If an investment company fails to register, it would
have to stop doing almost all business, and its contracts would
become voidable. Registration is time consuming and restrictive and
would require a restructuring of our operations, and we would be
very constrained in the kind of business we could do as a
registered investment company. Further, we would become subject to
substantial regulation concerning management, operations,
transactions with affiliated persons and portfolio composition, and
would need to file reports under the 1940 Act regime. The cost of
such compliance would result in the Company incurring substantial
additional expenses, and the failure to register if required would
have a materially adverse impact to conduct our
operations.
Failure to effectively manage our growth could place strains on our
managerial, operational and financial resources and could adversely
affect our business and operating results.
Our
growth has placed, and is expected to continue to place, a strain
on our limited managerial, operational and financial resources and
systems. Further, as our subsidiary companies’ businesses grow, we
will be required to continue to manage multiple relationships. Any
further growth by us or our subsidiary companies, or an increase in
the number of our strategic relationships, may place additional
strain on our managerial, operational and financial resources and
systems. Although we may not grow as we expect, if we fail to
manage our growth effectively or to develop and expand our
managerial, operational and financial resources and systems, our
business and financial results would be materially
harmed.
Marathon has an evolving business model.
As
digital assets and blockchain technologies become more widely
available, we expect the services and products associated with them
to evolve. Very recently, the Securities and Exchange Commission
(the “Commission” or the “SEC”) issued a Report that promoters that
use initial coin offerings or token sales to raise capital may be
engaged in the offer and sale of securities in violation of the
Securities Act and the Exchange Act of 1934 (the “Exchange Act”).
This may cause us to potentially change our future business in
order to comply fully with the federal securities laws as well as
applicable state securities laws. As a result, to stay current with
the industry, our business model may need to evolve as well. From
time to time we may modify aspects of our business model. We cannot
offer any assurance that these or any other modifications will be
successful or will not result in harm to the business. We may not
be able to manage growth effectively, which could damage our
reputation, limit our growth and negatively affect our operating
results.
Digital Assets such as bitcoin and ether are likely to be regulated
as securities or investment securities.
Bitcoin
is the oldest and most well-known form of digital asset. Bitcoin,
ether, and other forms of digital assets/cryptocurrencies have been
the source of much regulatory consternation, resulting in differing
definitional outcomes without a single unifying statement. When the
interests of investor protection are paramount, for example in the
offer or sale of Initial Coin Offering (“ICO”) tokens, the SEC has
no difficulty determining that the token offerings are securities
under the “Howey” test as stated by the United States Supreme
Court, a conclusion with which Marathon agrees. As such, ICO
offerings would require registration under the Securities Act or an
available exemption therefrom for offers or sales in the United
States to be lawful. Section 5(a) of the Securities Act provides
that, unless a registration statement is in effect as to a
security, it is unlawful for any person, directly or indirectly, to
engage in the offer or sale of securities in interstate commerce.
Section 5(c) of the Securities Act provides a similar prohibition
against offers to sell, or offers to buy, unless a registration
statement has been filed. Although we do not believe our mining
activities require registration for us to conduct such activities
and accumulate digital assets the SEC, CFTC, NASDAQ or other
governmental or quasi-governmental agency or organization may
conclude that our activities involve the offer or sale of
“securities”, or ownership of “investment securities”, and we may
face regulation under the Securities Act or the 1940 Act. Such
regulation or the inability to meet the requirements to continue
operations, would have a material adverse effect on our business
and operations.
Bitcoin
and other digital assets are viewed differently by different
regulatory and standards setting organizations. For example, the
Financial Action Task Force (“FATF”) and the Internal Revenue
Service (“IRS”) consider a cryptocurrency as currency or an asset
or property.
Bitcoin
is described as a virtual currency by the Financial Action Task
Force, as follows:
a
digital representation of value that can be digitally traded and
functions as: (1) a medium of exchange; and/or (2) a unit of
account; and/or (3) a store of value, but does not have legal
tender status (i.e., when tendered to a creditor, is a valid and
legal offer of payment) in any jurisdiction. It is not issued or
guaranteed by any jurisdiction, and it fulfils the above functions
only by agreement within the community of users of the virtual
currency. Virtual currency is distinguished from fiat currency
(a.k.a. “real currency,” “real money,” or “national currency”),
which is the coin and paper money of a country that is designated
as its legal tender; circulates; and is customarily used and
accepted as a medium of exchange in the issuing country. It is
distinct from e-money, which is a digital representation of fiat
currency used to electronically transfer value denominated in fiat
currency.1
Further,
the IRS views bitcoin as property and applies general tax
principles that apply to property transactions to transactions
involving virtual currency, as follows:2
IR-2014-36,
March. 25, 2014
WASHINGTON
— The Internal Revenue Service today issued a notice providing
answers to frequently asked questions (FAQs) on virtual currency,
such as bitcoin. These FAQs provide basic information on the U.S.
federal tax implications of transactions in, or transactions that
use, virtual currency.
In
some environments, virtual currency operates like “real” currency —
i.e., the coin and paper money of the United States or of any other
country that is designated as legal tender, circulates, and is
customarily used and accepted as a medium of exchange in the
country of issuance — but it does not have legal tender status in
any jurisdiction.
The
notice provides that virtual currency is treated as property for
U.S. federal tax purposes. General tax principles that apply to
property transactions apply to transactions using virtual currency.
Among other things, this means that:
Wages
paid to employees using virtual currency are taxable to the
employee, must be reported by an employer on a Form W-2, and are
subject to federal income tax withholding and payroll
taxes.
Payments
using virtual currency made to independent contractors and other
service providers are taxable and self-employment tax rules
generally apply. Normally, payers must issue Form 1099.
The
character of gain or loss from the sale or exchange of virtual
currency depends on whether the virtual currency is a capital asset
in the hands of the taxpayer.
A
payment made using virtual currency is subject to information
reporting to the same extent as any other payment made in
property.
1 FATF
Report, Virtual Currencies, Key Definitions and Potential AML/CFT
Risks, FINANCIAL ACTION TASK FORCE (June 2014),
http://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potentialaml-cft-risks.pdf.
The Financial Action Task Force (“FATF”) is an independent
inter-governmental body that develops and promotes policies to
protect the global financial system against money laundering,
terrorist financing and the financing of proliferation of weapons
of mass destruction. The FATF Recommendations are recognized as the
global anti-money laundering (“AML”) and counter-terrorist
financing (“CFT”) standard.
2 IR-2014-36
(Marth 25, 2014).
https://www.irs.gov/newsroom/irs-virtual-currency-guidance
In
June 2016, the AICPA commented on IRS Notice 2014-21 urging the IRS
to provide additional guidance about existing tax principles
whether virtual currency is property, currency or
commodity.3
Furthermore,
in the several applications to establish an Exchange Traded Fund
(“ETF”) of cryptocurrency, and in the questions raised by the Staff
under the 1940 Act, no clear principles emerge from the regulators
as to how they view these issues and how to regulate cryptocurrency
under the applicable securities acts. It has been widely reported
that the SEC has recently issued letters and requested various ETF
applications be withdrawn because of concerns over liquidity and
valuation and unanswered questions about absence of reporting and
compliance procedures capable of being implemented under the
current state of the markets for exchange traded
funds.4
Accordingly,
there is no one unifying principle governing the regulatory status
of cryptocurrency nor whether cryptocurrency is a security in each
context in which it is viewed. Cryptocurrency may be a security and
its offer or sale may require compliance with Section 5 of the
Securities Act, in certain instances. However, since the Company
does not intend to be engaged in the offer or sale of securities in
the form of ICO offerings its internal mining activities that are
not related to ICO offerings do not require registration under the
Securities Act. We may face similar issues with various state
securities regulators who may interpret our actions as requiring
registration under state securities laws, banking laws, or money
transmitter and similar laws, which are also an unsettled area or
regulation that exposes us to risks.
Since there has been limited precedent set for financial accounting
or taxation of digital assets other than digital securities, it is
unclear how we will be required to account for digital asset
transactions and the taxation of our businesses.
There
is currently no authoritative literature under accounting
principles generally accepted in the United States which
specifically addresses the accounting for digital assets, including
digital currencies. Therefore, by analogy, we intend to record
digital assets similar to financial instruments under ASC 825,
Financial Instruments, because the economic nature of these digital
assets is most closely related to a financial instrument such as an
investment in a foreign currency.
We
believe that Marathon will recognize revenue when it is realized or
realizable and earned. Our material revenue stream is expected to
be related to the mining of digital currencies. Marathon will
derive revenue by providing transaction verification services
within the digital currency networks of crypto-currencies, such as
bitcoin and ethereum commonly termed “crypto-currency mining.” In
consideration for these services, Marathon expects to receive
digital currency (also known as “Coins”). Coins are generally
recorded as revenue, using the average spot price on the date of
receipt. The coins are recorded on the balance sheet at their fair
value. Gains or losses on sale of Coins are recorded in the
statement of operations. Expenses associated with running the
crypto-currency mining business, such as equipment deprecation,
rent and electricity cost are recorded as cost of
revenues.
In
2014, the IRS issued guidance in Notice 2014-21 that classified
cryptocurrency as property, not currency, for federal income tax
purposes. But according to the requirements of FATCA, which
requires foreign financial institutions to provide the IRS with
information about accounts held by U.S. taxpayers or foreign
entities controlled by U.S. taxpayers, cryptocurrency exchanges, in
the ordinary course of doing business, are considered financial
institutions.
On
November 30, 2016, a federal judge in the Northern District of
California granted an IRS application to serve a “John Doe” summons
on Coinbase Inc., which operates a cryptocurrency wallet and
exchange business. The summons asked Coinbase to identify all U.S.
customers who transferred convertible cryptocurrency from 2013 to
2015. The IRS is trying to get cryptocurrency owners to report the
value of their wallets to the federal government and the IRS is
treating cryptocurrency as both property and currency.
The
American Institute of Certified Public Accountants recommended in a
June 2016 letter to the IRS that cryptocurrency accounts be
reported in the summary information section of Form 8938, Statement
of Specified Foreign Financial Assets, which breaks with the IRS’s
2014 guidance that cryptocurrency be treated as
property.
Property
is divided into certain sections within the Internal Revenue Code
(“IRC”) that determine everything from how the property is treated
at sale, to how the property is depreciated, to the nature and
character of the gain on sale of the asset. For instance, IRC §1231
property (real or depreciable business property held for more than
one year) is treated as capital in nature when sold for a profit,
but it is treated as ordinary when the property is sold for a loss.
IRC §1245 property, on the other hand, is treated as ordinary in
nature. IRC §1245 property encompasses most types of property. IRC
§1250 property covers everything else. IRC §1250 states that a gain
from selling real property that has been depreciated should be
taxed as ordinary income, to the extent that the accumulated
depreciation exceeds the depreciation calculated using the
straight-line method, which is the most basic depreciation method
used on an income statement. IRC §1250 bases the amount of tax due
on the type of property, such as residential or nonresidential
property, and on how many months the property was owned.
IRS
guidance is silent on which section of the tax code cryptocurrency
falls into. For instance, IRC §1031 allows for the like-kind
exchange of certain property. IRC §1031 exchanges typically are
done with real estate or business assets. However, with the
classification of cryptocurrency as property by the IRS, many tax
professionals will argue that cryptocurrency can be exchanged using
IRC §1031.
3 https://www.aicpa.org/advocacy/cpaadvocate/2016/virtual-currency-guidance-needed.html
4 https://seekingalpha.com/article/4137093-sec-saying-no-bitcoin-etfs-one-may-still-get-approved
We
believe that all of our digital asset mining activities will be
accounted for on the same basis regardless of the form of digital
asset. A change in regulatory or financial accounting standards or
interpretation by the IRS or accounting standards or the SEC could
result in changes in our accounting treatment, taxation and the
necessity to restate our financial statements. Such a restatement
could negatively impact our business, prospects, financial
condition and results of operation.
The further development and acceptance of digital asset networks
and other digital assets, which represent a new and rapidly
changing industry, are subject to a variety of factors that are
difficult to evaluate. The slowing or stopping of the development
or acceptance of digital asset systems may adversely affect an
investment in us.
Digital
assets such as bitcoins and ether, that may be used, among other
things, to buy and sell goods and services are a new and rapidly
evolving industry of which the digital asset networks are
prominent, but not unique, parts. The growth of the digital asset
industry in general, and the digital asset networks of bitcoin and
ether in particular, are subject to a high degree of uncertainty.
The factors affecting the further development of the digital asset
industry, as well as the digital asset networks,
include:
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continued
worldwide growth in the adoption and use of bitcoins and other
digital assets; |
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government
and quasi-government regulation of bitcoins and other digital
assets and their use, or restrictions on or regulation of access to
and operation of the digital asset network or similar digital
assets systems; |
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● |
the
maintenance and development of the open-source software protocol of
the bitcoin network and ether network; |
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● |
changes
in consumer demographics and public tastes and
preferences; |
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● |
the
availability and popularity of other forms or methods of buying and
selling goods and services, including new means of using fiat
currencies; |
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general
economic conditions and the regulatory environment relating to
digital assets; and |
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the
impact of regulators focusing on digital assets and digital
securities and the costs associated with such regulatory
oversight. |
A
decline in the popularity or acceptance of the digital asset
networks of bitcoin or ether, or similar digital asset systems,
could adversely affect an investment in us.
If we acquire digital securities, even unintentionally, we may
violate the Investment Company Act of 1940 and incur potential
third-party liabilities.
The
Company intends to comply with the 1940 Act in all respects. To
that end, if holdings of cryptocurrencies are determined to
constitute investment securities of a kind that subject the Company
to registration and reporting under the 1940 Act, the Company will
limit its holdings to less than 40% of its assets. Section
3(a)(1)(C) of the 1940 Act defines “investment company” to mean any
issuer that is engaged or proposes to engage in the business of
investing, reinvesting, owning, holding, or trading in securities,
and owns or proposes to acquire investment securities having a
value exceeding 40% of the value of such issuer’s total assets
(exclusive of Government securities and cash items) on an
unconsolidated basis. Section 3(a)(2) of the 1940 Act defines
“investment securities” to include all securities except (A)
Government securities, (B) securities issued by employees’
securities companies, and (C) securities issued by majority-owned
subsidiaries which (i) are not investment companies and (ii) are
not relying on the exception from the definition of investment
company in section 3(c)(1) or 3(c)(7) of the 1940 Act. As noted
above, the SEC has not stated whether bitcoin and cryptocurrency is
an investment security, as defined in the 1940 Act.
Currently, there is relatively small use of digital assets in the
retail and commercial marketplace in comparison to relatively large
use by speculators, thus contributing to price volatility that
could adversely affect an investment in us.
As
relatively new products and technologies, digital assets and the
blockchain networks on which they exist have only recently become
widely accepted as a means of payment for goods and services by
many major retail and commercial outlets and use of digital assets
by consumers to pay such retail and commercial outlets remains
limited. Conversely, a significant portion of demand for digital
assets is generated by speculators and investors seeking to profit
from the short- or long-term holding of such digital assets. A lack
of expansion of digital assets into retail and commercial markets,
or a contraction of such use, may result in increased volatility or
a reduction in the price of all or any digital asset, either of
which could adversely impact an investment in us.
COVID-19 or any
pandemic, epidemic or outbreak of an infectious disease in the
United States or elsewhere may adversely affect our
business.
The
COVID-19 virus has had unpredictable and unprecedented impacts in
the United States and around the world. The World Health
Organization has declared the outbreak of COVID-19 as a
“pandemic,” or a worldwide spread of a new disease. Many countries
around the world have imposed quarantines and restrictions on
travel and mass gatherings to slow the spread of the virus. In the
United States, federal, state and local governments have enacted
restrictions on travel, gatherings, and workplaces, with exceptions
made for essential workers and businesses. As of the date of this
prospectus, we have not been declared an essential business. As a
result, we may be required to substantially reduce or cease
operations in response to governmental action or decree as a result
of COVID-19. We are still assessing the effect on our business from
COVID-19 and any actions implemented by the federal, state and
local governments. We have implemented safety protocols to protect
our staff, but we cannot offer any assurance that COVID-19 or any
other pandemic, epidemic or outbreak of an infectious disease in
the United States or elsewhere, will not materially and adversely
affect our business.
Significant contributors to all or any digital asset network could
propose amendments to the respective network’s protocols and
software that, if accepted and authorized by such network, could
adversely affect an investment in us.
For
example, with respect to bitcoins network, a small group of
individuals contribute to the Bitcoin Core project on GitHub.com.
This group of contributors is currently headed by Wladimir J. van
der Laan, the current lead maintainer. These individuals can
propose refinements or improvements to the bitcoin network’s source
code through one or more software upgrades that alter the protocols
and software that govern the bitcoin network and the properties of
bitcoin, including the irreversibility of transactions and
limitations on the mining of new bitcoin. Proposals for upgrades
and discussions relating thereto take place on online forums. For
example, there is an ongoing debate regarding altering the
blockchain by increasing the size of blocks to accommodate a larger
volume of transactions. Although some proponents support an
increase, other market participants oppose an increase to the block
size as it may deter miners from confirming transactions and
concentrate power into a smaller group of miners. To the extent
that a significant majority of the users and miners on the bitcoin
network install such software upgrade(s), the bitcoin network would
be subject to new protocols and software that may adversely affect
an investment in the Shares. In the event a developer or group of
developers proposes a modification to the bitcoin network that is
not accepted by a majority of miners and users, but that is
nonetheless accepted by a substantial plurality of miners and
users, two or more competing and incompatible blockchain
implementations could result. This is known as a “hard fork.” In
such a case, the “hard fork” in the blockchain could materially and
adversely affect the perceived value of digital assets as reflected
on one or both incompatible blockchains, which may adversely affect
an investment in us.
Forks in a digital asset network may occur in the future which may
affect the value of digital assets held by us.
For
example, on August 1, 2017 bitcoin’s blockchain was forked and
Bitcoin Cash was created. The fork resulted in a new blockchain
being created with a shared history, and a new path forward.
Bitcoin Cash has a block size of 8mb and other technical changes.
On October 24, 2017, bitcoin’s blockchain was forked and Bitcoin
Gold was created. The fork resulted in a new blockchain being
created with a shared history, and new path forward, Bitcoin Gold
has a different proof of work algorithm and other technical
changes. The value of the newly created Bitcoin Cash and Bitcoin
Gold may or may not have value in the long run and may affect the
price of bitcoin if interest is shifted away from bitcoin to the
newly created digital assets. The value of bitcoin after the
creation of a fork is subject to many factors including the value
of the fork product, market reaction to the creation of the fork
product, and the occurrence of forks in the future. As such, the
value of bitcoin could be materially reduced if existing and future
forks have a negative effect on bitcoin’s value. If a fork occurs
on a digital asset network which we are mining or hold digital
assets in it may have a negative effect on the value of the digital
asset and may adversely affect an investment in us.
The open-source structure of the bitcoin network protocol means
that the contributors to the protocol are generally not directly
compensated for their contributions in maintaining and developing
the protocol. A failure to properly monitor and upgrade the
protocol could damage the bitcoin network and an investment in
us.
The
bitcoin network for example operates based on an open-source
protocol maintained by contributors, largely on the Bitcoin Core
project on GitHub. As an open source project, bitcoin is not
represented by an official organization or authority. As the
bitcoin network protocol is not sold and its use does not generate
revenues for contributors, contributors are generally not
compensated for maintaining and updating the bitcoin network
protocol. Although the MIT Media Lab’s Digital Currency Initiative
funds the current maintainer Wladimir J. van der Laan, among
others, this type of financial incentive is not typical. The lack
of guaranteed financial incentive for contributors to maintain or
develop the bitcoin network and the lack of guaranteed resources to
adequately address emerging issues with the bitcoin network may
reduce incentives to address the issues adequately or in a timely
manner. Changes to a digital asset network which we are mining on
may adversely affect an investment in us.
If a malicious actor or botnet obtains control in excess of 50% of
the processing power active on any digital asset network, including
the bitcoin network or ether network, it is possible that such
actor or botnet could manipulate the blockchain in a manner that
adversely affects an investment in us.
If a
malicious actor or botnet (a volunteer or hacked collection of
computers controlled by networked software coordinating the actions
of the computers) obtains a majority of the processing power
dedicated to mining on any digital asset network, including the
bitcoin network or ether network, it may be able to alter the
blockchain by constructing alternate blocks if it is able to solve
for such blocks faster than the remainder of the miners on the
blockchain can add valid blocks. In such alternate blocks, the
malicious actor or botnet could control, exclude or modify the
ordering of transactions, though it could not generate new digital
assets or transactions using such control. Using alternate blocks,
the malicious actor could “double-spend” its own digital assets
(i.e., spend the same digital assets in more than one transaction)
and prevent the confirmation of other users’ transactions for so
long as it maintains control. To the extent that such malicious
actor or botnet does not yield its majority control of the
processing power or the digital asset community does not reject the
fraudulent blocks as malicious, reversing any changes made to the
blockchain may not be possible. Such changes could adversely affect
an investment in us.
For
example, in late May and early June 2014, a mining pool known as
GHash.io approached and, during a 24- to 48-hour period in early
June may have exceeded, the threshold of 50% of the processing
power on the bitcoin network. To the extent that GHash.io did
exceed 50% of the processing power on the network, reports indicate
that such threshold was surpassed for only a short period, and
there are no reports of any malicious activity or control of the
blockchain performed by GHash.io. Furthermore, the processing power
in the mining pool appears to have been redirected to other pools
on a voluntary basis by participants in the GHash.io pool, as had
been done in prior instances when a mining pool exceeded 40% of the
processing power on the bitcoin network.
The
approach towards and possible crossing of the 50% threshold
indicate a greater risk that a single mining pool could exert
authority over the validation of digital asset transactions. To the
extent that the digital assets ecosystems do not act to ensure
greater decentralization of digital asset mining processing power,
the feasibility of a malicious actor obtaining in excess of 50% of
the processing power on any digital asset network (e.g., through
control of a large mining pool or through hacking such a mining
pool) will increase, which may adversely impact an investment in
us.
If the award of digital assets for solving blocks and transaction
fees for recording transactions are not sufficiently high to
incentivize miners, miners may cease expending hashrate to solve
blocks and confirmations of transactions on the blockchain could be
slowed temporarily. A reduction in the hashrate expended by miners
on any digital asset network could increase the likelihood of a
malicious actor obtaining control in excess of fifty percent (50%)
of the aggregate hashrate active on such network or the blockchain,
potentially permitting such actor to manipulate the blockchain in a
manner that adversely affects an investment in
us.
Bitcoin
miners record transactions when they solve for and add blocks of
information to the blockchain. When a miner solves for a block, it
creates that block, which includes data relating to (i) the
solution to the block, (ii) a reference to the prior block in the
blockchain to which the new block is being added and (iii) all
transactions that have occurred but have not yet been added to the
blockchain. The miner becomes aware of outstanding, unrecorded
transactions through the data packet transmission and propagation
discussed above. Typically, bitcoin transactions will be recorded
in the next chronological block if the spending party has an
internet connection and at least one minute has passed between the
transaction’s data packet transmission and the solution of the next
block. If a transaction is not recorded in the next chronological
block, it is usually recorded in the next block
thereafter.
As
the award of new digital assets for solving blocks declines, and if
transaction fees are not sufficiently high, miners may not have an
adequate incentive to continue mining and may cease their mining
operations. For example, the current fixed reward on the bitcoin
network for solving a new block is twelve and a half (12.5)
bitcoins per block; the reward decreased from twenty-five (25)
bitcoin in July 2016. It is estimated that it will halve again in
about four (4) years. This reduction may result in a reduction in
the aggregate hashrate of the bitcoin network as the incentive for
miners will decrease. Moreover, miners ceasing operations would
reduce the aggregate hashrate on the bitcoin network, which would
adversely affect the confirmation process for transactions (i.e.,
temporarily decreasing the speed at which blocks are added to the
blockchain until the next scheduled adjustment in difficulty for
block solutions) and make the bitcoin network more vulnerable to a
malicious actor obtaining control in excess of fifty percent (50%)
of the aggregate hashrate on the bitcoin network. Periodically, the
bitcoin network has adjusted the difficulty for block solutions so
that solution speeds remain in the vicinity of the expected ten
(10) minute confirmation time targeted by the bitcoin network
protocol.
Marathon
believes that from time to time there will be further
considerations and adjustments to the bitcoin network, and others,
including the ether network, regarding the difficulty for block
solutions. More significant reductions in aggregate hashrate on
digital asset networks could result in material, though temporary,
delays in block solution confirmation time. Any reduction in
confidence in the confirmation process or aggregate hashrate of any
digital asset network may negatively impact the value of digital
assets, which will adversely impact an investment in us.
To the extent that the profit margins of digital asset mining
operations are not high, operators of digital asset mining
operations are more likely to immediately sell their digital assets
earned by mining in the digital asset exchange market, resulting in
a reduction in the price of digital assets that could adversely
impact an investment in us.
Over
the past two years, digital asset mining operations have evolved
from individual users mining with computer processors, graphics
processing units and first-generation servers. Currently, new
processing power brought onto the digital asset networks is
predominantly added by incorporated and unincorporated
“professionalized” mining operations. Professionalized mining
operations may use proprietary hardware or sophisticated machines.
They require the investment of significant capital for the
acquisition of this hardware, the leasing of operating space (often
in data centers or warehousing facilities), incurring of
electricity costs and the employment of technicians to operate the
mining farms. As a result, professionalized mining operations are
of a greater scale than prior miners and have more defined, regular
expenses and liabilities. These regular expenses and liabilities
require professionalized mining operations to more immediately sell
digital assets earned from mining operations on the digital asset
exchange market, whereas it is believed that individual miners in
past years were more likely to hold newly mined digital assets for
more extended periods. The immediate selling of newly mined digital
assets greatly increases the supply of digital assets on the
digital asset exchange market, creating downward pressure on the
price of each digital asset.
The
extent to which the value of digital assets mined by a
professionalized mining operation exceeds the allocable capital and
operating costs determines the profit margin of such operation. A
professionalized mining operation may be more likely to sell a
higher percentage of its newly mined digital assets rapidly if it
is operating at a low profit margin—and it may partially or
completely cease operations if its profit margin is negative. In a
low profit margin environment, a higher percentage could be sold
into the digital asset exchange market more rapidly, thereby
potentially reducing digital asset prices. Lower digital asset
prices could result in further tightening of profit margins,
particularly for professionalized mining operations with higher
costs and more limited capital reserves, creating a network effect
that may further reduce the price of digital assets until mining
operations with higher operating costs become unprofitable and
remove mining power from the respective digital asset network. The
network effect of reduced profit margins resulting in greater sales
of newly mined digital assets could result in a reduction in the
price of digital assets that could adversely impact an investment
in us.
To the extent that any miners cease to record transactions in
solved blocks, transactions that do not include the payment of a
transaction fee will not be recorded on the blockchain until a
block is solved by a miner who does not require the payment of
transaction fees. Any widespread delays in the recording of
transactions could result in a loss of confidence in that digital
asset network, which could adversely impact an investment in
us.
To
the extent that any miners cease to record transaction in solved
blocks, such transactions will not be recorded on the blockchain.
Currently, there are no known incentives for miners to elect to
exclude the recording of transactions in solved blocks; however, to
the extent that any such incentives arise (e.g., a collective
movement among miners or one or more mining pools forcing bitcoin
users to pay transaction fees as a substitute for or in addition to
the award of new bitcoins upon the solving of a block), actions of
miners solving a significant number of blocks could delay the
recording and confirmation of transactions on the blockchain. Any
systemic delays in the recording and confirmation of transactions
on the blockchain could result in greater exposure to
double-spending transactions and a loss of confidence in certain or
all digital asset networks, which could adversely impact an
investment in us.
The acceptance of digital asset network software patches or
upgrades by a significant, but not overwhelming, percentage of the
users and miners in any digital asset network could result in a
“fork” in the respective blockchain, resulting in the operation of
two separate networks until such time as the forked blockchains are
merged. The temporary or permanent existence of forked blockchains
could adversely impact an investment in us.
Digital
asset networks are open source projects and, although there is an
influential group of leaders in, for example, the bitcoin network
community known as the “Core Developers,” there is no official
developer or group of developers that formally controls the bitcoin
network. Any individual can download the bitcoin network software
and make any desired modifications, which are proposed to users and
miners on the bitcoin network through software downloads and
upgrades, typically posted to the bitcoin development forum on
GitHub.com. A substantial majority of miners and bitcoin users must
consent to those software modifications by downloading the altered
software or upgrade that implements the changes; otherwise, the
changes do not become a part of the bitcoin network. Since the
bitcoin network’s inception, changes to the bitcoin network have
been accepted by the vast majority of users and miners, ensuring
that the bitcoin network remains a coherent economic system;
however, a developer or group of developers could potentially
propose a modification to the bitcoin network that is not accepted
by a vast majority of miners and users, but that is nonetheless
accepted by a substantial population of participants in the bitcoin
network. In such a case, and if the modification is material and/or
not backwards compatible with the prior version of bitcoin network
software, a fork in the blockchain could develop and two separate
bitcoin networks could result, one running the pre-modification
software program and the other running the modified version (i.e.,
a second “bitcoin” network). Such a fork in the blockchain
typically would be addressed by community-led efforts to merge the
forked blockchains, and several prior forks have been so merged.
This kind of split in the bitcoin network could materially and
adversely impact an investment in us and, in the worst-case
scenario, harm the sustainability of the bitcoin network’s
economy.
Intellectual property rights claims may adversely affect the
operation of some or all digital asset networks.
Third
parties may assert intellectual property claims relating to the
holding and transfer of digital assets and their source code.
Regardless of the merit of any intellectual property or other legal
action, any threatened action that reduces confidence in some or
all digital asset networks’ long-term viability or the ability of
end-users to hold and transfer digital assets may adversely affect
an investment in us. Additionally, a meritorious intellectual
property claim could prevent us and other end-users from accessing
some or all digital asset networks or holding or transferring their
digital assets. As a result, an intellectual property claim against
us or other large digital asset network participants could
adversely affect an investment in us.
The digital asset exchanges on which digital assets trade are
relatively new and, in most cases, largely unregulated and may
therefore be more exposed to fraud and failure than established,
regulated exchanges for other products. To the extent that the
digital asset exchanges representing a substantial portion of the
volume in digital asset trading are involved in fraud or experience
security failures or other operational issues, such digital asset
exchanges’ failures may result in a reduction in the price of some
or all digital assets and can adversely affect an investment in
us.
The
digital asset exchanges on which the digital assets trade are new
and, in most cases, largely unregulated. Furthermore, many digital
asset exchanges (including several of the most prominent USD
denominated digital asset exchanges) do not provide the public with
significant information regarding their ownership structure,
management teams, corporate practices or regulatory compliance. As
a result, the marketplace may lose confidence in, or may experience
problems relating to, digital asset exchanges, including prominent
exchanges handling a significant portion of the volume of digital
asset trading.
For
example, over the past 4 years, a number of bitcoin exchanges have
been closed due to fraud, failure or security breaches. In many of
these instances, the customers of such bitcoin exchanges were not
compensated or made whole for the partial or complete losses of
their account balances in such bitcoin exchanges. While smaller
bitcoin exchanges are less likely to have the infrastructure and
capitalization that make larger bitcoin exchanges more stable,
larger bitcoin exchanges are more likely to be appealing targets
for hackers and “malware” (i.e., software used or programmed by
attackers to disrupt computer operation, gather sensitive
information or gain access to private computer systems). Further,
the collapse of the largest bitcoin exchange in 2014 suggests that
the failure of one component of the overall bitcoin ecosystem can
have consequences for both users of a bitcoin exchange and the
bitcoin industry as a whole.
More
recently, the Wall Street Journal has reported that China will shut
down bitcoin exchanges and other virtual currency trading
platforms. The article reported that China has accounted for the
bulk of global bitcoin trading.
A
lack of stability in the digital asset exchange market and the
closure or temporary shutdown of digital asset exchanges due to
fraud, business failure, hackers or malware, or government-mandated
regulation may reduce confidence in the digital asset networks and
result in greater volatility in digital asset values. These
potential consequences of a digital asset exchange’s failure could
adversely affect an investment in us.
Political or economic crises may motivate large-scale sales of
digital assets, which could result in a reduction in some or all
digital assets’ values and adversely affect an investment in
us.
As an
alternative to fiat currencies that are backed by central
governments, digital assets such as bitcoins, which are relatively
new, are subject to supply and demand forces based upon the
desirability of an alternative, decentralized means of buying and
selling goods and services, and it is unclear how such supply and
demand will be impacted by geopolitical events. Nevertheless,
political or economic crises may motivate large-scale acquisitions
or sales of digital assets either globally or locally. Large-scale
sales of digital assets would result in a reduction in their value
and could adversely affect an investment in us.
Demand for ether and bitcoin is driven, in part, by their status as
the two most prominent and secure digital assets. It is possible
that digital assets other than ether and bitcoin could have
features that make them more desirable to a material portion of the
digital asset user base, resulting in a reduction in demand for
ether and bitcoin, which could have a negative impact on the price
of ether and bitcoin and adversely affect an investment in
us.
Bitcoins
and ether, as assets, hold “first-to-market” advantages over other
digital assets. This first-to-market advantage is driven in large
part by having the largest user bases and, more importantly, the
largest combined mining power in use to secure their respective
blockchains and transaction verification systems. Having a large
mining network results in greater user confidence regarding the
security and long-term stability of a digital asset’s network and
its blockchain; as a result, the advantage of more users and miners
makes a digital asset more secure, which makes it more attractive
to new users and miners, resulting in a network effect that
strengthens the first-to-market advantage.
As of
June 5, 2020, there were over 5,000 alternate digital assets
tracked by CoinMarketCap, having a total market capitalization
(including the market capitalization of ether and bitcoin) of
approximately $176.0 billion, using market prices and total
available supply of each digital asset. This included digital
assets using a “proof of work” mining structure similar to bitcoin,
and those using a “proof of stake” transaction verification system
that is different than bitcoin’s mining system (e.g., Peercoin,
Bitshares and NXT). As of March 23, 2020, bitcoin’s $115.2 billion
market capitalization was almost eight (8) times the size of the
$14.9 billion market cap of ether, the second largest proof-of-work
digital asset. Despite the marked first-mover advantage of the
bitcoin network over other digital asset networks, it is possible
that another digital asset could become materially popular due to
either a perceived or exposed shortcoming of the bitcoin network
protocol that is not immediately addressed by the bitcoin
contributor community or a perceived advantage of an altcoin that
includes features not incorporated into bitcoin. If a digital asset
obtains significant market share (either in market capitalization,
mining power or use as a payment technology), this could reduce
bitcoin’s market share as well as other digital assets we may
become involved in and have a negative impact on the demand for,
and price of, such digital assets and could adversely affect an
investment in us.
Our ability to adopt technology in response to changing security
needs or trends poses a challenge to the safekeeping of our digital
assets.
The
history of digital asset exchanges has shown that exchanges and
large holders of digital assets must adapt to technological change
in order to secure and safeguard their digital assets. We rely on
Bitgo Inc.’s multi-signature enterprise storage solution to
safeguard our digital assets from theft, loss, destruction or other
issues relating to hackers and technological attack. Our digital
assets will also be moved to various exchanges in order to exchange
them for fiat currency during which time we will be relying on the
security of such exchanges to safeguard our digital assets. We
believe that it may become a more appealing target of security
threats as the size of our bitcoin holdings grow. To the extent
that either Bitgo Inc. or we are unable to identify and mitigate or
stop new security threats, our digital assets may be subject to
theft, loss, destruction or other attack, which could adversely
affect an investment in us.
Security threats to us could result in, a loss of our digital
assets, or damage to the reputation and our brand, each of which
could adversely affect an investment in us.
Security
breaches, computer malware and computer hacking attacks have been a
prevalent concern in the digital asset exchange markets, for
example since the launch of the bitcoin network. Any security
breach caused by hacking, which involves efforts to gain
unauthorized access to information or systems, or to cause
intentional malfunctions or loss or corruption of data, software,
hardware or other computer equipment, and the inadvertent
transmission of computer viruses, could harm our business
operations or result in loss of our digital assets. Any breach of
our infrastructure could result in damage to our reputation which
could adversely affect an investment in us. Furthermore, we believe
that, as our assets grow, it may become a more appealing target for
security threats such as hackers and malware.
We
primarily rely on Bitgo Inc.’s (https://www.bitgo.com/)
multi-signature enterprise storage solution to safeguard its
digital assets from theft, loss, destruction or other issues
relating to hackers and technological attack. Nevertheless, Bitgo
Inc.’s security system may not be impenetrable and may not be free
from defect or immune to acts of God, and any loss due to a
security breach, software defect or act of God will be borne by the
Company. The Company’s digital assets will also be stored with
exchanges such as Bitgo, Kraken, Bitfinex, Itbit and Coinbase and
others prior to selling them.
The
security system and operational infrastructure may be breached due
to the actions of outside parties, error or malfeasance of an
employee of ours, or otherwise, and, as a result, an unauthorized
party may obtain access to our, private keys, data or bitcoins.
Additionally, outside parties may attempt to fraudulently induce
employees of ours to disclose sensitive information in order to
gain access to our infrastructure. As the techniques used to obtain
unauthorized access, disable or degrade service, or sabotage
systems change frequently, or may be designed to remain dormant
until a predetermined event and often are not recognized until
launched against a target, we may be unable to anticipate these
techniques or implement adequate preventative measures. If an
actual or perceived breach of our security system occurs, the
market perception of the effectiveness of our security system could
be harmed, which could adversely affect an investment in
us.
At
present, Marathon has not experienced hacking and we use a Bitcoin
Address and other cryptocurrency wallets, and may consider using
services, such as Xapo, Inc., or Bitgo Inc., which services claim
to offer a free, ultra-secure vault for storing bitcoin, but we
have not made any decision to do so. As disclosed herein, the
Company currently use Bitgo Inc. as its wallet provider.
In
the event of a security breach, we may be forced to cease
operations, or suffer a reduction in assets, the occurrence of each
of which could adversely affect an investment in us.
A loss of confidence in our security system, or a breach of our
security system, may adversely affect us and the value of an
investment in us.
We
will take measures to protect us and our digital assets from
unauthorized access, damage or theft; however, it is possible that
the security system may not prevent the improper access to, or
damage or theft of our digital assets. A security breach could harm
our reputation or result in the loss of some or all of our digital
assets. A resulting perception that our measures do not adequately
protect our digital assets could result in a loss of current or
potential shareholders, reducing demand for our Common Stock and
causing our shares to decrease in value.
Digital Asset transactions are irrevocable and stolen or
incorrectly transferred digital assets may be irretrievable. As a
result, any incorrectly executed digital asset transactions could
adversely affect an investment in us.
Digital
asset transactions are not, from an administrative perspective,
reversible without the consent and active participation of the
recipient of the transaction or, in theory, control or consent of a
majority of the processing power on the respective digital asset
network. Once a transaction has been verified and recorded in a
block that is added to the blockchain, an incorrect transfer of
digital assets or a theft of digital assets generally will not be
reversible, and we may not be capable of seeking compensation for
any such transfer or theft. Although our transfers of digital
assets will regularly be made to or from vendors, consultants,
services providers, etc. it is possible that, through computer or
human error, or through theft or criminal action, our digital
assets could be transferred from us in incorrect amounts or to
unauthorized third parties. To the extent that we are unable to
seek a corrective transaction with such third party or are
incapable of identifying the third party which has received our
digital assets through error or theft, we will be unable to revert
or otherwise recover incorrectly transferred Company digital
assets. To the extent that we are unable to seek redress for such
error or theft, such loss could adversely affect an investment in
us.
5 https://www.bitgo.com/
The Company’s digital assets may be subject to loss, damage, theft
or restriction on access.
There
is a risk that part or all of the Company’s digital assets could be
lost, stolen or destroyed. We believe that our digital assets will
be an appealing target to hackers or malware distributors seeking
to destroy, damage or steal our digital assets. Although we
primarily utilize Bitgo, Inc.’s enterprise multi-signature storage
solution, to minimize the risk of loss, damage and theft, we cannot
guarantee that it will prevent such loss, damage or theft, whether
caused intentionally, accidentally or by act of God. Access to our
digital assets could also be restricted by natural events (such as
an earthquake or flood) or human actions (such as a terrorist
attack). Any of these events may adversely affect the Company’s
operations and, consequently, an investment in us.
The limited rights of legal recourse against us, and our lack of
insurance protection expose us and our shareholders to the risk of
loss of our digital assets for which no person is
liable.
The
digital assets held by us are not insured. Therefore, a loss may be
suffered with respect to our digital assets which is not covered by
insurance and for which no person is liable in damages which could
adversely affect our operations and, consequently, an investment in
us.
Digital assets held by us are not subject to FDIC or SIPC
protections.
We do
not hold our digital assets with a banking institution or a member
of the Federal Deposit Insurance Corporation (“FDIC”) or the
Securities Investor Protection Corporation (“SIPC”) and, therefore,
our digital assets are not subject to the protections enjoyed by
depositors with FDIC or SIPC member institutions.
We may not have adequate sources of recovery if our digital assets
are lost, stolen or destroyed.
If
our digital assets are lost, stolen or destroyed under
circumstances rendering a party liable to us, the responsible party
may not have the financial resources sufficient to satisfy our
claim. For example, as to a particular event of loss, the only
source of recovery for us might be limited, to the extent
identifiable, other responsible third parties (e.g., a thief or
terrorist), any of which may not have the financial resources
(including liability insurance coverage) to satisfy a valid claim
of ours.
The sale of our digital assets to pay expenses at a time of low
digital asset prices could adversely affect an investment in
us.
We
may sell our digital assets to pay expenses on an as-needed basis,
irrespective of then-current prices. Consequently, our digital
assets may be sold at a time when the prices on the respective
digital asset exchange market are low, which could adversely affect
an investment in us.
Regulatory changes or actions may restrict the use of bitcoins or
the operation of the bitcoin network in a manner that adversely
affects an investment in us.
Until
recently, little or no regulatory attention has been directed
toward bitcoin and the bitcoin network by U.S. federal and state
governments, foreign governments and self-regulatory agencies. As
bitcoin has grown in popularity and in market size, the Federal
Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the
CFTC, the Commission, FinCEN and the Federal Bureau of
Investigation) have begun to examine the operations of the bitcoin
network, bitcoin users and the bitcoin exchange market.
On
July 25, 2017, the Commission issued its Report of Investigation,
or “Report,” which concluded that digital assets or tokens issued
for the purpose of raising funds may be securities within the
meaning of the federal securities laws. The Report focused on the
activities of a virtual organization which offered tokens in
exchange for ether, which is a prominent digital asset. The Report
emphasized that whether a digital asset is a security is based on
the facts and circumstances. Although our activities are not
focused on raising capital or assisting others that do so, the
federal securities laws are very broad, and there can be no
assurances that the Commission will not take enforcement action
against us in the future including for the sale of unregistered
securities in violation of the Securities Act or acting as an
unregistered investment company in violation of the Investment
Company Act. The Commission has taken various actions against
persons or entities misusing bitcoin in connection with fraudulent
schemes (i.e., Ponzi scheme), inaccurate and inadequate publicly
disseminated information, and the offering of unregistered
securities. More recently, the Commission suspended trading in
three digital asset public companies. The CFTC has determined that
bitcoin and other virtual currencies are commodities and the sale
of derivatives based on digital currencies must be done in
accordance with the provisions of the CEA and CFTC regulations.
Also, of significance, is that the CFTC appears to have taken the
position that bitcoin is not encompassed by the definition of
currency under the CEA and CFTC regulations. The CFTC defined
bitcoin and other “virtual currencies” as “a digital representation
of value” that functions as a medium of exchange, a unit of
account, and/or a store of value, but does not have legal tender
status in any jurisdiction. Bitcoin and other virtual currencies
are distinct from ‘real’ currencies, which are the coin and paper
money of the United States or another country that are designated
as legal tender, circulate, and are customarily used and accepted
as a medium of exchange in the country of issuance.” To the extent
that bitcoin itself is determined to be a security, commodity
future or other regulated asset, or to the extent that a U.S. or
foreign government or quasi-governmental agency exerts regulatory
authority over the bitcoin or bitcoin trading and ownership,
trading or ownership in bitcoin or an investment in us may be
adversely affected.
The
CFTC affirmed its approach to the regulation of bitcoin and
bitcoin-related enterprises on June 2, 2016, when the CFTC settled
charges against Bitfinex, a bitcoin exchange based in Hong Kong. In
its Order, the CFTC found that Bitfinex engaged in “illegal,
off-exchange commodity transactions and failed to register as a
futures commission merchant” when it facilitated borrowing
transactions among its users to permit the trading of bitcoin on a
“leveraged, margined or financed basis” without first registering
with the CFTC. In 2017, the CFTC stated that it would consider
bitcoin and other virtual currencies as commodities or derivatives
depending on the facts of the offering. In December 2017, bitcoin
futures trading commenced on two CFTC regulated futures
markets.
Local
state regulators such as the New York State Department of Financial
Services, or NYSDFS, have also initiated examinations of bitcoin,
the bitcoin network and the regulation thereof. In July 2014, the
NYSDFS proposed the first U.S. regulatory framework for licensing
participants in “virtual currency business activity.” The proposed
regulations, known as the “BitLicense,” are intended to focus on
consumer protection and, after the closure of an initial comment
period that yielded 3,746 formal public comments and a re-proposal,
the NYSDFS issued its final “BitLicense” regulatory framework in
June 2015. The “BitLicense” regulates the conduct of businesses
that are involved in “virtual currencies” in New York or with New
York customers and prohibits any person or entity involved in such
activity to conduct activities without a license.
Additionally,
a U.S. federal magistrate judge in the U.S. District Court for the
Eastern District of Texas has ruled that “Bitcoin is a currency or
form of money,” a Florida circuit court judge determined that
bitcoin did not qualify as money or “tangible wealth,” and an
opinion from the U.S. District Court for the Northern District of
Illinois identified bitcoin as “virtual currency.” Additionally,
two CFTC commissioners publicly expressed a belief that derivatives
based on bitcoin are subject to the same regulation as those based
on commodities, and the IRS released guidance treating bitcoin as
property that is not currency for U.S. federal income tax purposes.
Taxing authorities of a number of U.S. states have also issued
their own guidance regarding the tax treatment of bitcoin for state
income or sales tax purposes. On June 28, 2014, the Governor of the
State of California signed into law a bill that removed state-level
prohibitions on the use of alternative forms of currency or value
(including bitcoin). The bill indirectly authorizes bitcoin’s use
as an alternative form of money in the state. In February 2015, a
bill was introduced in the California State Assembly to establish a
licensing regime for businesses engaging in “virtual currencies.”
In September 2015, the bill was ordered to become an inactive file
and as of the date of this registration statement there has not
been further consideration by the California State Assembly. As of
August 2016, the bill was withdrawn from consideration for vote for
the remainder of the year. There is a possibility of future
regulatory change altering, perhaps to a material extent, the
nature of an investment in us or the ability of us to continue our
operations.
Digital
assets currently face an uncertain regulatory landscape in not only
the United States but also in many foreign jurisdictions such as
the European Union, China and Russia. While certain governments
such as Germany, where the Ministry of Finance has declared bitcoin
to be “Rechnungseinheiten” (a form of private money that is
recognized as a unit of account, but not recognized in the same
manner as fiat currency), have issued guidance as to how to treat
bitcoin, most regulatory bodies have not yet issued official
statements regarding intention to regulate or determinations on
regulation of bitcoin, the bitcoin network and bitcoin
users.
Among
those for which preliminary guidance has been issued in some form,
Canada and Taiwan have labeled bitcoin as a digital or virtual
currency, distinct from fiat currency, while Sweden and Norway are
among those to categorize bitcoin as a form of virtual asset or
commodity. In Australia, a GST (similar to the European value added
tax (“VAT”)) is currently applied to bitcoin, forcing a ten (10%)
percent markup on top of market price, essentially preventing the
operation of any bitcoin exchange. This may be undergoing a change,
however, since the Senate Economics References Committee and the
Productivity Commission recommended that digital currency be
treated as money for GST purposes to remove the double taxation.
The United Kingdom determined that the VAT will not apply to
bitcoin sales. In China, a recent government notice classified
bitcoin as legal and “virtual commodities;” however, the same
notice restricted the banking and payment industries from using
bitcoin, creating uncertainty and limiting the ability of bitcoin
exchanges to operate in the then-second largest bitcoin market. In
January 2016, the People’s Bank of China, China’s central bank,
disclosed that it has been studying a state-backed electronic
monetary system and potentially had plans for its own state-backed
electronic money. In January 2017, the People’s Bank of China
announced that it had found several violations, including margin
financing and a failure to impose anti-money laundering controls,
after on-site inspections of two China-based bitcoin exchanges. In
response to the Chinese regulator’s oversight, the three largest
China-based bitcoin exchanges, OKCoin, Huobi, and BTC China,
started charging trading commission fees to suppress speculative
trading and prevent price swings which resulted in a significant
drop in volume on these exchanges. Since December 2013, China,
Iceland, Vietnam and Russia have taken a more restrictive stance
toward bitcoin and, thereby, have reduced the rate of expansion of
bitcoin use in each country. In May 2014, the Central Bank of
Bolivia banned the use of bitcoin as a means of payment. In the
summer and fall of 2014, Ecuador announced plans for its own
state-backed electronic money, while passing legislation that
prohibits the use of decentralized digital assets such as bitcoin.
In July 2016, economists at the Bank of England advocated that
central banks issue their own digital currency, and the House of
Lords and Bank of England started discussing the feasibility of
creating a national virtual currency, the BritCoin. As of July
2016, Iceland was studying how to create a system in which all
money is created by a central bank, and Canada was beginning to
experiment with a digital version of its currency called CAD-COIN,
intended to be used exclusively for interbank payments. On August
24, 2017, Canada issued guidance stating the sale of cryptocurrency
may constitute an investment contract in accordance with Canadian
law for determining if an investment constitutes a security. In
July 2016, the Russian Ministry of Finance indicated it supports a
proposed law that bans bitcoin domestically but allows for its use
as a foreign currency. Russia recently issued several releases
indicating they may begin regulating bitcoin and licensing miners
and entities engaging in initial coin offerings. Conversely,
regulatory bodies in some countries such as India and Switzerland
have declined to exercise regulatory authority when afforded the
opportunity. In April 2015, the Japanese Cabinet approved proposed
legal changes that would reportedly treat bitcoin and other digital
assets as included in the definition of currency. These regulations
would, among other things, require market participants, including
exchanges, to meet certain compliance requirements and be subject
to oversight by the Financial Services Agency, a Japanese
regulator. In September 2017 Japan began regulating bitcoin
exchanges and registered several such exchanges to operate within
Japan. In July 2016, the European Commission released a draft
directive that proposed applying counter-terrorism and anti-money
laundering regulations to virtual currencies, and, in September
2016, the European Banking authority advised the European
Commission to institute new regulation specific to virtual
currencies, with amendments to existing regulation as a stopgap
measure. Various foreign jurisdictions may, in the near future,
adopt laws, regulations or directives that affect the bitcoin
network and its users, particularly bitcoin exchanges and service
providers that fall within such jurisdictions’ regulatory scope.
Such laws, regulations or directives may conflict with those of the
United States and may negatively impact the acceptance of bitcoin
by users, merchants and service providers outside of the United
States and may therefore impede the growth of the bitcoin economy.
On September 4, 2017, reports were published that China may begin
prohibiting the practice of using cryptocurrency for capital
fundraising. Additional reports have surfaced that China is
considering regulating bitcoin exchanges by enacting a licensing
regime wherein bitcoin exchanges may legally operate. In September
2017, the Financial Services Commission of South Korea released a
statement that initial coin offerings would be prohibited as a
fundraising tool. In January 2018, the South Korean Justice
Minister issued remarks about banning bitcoin and other digital
assets, although the South Korean President’s office clarified that
no final decision has been made. In June 2017, India’s government
ruled in favor of regulating bitcoin and India’s ministry of
Finance is currently developing rules for such regulation.
Australia has previously introduced legislation to regulate bitcoin
exchanges and increase anti-money laundering policies.
The
effect of any future regulatory change on us, bitcoins, or other
digital assets is impossible to predict, but such change could be
substantial and adverse to us and could adversely affect an
investment in us.
It may be illegal now, or in the future, to acquire, own, hold,
sell or use digital assets in one or more countries, and ownership
of, holding or trading in our securities may also be considered
illegal and subject to sanction.
Although
currently digital assets are not regulated or are lightly regulated
in most countries, including the United States, one or more
countries such as China and Russia may take regulatory actions in
the future that severely restricts the right to acquire, own, hold,
sell or use digital assets or to exchange digital assets for fiat
currency. Such an action may also result in the restriction of
ownership, holding or trading in our securities. Such restrictions
may adversely affect an investment in us.
If regulatory changes or interpretations of our activities require
our registration as a money services business (“MSB”) under the
regulations promulgated by FinCEN under the authority of the U.S.
Bank Secrecy Act, we may be required to register and comply with
such regulations. If regulatory changes or interpretations of our
activities require the licensing or other registration of us as a
money transmitter (or equivalent designation) under state law in
any state in which we operate, we may be required to seek licensure
or otherwise register and comply with such state law. In the event
of any such requirement, to the extent Marathon decides to
continue, the required registrations, licensure and regulatory
compliance steps may result in extraordinary, non-recurring
expenses to us. We may also decide to cease Marathon’s operations.
Any termination of certain Company operations in response to the
changed regulatory circumstances may be at a time that is
disadvantageous to investors.
To
the extent that the activities of Marathon cause it to be deemed an
MSB under the regulations promulgated by FinCEN under the authority
of the U.S. Bank Secrecy Act, Marathon may be required to comply
with FinCEN regulations, including those that would mandate
Marathon to implement anti-money laundering programs, make certain
reports to FinCEN and maintain certain records.
To
the extent that the activities of Marathon cause it to be deemed a
“money transmitter” (“MT”) or equivalent designation, under state
law in any state in which Marathon operates, Marathon may be
required to seek a license or otherwise register with a state
regulator and comply with state regulations that may include the
implementation of anti-money laundering programs, maintenance of
certain records and other operational requirements. Currently, the
NYSDFS has finalized its “BitLicense” framework for businesses that
conduct “virtual currency business activity,” the Conference of
State Bank Supervisors has proposed a model form of state level
“virtual currency” regulation and additional state regulators
including those from California, Idaho, Virginia, Kansas, Texas,
South Dakota and Washington have made public statements indicating
that virtual currency businesses may be required to seek licenses
as money transmitters. In July 2016, North Carolina updated the law
to define “virtual currency” and the activities that trigger
licensure in a business-friendly approach that encourages companies
to use virtual currency and blockchain technology. Specifically,
the North Carolina law does not require miners or software
providers to obtain a license for multi-signature software, smart
contract platforms, smart property, colored coins and non-hosted,
non-custodial wallets. Starting January 1, 2016, New Hampshire
requires anyone exchanges a digital currency for another currency
must become a licensed and bonded money transmitter. In numerous
other states, including Connecticut and New Jersey, legislation is
being proposed or has been introduced regarding the treatment of
bitcoin and other digital assets. Marathon will continue to monitor
for developments in such legislation, guidance or
regulations.
Such
additional federal or state regulatory obligations may cause
Marathon to incur extraordinary expenses, possibly affecting an
investment in the Shares in a material and adverse manner.
Furthermore, Marathon and its service providers may not be capable
of complying with certain federal or state regulatory obligations
applicable to MSBs and MTs. If Marathon is deemed to be subject to
and determines not to comply with such additional regulatory and
registration requirements, we may act to dissolve and liquidate
Marathon. Any such action may adversely affect an investment in
us.
Current interpretations require the regulation of bitcoins under
the CEA by the CFTC, we may be required to register and comply with
such regulations. To the extent that we decide to continue
operations, the required registrations and regulatory compliance
steps may result in extraordinary, non-recurring expenses to us. We
may also decide to cease certain operations. Any disruption of our
operations in response to the changed regulatory circumstances may
be at a time that is disadvantageous to
investors.
Current
and future legislation, CFTC and other regulatory developments,
including interpretations released by a regulatory authority, may
impact the manner in which bitcoins are treated for classification
and clearing purposes. In particular, bitcoin derivatives are not
excluded from the definition of “commodity future” by the CFTC. We
cannot be certain as to how future regulatory developments will
impact the treatment of bitcoins under the law.
Bitcoins
have been deemed to fall within the definition of a commodity and,
we may be required to register and comply with additional
regulation under the CEA, including additional periodic report and
disclosure standards and requirements. Moreover, we may be required
to register as a commodity pool operator and to register us as a
commodity pool with the CFTC through the National Futures
Association. Such additional registrations may result in
extraordinary, non-recurring expenses, thereby materially and
adversely impacting an investment in us. If we determine not to
comply with such additional regulatory and registration
requirements, we may seek to cease certain of our operations. Any
such action may adversely affect an investment in us. No CFTC
orders or rulings are applicable to our business.
If regulatory changes or interpretations require the regulation of
bitcoins under the Securities Act and Investment Company Act by the
Commission, we may be required to register and comply with such
regulations. To the extent that we decide to continue operations,
the required registrations and regulatory compliance steps may
result in extraordinary, non-recurring expenses to us. We may also
decide to cease certain operations. Any disruption of our
operations in response to the changed regulatory circumstances may
be at a time that is disadvantageous to investors. This would
likely have a material adverse effect on us and investors may lose
their investment.
Current
and future legislation and the Commission rulemaking and other
regulatory developments, including interpretations released by a
regulatory authority, may impact the manner in which bitcoins are
treated for classification and clearing purposes. The Commission’s
July 25, 2017 Report expressed its view that digital assets may be
securities depending on the facts and circumstances. As of the date
of this prospectus, we are not aware of any rules that have been
proposed to regulate bitcoins as securities. We cannot be certain
as to how future regulatory developments will impact the treatment
of bitcoins under the law. Such additional registrations may result
in extraordinary, non-recurring expenses, thereby materially and
adversely impacting an investment in us. If we determine not to
comply with such additional regulatory and registration
requirements, we may seek to cease certain of our operations. Any
such action may adversely affect an investment in us.
To
the extent that digital assets including ether, bitcoins and other
digital assets we may own are deemed by the Commission to fall
within the definition of a security, we may be required to register
and comply with additional regulation under the 1940 Act, including
additional periodic reporting and disclosure standards and
requirements and the registration of our Company as an investment
company. Additionally, one or more states may conclude ether,
bitcoins and other digital assets we may own are a security under
state securities laws which would require registration under state
laws including merit review laws which would adversely impact us
since we would likely not comply. As stated earlier in this
prospectus, some states including California define the term
“investment contract” more strictly than the Commission. Such
additional registrations may result in extraordinary, non-recurring
expenses of our Company, thereby materially and adversely impacting
an investment in our Company. If we determine not to comply with
such additional regulatory and registration requirements, we may
seek to cease all or certain parts of our operations. Any such
action would likely adversely affect an investment in us and
investors may suffer a complete loss of their
investment.
If federal or state legislatures or agencies initiate or release
tax determinations that change the classification of bitcoins as
property for tax purposes (in the context of when such bitcoins are
held as an investment), such determination could have a negative
tax consequence on our Company or our
shareholders.
Current
IRS guidance indicates that digital assets such as ether and
bitcoin should be treated and taxed as property, and that
transactions involving the payment of ether or bitcoin for goods
and services should be treated as barter transactions. While this
treatment creates a potential tax reporting requirement for any
circumstance where the ownership of a bitcoin passes from one
person to another, usually by means of bitcoin transactions
(including off-blockchain transactions), it preserves the right to
apply capital gains treatment to those transactions which may
adversely affect an investment in our Company.
On
December 5, 2014, the New York State Department of Taxation and
Finance issued guidance regarding the application of state tax law
to digital assets such as ether or bitcoins. The agency determined
that New York State would follow IRS guidance with respect to the
treatment of digital assets such as ether or bitcoin for state
income tax purposes. Furthermore, they defined digital assets such
as ether or bitcoin to be a form of “intangible property,” meaning
the purchase and sale of ether or bitcoins for fiat currency is not
subject to state income tax (although transactions of bitcoin for
other goods and services maybe subject to sales tax under barter
transaction treatment). It is unclear if other states will follow
the guidance of the IRS and the New York State Department of
Taxation and Finance with respect to the treatment of digital
assets such as ether or bitcoins for income tax and sales tax
purposes. If a state adopts a different treatment, such treatment
may have negative consequences including the imposition of greater
a greater tax burden on investors in bitcoin or imposing a greater
cost on the acquisition and disposition of ether or bitcoin,
generally; in either case potentially having a negative effect on
prices in the digital asset exchange market and may adversely
affect an investment in our Company.
Foreign
jurisdictions may also elect to treat digital assets such as ether
or bitcoin differently for tax purposes than the IRS or the New
York State Department of Taxation and Finance. To the extent that a
foreign jurisdiction with a significant share of the market of
ether or bitcoin users imposes onerous tax burdens on ether or
bitcoin users, or imposes sales or value added tax on purchases and
sales of ether or bitcoin for fiat currency, such actions could
result in decreased demand for ether or bitcoins in such
jurisdiction, which could impact the price of ether, bitcoin or
other digital assets and negatively impact an investment in our
Company.
The loss or destruction of a private key required to access a
digital asset may be irreversible. Our loss of access to our
private keys or our experience of a data loss relating to our
Company’s digital assets could adversely affect an investment in
our Company.
Digital
assets are controllable only by the possessor of both the unique
public key and private key relating to the local or online digital
wallet in which the digital assets are held. We are required by the
operation of digital asset networks to publish the public key
relating to a digital wallet in use by us when it first verifies a
spending transaction from that digital wallet and disseminates such
information into the respective network. We safeguard and keep
private the private keys relating to our digital assets by
primarily utilizing Bitgo Inc.’s enterprise multi-signature storage
solution; to the extent a private key is lost, destroyed or
otherwise compromised and no backup of the private key is
accessible, we will be unable to access the digital assets held by
it and the private key will not be capable of being restored by the
respective digital asset network. Any loss of private keys relating
to digital wallets used to store our digital assets could adversely
affect an investment in us.
Because many of our digital assets are held by digital asset
exchanges, we face heightened risks from cybersecurity attacks and
financial stability of digital asset exchanges.
Marathon
may transfer their digital asset from its wallet to digital asset
exchanges prior to selling them. Digital assets not held in
Marathon’s wallet are subject to the risks encountered by digital
asset exchanges including a DDoS Attack or other malicious hacking,
a sale of the digital asset exchange, loss of the digital assets by
the digital asset exchange and other risks similar to those
described herein. Marathon does not maintain a custodian agreement
with any of the digital asset exchanges that hold the Marathon’s
digital assets. These digital asset exchanges do not provide
insurance and may lack the resources to protect against hacking and
theft. If this were to occur, Marathon may be materially and
adversely affected.
If the award of digital assets for solving blocks and transaction
fees for recording transactions are not sufficiently high to cover
expenses related to running data center operations, it may have
adverse effects on an investment in us.
If
the award of new digital assets for solving blocks declines and
transaction fees are not sufficiently high, we may not have an
adequate incentive to continue our mining operations, which may
adversely impact an investment in us.
As the number of digital assets awarded for solving a block in the
blockchain decreases, the incentive for miners to continue to
contribute processing power to the respective digital asset network
will transition from a set reward to transaction fees. Either the
requirement from miners of higher transaction fees in exchange for
recording transactions in the blockchain or a software upgrade that
automatically charges fees for all transactions may decrease demand
for digital assets and prevent the expansion of the digital asset
networks to retail merchants and commercial businesses, resulting
in a reduction in the price of digital assets that could adversely
impact an investment in us.
In
order to incentivize miners to continue to contribute processing
power to any digital asset network, such network may either
formally or informally transition from a set reward to transaction
fees earned upon solving for a block. This transition could be
accomplished either by miners independently electing to record in
the blocks they solve only those transactions that include payment
of a transaction fee or by the digital asset network adopting
software upgrades that require the payment of a minimum transaction
fee for all transactions. If transaction fees paid for digital
asset transactions become too high, the marketplace may be
reluctant to accept digital assets as a means of payment and
existing users may be motivated to switch from one digital asset to
another digital asset or back to fiat currency. Decreased use and
demand for bitcoins or ether that we have accumulated may adversely
affect their value and may adversely impact an investment in
us.
We initiate legal proceedings against potentially infringing
companies in the normal course of our business and we believe that
extended litigation proceedings would be time-consuming and costly,
which may adversely affect our financial condition and our ability
to operate our business.
To
monetize our patent assets, we historically have initiated legal
proceedings against potential infringing companies, pursuant to
which we may allege that such companies infringe on one or more of
our patents. Our viability could be highly dependent on the cost
and outcome of the litigation, and there is a risk that we may be
unable to achieve the results we desire from such litigation, which
failure would substantially harm our business. In addition, the
defendants in the litigations are likely to be much larger than us
and have substantially more resources than we do, which could make
our litigation efforts more difficult and impact the duration of
the litigation which would require us to devote our limited
financial, managerial and other resources to support litigation
that may be disproportionate to the anticipated
recovery.
These
legal proceedings may continue for several years and may require
significant expenditures for legal fees, patent related costs, such
as inter-parties review, and other expenses. Disputes regarding the
assertion of patents and other intellectual property rights are
highly complex and technical. Once initiated, we may be forced to
litigate against others to enforce or defend our patent rights or
to determine the validity and scope of other party’s patent rights.
The defendants or other third parties involved in the lawsuits in
which we are involved may allege defenses and/or file counterclaims
or commence re-examination proceedings by patenting issuance
authorities in an effort to avoid or limit liability and damages
for patent infringement or declare our patents to be invalid or
non-infringed. If such defenses or counterclaims are successful,
they may preclude our ability to derive revenue from the patents we
own. A negative outcome of any such litigation, or an outcome which
affects one or more claims contained within any such litigation or
invalidating any patents, could materially and adversely impact our
business. Additionally, we anticipate that our legal fees and other
expenses will be material and will negatively impact our financial
condition and results of operations and may result in our inability
to continue our business. We have incurred significant legal
expenses in our patent litigation in the past that are liabilities
of the Company and may be unable to settle or reduce these
expenses, regardless of the outcome of our patent litigation or the
inability to license or recover damages from our patents. These
liabilities may lead to litigation or claims with respect to the
payment or collection of legal expenses.
Variability in intellectual property laws may adversely affect our
intellectual property position.
Intellectual
property laws, and patent laws and regulations in particular, have
been subject to significant variability either through
administrative or legislative changes to such laws or regulations
or changes or differences in judicial interpretation, and it is
expected that such variability will continue to occur.
Additionally, intellectual property laws and regulations differ
among states, and countries. Variations in the patent laws and
regulations or in interpretations of patent laws and regulations in
the United States and other countries may diminish the value of our
intellectual property and may change the impact of third-party
intellectual property on us. Accordingly, we cannot predict the
scope of patents that may be granted to us, the extent to which we
will be able to enforce our patents against third parties, or the
extent to which third parties may be able to enforce their patents
against us.
We may seek to internally develop additional new inventions and
intellectual property, which would take time and be costly.
Moreover, the failure to obtain or maintain intellectual property
rights for such inventions would lead to the loss of our
investments in such activities.
We
may in the future seek to engage in commercial business ventures or
seek internal development of new inventions or intellectual
property. These activities would require significant amounts of
financial, managerial and other resources and would take time to
achieve. Such activities could also distract our management team
from its present business initiatives, which could have a material
and adverse effect on our business. There is also the risk that
such initiatives may not yield any viable new business or revenue,
inventions or technology, which would lead to a loss of our
investment in such activities.
In
addition, even if we are able to internally develop new inventions,
in order for those inventions to be viable and to compete
effectively, we would need to develop and maintain, and we would be
heavily reliant upon, a proprietary position with respect to such
inventions and intellectual property. However, there are
significant risks associated with any such intellectual property we
may develop principally including the following:
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patent
applications we may file may not result in issued patents or may
take longer than we expect to result in issued patents; |
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we
may be subject to interference proceedings; |
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we
may be subject to opposition proceedings in the U.S. or foreign
countries; |
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any
patents that are issued to us may not provide meaningful
protection; |
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we
may not be able to develop additional proprietary technologies that
are patentable; |
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other
companies may challenge patents issued to us; |
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other
companies may have independently developed and/or patented (or may
in the future independently develop and patent) similar or
alternative technologies, or duplicate our
technologies; |
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other
companies may design around technologies we have developed;
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enforcement
of our patents would be complex, uncertain and very
expensive. |
We
cannot be certain that patents will be issued as a result of any
future patent applications, or that any of our patents, once
issued, will provide us with adequate protection from competing
products. For example, issued patents may be circumvented or
challenged, declared invalid or unenforceable or narrowed in scope.
In addition, since publication of discoveries in scientific or
patent literature often lags behind actual discoveries, we cannot
be certain that we will be the first to make our additional new
inventions or to file patent applications covering those
inventions. It is also possible that others may have or may obtain
issued patents that could prevent us from commercializing our
products or require us to obtain licenses requiring the payment of
significant fees or royalties in order to enable us to conduct our
business. As to those patents that we may acquire, our continued
rights will depend on meeting any obligations to the seller and we
may be unable to do so. Our failure to obtain or maintain
intellectual property rights for our inventions would lead to the
loss of our investments in such activities, which would have a
material adverse effect on us.
Moreover,
patent application delays could cause delays in recognizing revenue
from our internally generated patents and could cause us to miss
opportunities to license patents before other competing
technologies are developed or introduced into the market. We are
not actively pursuing any commercialization opportunities or
internally generated patents.
Our future success depends on our ability to expand our
organization to match the growth of our
activities.
As
our operations grow, the administrative demands upon us will grow,
and our success will depend upon our ability to meet those demands.
We are organized as a holding company, with numerous subsidiaries.
Both the parent company and each of our subsidiaries require
certain financial, managerial and other resources, which could
create challenges to our ability to successfully manage our
subsidiaries and operations and impact our ability to assure
compliance with our policies, practices and procedures. These
demands include, but are not limited to, increased executive,
accounting, management, legal services, staff support and general
office services. We may need to hire additional qualified personnel
to meet these demands, the cost and quality of which is dependent
in part upon market factors outside of our control. Further, we
will need to effectively manage the training and growth of our
staff to maintain an efficient and effective workforce, and our
failure to do so could adversely affect our business and operating
results. Currently, we have limited personnel in our organization
to meet our organizational and administrative demands.
Potential acquisitions may present risks, and we may be unable to
achieve the financial or other goals intended at the time of any
potential acquisition.
Our
future growth may depend in part on our ability to acquire patented
technologies, patent portfolios or companies holding such patented
technologies and patent portfolios if we determine to again
actively pursue patent monetization activities in the future. Such
acquisitions are subject to numerous risks, including, but not
limited to the following:
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our
inability to enter into a definitive agreement with respect to any
potential acquisition, or if we are able to enter into such
agreement, our inability to consummate the potential
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difficulty
integrating the operations, technology and personnel of the
acquired entity including achieving anticipated
synergies; |
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our
inability to achieve the anticipated financial and other benefits
of the specific acquisition; |
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difficulty
in maintaining controls, procedures and policies during the
transition and monetization process; |
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diversion
of our management’s attention from other business concerns;
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failure
of our due diligence process to identify significant issues,
including issues with respect to patented technologies and patent
portfolios and other legal and financial contingencies. |
If we
are unable to manage these risks effectively as part of any
acquisition, our business could be adversely affected.
Our exposure to uncontrollable risks, including new legislation,
court rulings or actions by the United States Patent and Trademark
Office, could adversely affect our activities including our
revenues, expenses and results of operations.
Our
patent acquisition and monetization business is subject to numerous
risks including new legislation, regulations and rules. If new
legislation, regulations or rules are implemented either by
Congress, the United States Patent and Trademark Office (“USPTO”),
the executive branch, or the courts, that impact the patent
application process, the patent enforcement process, the rights of
patent holders, or litigation practices, such changes could
materially and negatively affect our revenue and expenses and,
therefore, our results of operations and the overall success of our
Company. On March 16, 2013, the Leahy-Smith America Invents Act or
the America Invents Act became effective. The America Invents Act
includes a number of significant changes to U.S. patent law. In
general, the legislation attempts to address issues surrounding the
enforceability of patents and the increase in patent litigation by,
among other things, establishing new procedures for patent
litigation. For example, the America Invents Act changes the way
that parties may be joined in patent infringement actions,
increasing the likelihood that such actions will need to be brought
against individual allegedly-infringing parties by their respective
individual actions or activities. In addition, the America Invents
Act enacted a new inter-partes review, or IPR, process at the USPTO
which can be used by defendants, and other individuals and
entities, to separately challenge the validity of any patent. These
legislative changes, at this time, have had an impact on the costs
and effectiveness of our patent monetization and enforcement
business.
In
addition, the U.S. Department of Justice (the “DOJ”), has conducted
reviews of the patent system to evaluate the impact of patent
assertion entities on industries in which those patents relate. It
is possible that the findings and recommendations of the DOJ could
impact the ability to effectively monetize and enforce
standards-essential patents and could increase the uncertainties
and costs surrounding the enforcement of any such patented
technologies. Also, the Federal Trade Commission (the “FTC”), has
published its intent to initiate a proposed study under Section
6(b) of the Federal Trade Commission Act to evaluate the patent
assertion practice and market impact of Patent Assertion Entities,
or PAEs.
Finally,
judicial rules regarding the burden of proof in patent enforcement
actions could substantially increase the cost of our enforcement
actions and new standards or limitations on liability for patent
infringement could negatively impact our revenue derived from such
enforcement actions.
While we have received a going concern opinion for the year ended
December 31, 2019 from our independent registered public accounting
firm, there can be no assurances about Marathon’s ability to
continue as a going concern in the future.
The
report of our independent registered public accounting firm with
respect to our financial statements included in this report
includes a “going concern” explanatory paragraph. As reflected in
the consolidated financial statements, we had an accumulated
deficit of approximately $105.6 million at December 31, 2019, a net
loss of approximately $3.5 million and $12.8 million, and
approximately $3.3 million and $8.2 million net cash used in
operating activities for the years ended December 31, 2019 and
2018, respectively. These factors raise substantial doubt about the
Company’s ability to continue as a going concern.
In
the future, conditions may exist that raise substantial doubt about
our ability to continue as a going concern due to our recurring
losses from operations and substantial decline in our working
capital. A “going concern” opinion could impair our ability to
finance our operations through the sale of equity, incurring debt,
or other financing alternatives. If we are unable to continue as a
going concern, we may have to liquidate our assets and may receive
less than the value at which those assets are carried on our
consolidated financial statements, and it is likely that investors
will lose all or a part of their investment.
More patent applications are filed each year resulting in longer
delays in getting patents issued by the USPTO.
We
hold and continue to acquire pending patents in the application or
review phase. We believe there is a trend of increasing patent
applications each year, which we believe is resulting in longer
delays in obtaining approval of pending patent applications. The
application delays could cause delays in monetizing such patents
which could cause us to miss opportunities to license patents
before other competing technologies are developed or introduced
into the market.
Any reductions in the funding of the USPTO could have an adverse
impact on the cost of processing pending patent applications and
the value of those pending patent applications.
Our
ownership or acquisition of pending patent applications before the
USPTO is subject to funding and other risks applicable to a
government agency. The value of our patent portfolio is dependent,
in part, on the issuance of patents in a timely manner, and any
reductions in the funding of the USPTO could negatively impact the
value of our assets. Further, reductions in funding from Congress
could result in higher patent application filing and maintenance
fees charged by the USPTO, causing an unexpected increase in our
expenses.
Our acquisitions of patent assets may be time consuming, complex
and costly, which could adversely affect our operating
results.
Acquisitions
of patent or other intellectual property assets, are often time
consuming, complex and costly to consummate. We may utilize many
different transaction structures in our acquisitions and the terms
of such acquisition agreements tend to be heavily negotiated. As a
result, we expect to incur significant operating expenses and may
be required to raise capital during the negotiations even if the
acquisition is ultimately not consummated. Even if we are able to
acquire particular patent assets, there is no guarantee that we
will generate sufficient revenue related to those patent assets to
offset the acquisition costs. While we will seek to conduct
sufficient due diligence on the patent assets we are considering
for acquisition, we may acquire patent assets from a seller who
does not have proper title to those assets. In those cases, we may
be required to spend significant resources to defend our ownership
interest in the patent assets and, if we are not successful, our
acquisition may be invalid, in which case we could lose part or all
of our investment in the assets.
We
may also identify patent or other patent assets that cost more than
we are prepared to spend. We may incur significant costs to
organize and negotiate a structured acquisition that does not
ultimately result in an acquisition of any patent assets or, if
consummated, proves to be unprofitable for us. These higher costs
could adversely affect our operating results and, if we incur
losses, the value of our securities will decline.
In
addition, we may acquire patents and technologies that are in the
early stages of adoption in the commercial, industrial and consumer
markets. Demand for some of these technologies will likely be
untested and may be subject to fluctuation based upon the rate at
which our companies may adopt our patented technologies in their
products and services. As a result, there can be no assurance as to
whether technologies we acquire or develop will have value that we
can monetize.
In certain acquisitions of patent assets, we may seek to defer
payment or finance a portion of the acquisition price. This
approach may put us at a competitive disadvantage and could result
in harm to our business.
We
have limited capital and may seek to negotiate acquisitions of
patent or other intellectual property assets where we can defer
payments or finance a portion of the acquisition price. These types
of debt financing or deferred payment arrangements may not be as
attractive to sellers of patent assets as receiving the full
purchase price for those assets in cash at the closing of the
acquisition. As a result, we might not compete effectively against
other companies in the market for acquiring patent assets, many of
whom have substantially greater cash resources than we have. In
addition, any failure to satisfy any debt repayment obligations
that we may incur, may result in adverse consequences to our
operating results.
Any failure to maintain or protect our patent assets could
significantly impair our return on investment from such assets and
harm our brand, our business and our operating
results.
Our
ability to operate our business and compete in the patent market
largely depends on the superiority, uniqueness and value of our
acquired patent assets. To protect our proprietary rights, we rely
on and will rely on a combination of patent, trademark, copyright
and trade secret laws, confidentiality agreements, common interest
agreements and agreements with our employees and third parties, and
protective contractual provisions. No assurances can be given that
any of the measures we undertake to protect and maintain the value
of our assets will be successful.
Following
the acquisition of patent assets, we will likely be required to
spend significant time and resources to maintain the effectiveness
of such assets by paying maintenance fees and making filings with
the USPTO. We may acquire patent assets, including patent
applications that require us to spend resources to prosecute such
patent applications with the USPTO. Moreover, there is a material
risk that patent related claims (such as, for example, infringement
claims (and/or claims for indemnification resulting therefrom),
unenforceability claims or invalidity claims) will be asserted or
prosecuted against us, and such assertions or prosecutions could
materially and adversely affect our business. Regardless of whether
any such claims are valid or can be successfully asserted,
defending such claims could cause us to incur significant costs and
could divert resources away from our core business
activities.
Despite
our efforts to protect our intellectual property rights, any of the
following or similar occurrences may reduce the value of our
intellectual property:
|
|
● |
our
patent applications, trademarks and copyrights may not be granted
and, if granted, may be challenged or invalidated; |
| |
|
|
| |
● |
issued
trademarks, copyrights, or patents may not provide us with any
competitive advantages when compared to potentially infringing
other properties; |
| |
|
|
| |
● |
our
efforts to protect our intellectual property rights may not be
effective in preventing misappropriation of our technology;
or |
| |
|
|
| |
● |
our
efforts may not prevent the development and design by others of
products or technologies similar to or competitive with, or
superior to those we acquire and/or prosecute. |
Moreover,
we may not be able to effectively protect our intellectual property
rights in certain foreign countries where we may do business in the
future or from which competitors may operate. If we fail to
maintain, defend or prosecute our patent assets properly, the value
of those assets would be reduced or eliminated, and our business
would be harmed.
Risks
Relating to Marathon’s Stock
Exercise or conversion of warrants and other convertible securities
will dilute shareholder’s percentage of
ownership.
We
have issued convertible securities, options and warrants to
purchase shares of our Common Stock to our officers, directors,
consultants and certain shareholders. In the future, we may grant
additional options, warrants and convertible securities. The
exercise, conversion or exchange of options, warrants or
convertible securities, including for other securities, will dilute
the percentage ownership of our shareholders. The dilutive effect
of the exercise or conversion of these securities may adversely
affect our ability to obtain additional capital. The holders of
these securities may be expected to exercise or convert such
options, warrants and convertible securities at a time when we
would be able to obtain additional equity capital on terms more
favorable than such securities or when our Common Stock is trading
at a price higher than the exercise or conversion price of the
securities. The exercise or conversion of outstanding warrants,
options and convertible securities will have a dilutive effect on
the securities held by our shareholders. We have in the past, and
may in the future, exchange outstanding securities for other
securities on terms that are dilutive to the securities held by
other shareholders not participating in such exchange.
Our Common Stock may be delisted from The NASDAQ Capital Market
(“NASDAQ”) if we fail to comply with continued listing
standards.
Our
Common Stock is currently traded on NASDAQ under the symbol “MARA”.
If we fail to meet any of the continued listing standards of
NASDAQ, our Common Stock could be delisted from NASDAQ. During
2019, Marathon received multiple notices regarding its failure to
meet several continued listing standards, including the $1.00
minimum closing bid price and the $2.5 million stockholders’ equity
requirements, which were subsequently satisfied. Our repeated
failures may impact our ability to continue to list our shares for
trading on NASDAQ or to obtain approval of any initial listing
application in connection with any acquisitions or other changes
that require review and approval by NASDAQ. The continued listing
standards include specifically enumerated criteria, such
as:
|
|
● |
a
$1.00 minimum closing bid price; |
| |
|
|
| |
● |
stockholders’
equity of $2.5 million; |
| |
|
|
| |
● |
500,000
shares of publicly-held Common Stock with a market value of at
least $1 million; |
| |
|
|
| |
● |
300
round-lot stockholders; and |
| |
|
|
| |
● |
compliance
with NASDAQ’s corporate governance requirements, as well as
additional or more stringent criteria that may be applied in the
exercise of NASDAQ’s discretionary authority. |
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.
Our stock price may be volatile.
The
market price of our Common Stock is likely to be highly volatile
and could fluctuate widely in price in response to various factors,
many of which are beyond our control, including the
following:
|
|
● |
changes
in our industry including changes which adversely affect bitcoin,
ether and other digital assets; |
| |
|
|
| |
● |
competitive
pricing pressures; |
| |
|
|
| |
● |
our
ability to obtain working capital financing; |
| |
|
|
| |
● |
additions
or departures of key personnel; |
| |
|
|
| |
● |
sales
of our Common Stock; |
| |
|
|
| |
● |
our
ability to execute our business plan; |
| |
|
|
| |
● |
operating
results that fall below expectations; |
| |
|
|
| |
● |
loss
of any strategic relationship; |
| |
|
|
| |
● |
regulatory
developments; and |
| |
|
|
| |
● |
economic
and other external factors. |
In
addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These market
fluctuations may also materially and adversely affect the market
price of our Common Stock.
We have never paid nor do we expect in the near future to pay cash
dividends.
We
have never paid cash dividends on our capital stock and do not
anticipate paying any cash dividends on our Common Stock for the
foreseeable future. While it is possible that we may declare a
dividend after a large settlement, investors should not rely on
such a possibility, nor should they rely on an investment in us if
they require income generated from dividends paid on our capital
stock. Any income derived from our Common Stock would only come
from rise in the market price of our Common Stock, which is
uncertain and unpredictable.
Offers or availability for sale of a substantial number of shares
of our Common Stock may cause the price of our Common Stock to
decline.
If
our stockholders sell substantial amounts of our Common Stock in
the public market upon the expiration of any statutory holding
period or lockup agreements, under Rule 144, or issued upon the
exercise of outstanding warrants or other convertible securities,
it could create a circumstance commonly referred to as an
“overhang” and in anticipation of which the market price of our
Common Stock could fall. The existence of an overhang, whether or
not sales have occurred or are occurring, also could make more
difficult our ability to raise additional financing through the
sale of equity or equity-related securities in the future at a time
and price that we deem reasonable or appropriate. The shares of our
restricted Common Stock will be freely tradable upon the earlier
of: (i) effectiveness of a registration statement covering such
shares and (ii) the date on which such shares may be sold without
registration pursuant to Rule 144 (or other applicable exemption)
under the Securities Act of 1933, as amended (“Securities
Act”).
Investor relations activities and supply and demand factors may
affect the price of our Common Stock.
We
expect to utilize various techniques such as non-deal road shows
and investor relations campaigns in order to generate investor
awareness. These campaigns may include personal, video and
telephone conferences with investors and prospective investors in
which our business practices are described. We may provide
compensation to investor relations firms and pay for newsletters,
websites, mailings and email campaigns that are produced by third
parties based upon publicly-available information concerning us. We
do not intend to review or approve the content of such analysts’
reports or other materials based upon analysts’ own research or
methods. Investor relations firms should generally disclose when
they are compensated for their efforts, but whether such disclosure
is made or complete is not under our control. In addition,
investors may, from time to time, also take steps to encourage
investor awareness through similar activities that may be
undertaken at the expense of the investors. Investor awareness
activities may also be suspended or discontinued which may impact
the trading market of our Common Stock.
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements. Such statements
include statements regarding our expectations, hopes, beliefs or
intentions regarding the future, including but not limited to
statements regarding our market, strategy, competition, development
plans (including acquisitions and expansion), financing, revenues,
operations, and compliance with applicable laws. Forward-looking
statements involve certain risks and uncertainties, and actual
results may differ materially from those discussed in any such
statement. Factors that could cause actual results to differ
materially from such forward-looking statements include the risks
described in greater detail in the following paragraphs. All
forward-looking statements in this document are made as of the date
hereof, based on information available to us as of the date hereof,
and we assume no obligation to update any forward-looking
statement. Market data used throughout this prospectus is based on
published third party reports or the good faith estimates of
management, which estimates are based upon their review of internal
surveys, independent industry publications and other publicly
available information.
You
should review carefully the section entitled “Risk Factors” within
this prospectus for a discussion of these and other risks that
relate to our business and investing in shares of our Common
Stock.
All
forward-looking statements speak only as of the date of this
prospectus. We disclaim any obligation to update or revise these
statements unless required by law, and you should not place undue
reliance on these forward-looking statements. Although we believe
that our plans, intentions and expectations reflected in or
suggested by the forward-looking statements we make in this
prospectus are reasonable, we can give no assurance that these
plans, intentions or expectations will be achieved. We disclose
important factors that could cause our actual results to differ
materially from our expectations under “Risk Factors” and elsewhere
in this prospectus. These cautionary statements qualify all
forward-looking statements attributable to us or persons acting on
our behalf.
Risks that could affect our business include the duration and scope
of the COVID-19 pandemic and the impact on the demand for our
products; actions by governments, businesses and individuals taken
in response to the pandemic; the length of time of the COVID-19
pandemic and the possibility of its reoccurrence; the timing
required to develop effective treatments and a vaccine in the event
of future outbreaks; the eventual impact of the pandemic and
actions taken in response to the pandemic on global and regional
economies; and the pace of recovery when the COVID-19 pandemic
subsides.
USE OF PROCEEDS
We
estimate that the net proceeds from the sale of 6,666,667 shares of
common stock will be approximately $5,405,000, or approximately
$6,242,000 if the underwriters exercise in full their option to
purchase additional shares after deducting the estimated
underwriting discounts and commissions and estimated offering
expenses payable by us.
The
expected use of net proceeds of this offering represents our
current intentions based upon our present plan and business
conditions. As of the date of this prospectus, we cannot specify
with certainty all of the particular uses for the net proceeds to
be received upon the completion of this offering. The amounts and
timing of our actual use of net proceeds will vary depending on
numerous factors. As a result, management will have broad
discretion in the application of the net proceeds, and investors
will be relying on our judgment regarding the application of the
net proceeds of this offering.
Pending
the use of the net proceeds of this offering, we intend to invest
the net proceeds in short-term investment-grade, interest-bearing
securities.
MARKET FOR OUR COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
As of
July 24, 2020, we had approximately 100 shareholders of record of
our common stock.
Our
common stock is listed on the NASDAQ Capital Market under the
symbol “MARA”.
DIVIDEND POLICY
We
have never paid any cash dividends on our common stock. We
anticipate that we will retain funds and future earnings to support
operations and to finance the growth and development of our
business. Therefore, we do not expect to pay cash dividends in the
foreseeable future following this offering. Any future
determination to pay dividends will be at the discretion of our
Board of Directors and will depend on our financial condition,
results of operations, capital requirements and other factors that
our Board of Directors deems relevant. In addition, the terms of
any future debt or credit financings may preclude us from paying
dividends.
CAPITALIZATION
The
following table sets forth our capitalization as of March 31,
2020:
|
|
● |
on an
actual basis; and |
| |
|
|
| |
● |
on an as
adjusted basis to reflect the sale by us of 6,666,667 shares of
common stock at the public offering price of $0.90 per share of
common stock, after deducting (i) underwriting discounts and
commissions of approximately $420,000 and (ii) estimated offering
costs of $175,000 payable by us, and assuming no exercise by the
underwriters of the overallotment option.
|
You
should read this table together with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations”
and our financial statements and the related notes appearing in
each of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2019 and Quarterly Report on Form 10-Q for the three
months ended March 31, 2020, which are incorporated by reference in
this prospectus.
Numbers
are expressed in U.S. dollars.
| |
|
March 31,
2020 |
|
|
Capitalization in U.S.
Dollars |
|
Actual |
|
|
As
Adjusted |
|
| |
|
(Unaudited) |
|
|
(Unaudited) |
|
|
Cash |
|
$ |
474,546 |
|
|
$ |
5,879,546 |
|
| Common stock, par
value $0.0001 per share, 200,000,000 shares authorized; 9,212,106
shares issued and outstanding actual; 15,878,773 shares issued and
outstanding as adjusted |
|
|
922 |
|
|
|
1,589 |
|
|
Additional
paid in capital |
|
|
110,284,952 |
|
|
|
115,689,285 |
|
|
Accumulated
deficit |
|
|
(106,665,437 |
) |
|
|
(107,116,156 |
) |
|
Total
stockholders’ equity |
|
|
3,169,718 |
|
|
|
9,499,063 |
|
|
Total
Capitalization |
|
$ |
5,668,117 |
|
|
$ |
11,073,117 |
|
The
number of shares of common stock that will be outstanding after
this offering set forth above is based on 9,212,106 shares of common stock
outstanding as of March 31, 2020, and excludes the
following:
|
|
● |
164,222
Warrants outstanding to purchase common stock and 1,727,682 RSUs to
purchase common stock; and |
| |
● |
466,667
additional shares (536,667 shares if the representative exercises
its option to purchase additional shares in
full)which
may be issued upon exercise of the representative’s warrants issued
in this offering. |
DILUTION
If you
invest in our common stock in this offering, your ownership
interest will be diluted to the extent of the difference between
the public offering price per share of our common stock in this
offering and the as adjusted net tangible book value (deficit) per
share immediately after this offering. We calculate net tangible
book value per share by dividing our net tangible book value
(deficit), which is tangible assets less total liabilities less
debt discounts, by the number of outstanding shares of our common
stock as of March 31, 2020. Our historical net tangible book value
(deficit) as of March 31, 2020, was approximately $2.1 million or
$0.229 per share of our common stock.
After
giving effect to the sale of 6,666,667 shares of our common stock
at a public offering price of $0.90 per share, after deducting the
underwriting discounts and commissions and estimated offering costs
payable by us, our as adjusted net tangible book value (deficit) as
of March 31, 2020, would have been approximately $7.5 million, or
$0.472 per share of common stock. This represents an immediate
increase in as adjusted net tangible book value of $0.243 per share
to existing shareholders and an immediate dilution of $0.428 per
share to investors purchasing shares of common stock in this
offering at the public offering price.
The
following table illustrates per share dilution as of March 31,
2020:
|
Public
offering price per share of common stock |
|
|
|
|
|
$ |
0.90
|
|
|
Net
tangible book value (deficit) per share |
|
$ |
0.229 |
|
|
|
|
|
|
Increase
in net tangible book value (deficit) per share attributable to this
offering |
|
$ |
0.243
|
|
|
|
|
|
|
Net
tangible book value (deficit) per share after this
offering |
|
|
|
|
|
$ |
0.472
|
|
|
Dilution
per share to investors participating in this offering |
|
|
|
|
|
$ |
0.428
|
|
If
the underwriters exercise in full their option to purchase up to
999,999 additional shares of common stock at the public offering
price of $0.90 per share, the as adjusted net tangible book value
(deficit) after this offering would be $0.495 per share,
representing an increase in net tangible book value (deficit) of
$0.266 per share to existing shareholders and immediate dilution in
net tangible book value (deficit) of $0.405 per share to investors
purchasing our common stock in this offering at the assumed public
offering price.
The
discussion and table above is based on 9,212,106 shares of common
stock outstanding as of March 31, 2020, and excludes the
following:
|
|
● |
164,222 Warrants
outstanding to purchase common stock, 190,182 stock options and
3,233,163 restricted stock units (as of the date of this offering);
and |
| |
● |
466,667
additional shares (536,667 shares if the representative exercises
its option to purchase additional shares in
full)which
may be issued upon exercise of the representative’s warrants issued
in this offering. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS
The
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the year ended December 31, 2019 is
hereby incorporated by reference in its entirety from our Annual
Report on Form 10-K filed with the SEC on March 24, 2020. The
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the three months ended March 31, 2020 is
hereby incorporated by reference in its entirety from our Quarterly
Report on Form 10-Q filed with the SEC on May 14, 2020.
FINANCIAL
STATEMENTS
The
Company’s audited consolidated financial statements for the year
ended December 31, 2019 are hereby incorporated by reference in
their entirety from our Annual Report on Form 10-K filed with the
SEC on March 24, 2020. The Company’s unaudited condensed
consolidated financial statements for the three months ended March
31, 2020 are hereby incorporated by reference in its entirety from
our Quarterly Report on Form 10-Q filed with the SEC on May 14,
2020.
BUSINESS
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. On November 1, 2017, we
entered into a merger agreement with Global Bit Ventures, Inc.
(“GBV”), which is focused on mining digital assets. We purchased
cryptocurrency mining machines and established a data center in
Canada to mine digital assets. We intend to expand its activities
in the mining of new digital assets, while at the same time
harvesting the value of our remaining IP assets.
On
June 28, 2018, our Board has determined that it is in the best
interests of the Company and our shareholders to allow the Amended
Merger Agreement with GBV to expire on its current termination date
of June 28, 2018 without further negotiation or extension. The
Board approved to issue 3,000,000 shares of our common stock to GBV
as a termination fee for us canceling the proposed merger between
the two companies.
All
share and per share values for all periods presented in the
accompanying consolidated financial statements have been
retroactively adjusted to reflect the 1:4 Reverse Split which
occurred on April 8, 2019.
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.
On May 11,
2020, the Company announced the purchase of 700 M30S+ (80 TH)
miners. On May 12, 2020, the Company announced the purchase 660
Bitmain S19 Pro Miners.On June 11, 2020 the Company announced the
purchase of an additional 500 of the latest generation Bitmain S19
Pro Miners, bringing the Company’s total Hashrate to approximately
240 PH/s when fully deployed.
On May 20,
2020, the Company amended its note, originally dated August 31,
2017, with Bi-Coastal Consulting Defined Benefit Plan to reduce the
conversion price to $0.60 per share. The current principal balance
of the Note was $999,105.60 and accrued the interest was
$215,411.30. The Company agreed to the reduction in the conversion
price from $0.80 to $0.60 to incentivize the Note holder to convert
the Note to common stock. As the Note has been fully converted to
common stock, the Company has no Long-Term debt.
Blockchain
and Cryptocurrencies Generally
Distributed
blockchain technology is a decentralized and encrypted ledger that
is designed to offer a secure, efficient, verifiable, and permanent
way of storing records and other information without the need for
intermediaries. Cryptocurrencies serve multiple purposes. They
can serve as a medium of exchange, store of value or unit of
account. Examples of cryptocurrencies include: bitcoin, bitcoin
cash, and litecoin. Blockchain technologies are being evaluated for
a multitude of industries due to the belief in their ability to
have a significant impact in many areas of business, finance,
information management, and governance.
Cryptocurrencies
are decentralized currencies that enable near instantaneous
transfers. Transactions occur via an open source, cryptographic
protocol platform which uses peer-to-peer technology to operate
with no central authority. The online network hosts the public
transaction ledger, known as the blockchain, and each
cryptocurrency is associated with a source code that comprises the
basis for the cryptographic and algorithmic protocols governing the
blockchain. In a cryptocurrency network, every peer has its own
copy of the blockchain, which contains records of every historical
transaction - effectively containing records of all account
balances. Each account is identified solely by its unique public
key (making it effectively anonymous) and is secured with its
associated private key (kept secret, like a password). The
combination of private and public cryptographic keys constitutes a
secure digital identity in the form of a digital signature,
providing strong control of ownership.
No
single entity owns or operates the network. The infrastructure is
collectively maintained by a decentralized public user base. As the
network is decentralized, it does not rely on either governmental
authorities or financial institutions to create, transmit or
determine the value of the currency units. Rather, the value is
determined by market factors, supply and demand for the units, the
prices being set in transfers by mutual agreement or barter among
transacting parties, as well as the number of merchants that may
accept the cryptocurrency. Since transfers do not require
involvement of intermediaries or third parties, there are currently
little to no transaction costs in direct peer-to-peer transactions.
Units of cryptocurrency can be converted to fiat currencies, such
as the US dollar, at rates determined on various exchanges, such as
Cumberland, Coinsquare (in Canada), Coinbase, Bitsquare, Bitstamp,
and others. Cryptocurrency prices are quoted on various exchanges
and fluctuate with extreme volatility.
We
believe cryptocurrencies offer many advantages over traditional,
fiat currencies, although many of these factors also present
potential disadvantages and may introduce additional risks,
including:
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acting
as a fraud deterrent, as cryptocurrencies are digital and cannot be
counterfeited or reversed arbitrarily by a sender; |
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immediate
settlement; |
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elimination
of counterparty risk; |
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no
trusted intermediary required; |
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lower
fees; |
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identity
theft prevention; |
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● |
accessible
by everyone; |
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● |
transactions
are verified and protected through a confirmation process, which
prevents the problem of double spending; |
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decentralized
– no central authority (government or financial institution);
and |
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recognized
universally and not bound by government imposed or market exchange
rates. |
However,
cryptocurrencies may not provide all of the benefits they purport
to offer at all or at any time.
Bitcoin
was first introduced in 2008 and was first introduced as a means of
exchange in 2009. Bitcoin is a consensus network that enables a new
payment system and a completely new form of digital money. It is
the first decentralized peer-to-peer payment network that is
powered by its users with no central authority or middlemen. From a
user perspective, we believe bitcoin can be viewed as cash for the
Internet. The bitcoin network shares a public ledger called the
“blockchain.” This ledger contains every transaction ever
processed, allowing a user’s computer to verify the validity of
each transaction. The authenticity of each transaction is protected
by digital signatures corresponding to the sending addresses,
allowing all users to have full control over sending bitcoins
currency rewards from their own bitcoin addresses. In addition,
anyone can process transactions using the computing power of
specialized hardware and earn a reward in bitcoins for this
service. This process is often called “mining.”
As
with many new and emerging technologies, there are potentially
significant risks. Businesses (including the Company) which are
seeking to develop, promote, adopt, transact or rely upon
blockchain technologies and cryptocurrencies have a
limited track record and operate within an untested new
environment. These risks are not only related to the businesses the
Company pursues, but the sector and industry as a whole, as well as
the entirety of the concept behind blockchain and cryptocurrency as
value. Factors such as access to computer processing capacity,
interconnectivity, electricity cost, environmental factors (such as
cooling capacity) and location play an important role in “mining,”
which is the term for using the specialized computers in connection
with the blockchain for the creation of new units of
cryptocurrency.
Mathematically
Controlled Supply
The
method for creating new bitcoins is mathematically controlled in a
manner so that the supply of bitcoins grows at a limited rate
pursuant to a pre-set schedule. The number of bitcoins awarded for
solving a new block is automatically halved every 210,000 blocks.
Thus, the current fixed reward for solving a new block is 12.5
bitcoins per block and the reward will decrease by half to become
6.25 bitcoins around May 10, 2020 (based on estimates of the rate
of block solution calculated by BitcoinClock.com). This
deliberately controlled rate of bitcoin creation means that the
number of bitcoins in existence will never exceed 21 million and
that bitcoins cannot be devalued through excessive production
unless the Bitcoin Network’s source code (and the underlying
protocol for bitcoin issuance) is altered. The Company monitors the
Blockchain network and, as of March 13, 2020, based on the
information we collected from our network access 18.2 million
bitcoins have been mined.
Digital
Asset Mining
We
intend to power and secure blockchains by verifying blockchain
transactions using custom hardware and software. We are currently
using our hardware to mine bitcoin (“BTC”) and expect to mine BTC
and ether (“ETH”), and potentially other cryptocurrencies. Bitcoin
and ether rely on different technologies based on the blockchain.
Wherein bitcoin is a digital currency and ether is generally
associated with smart contracts and digital tokens, we will be
compensated in either BTC or ETH based on the mining transactions
we perform for each, which is how we will earn revenue.
Blockchains
are decentralized digital ledgers that record and enable secure
peer-to-peer transactions without third party intermediaries.
Blockchains enable the existence of digital assets by allowing
participants to confirm transactions without the need for a central
certifying authority. When a participant requests a transaction, a
peer-to-peer network consisting of computers, known as nodes,
validate the transaction and the user’s status using known
algorithms. After the transaction is verified, it is combined with
other transactions to create a new block of data for the ledger.
The new block is added to the existing blockchain in a way that is
permanent and unalterable, and the transaction is
complete.
Digital
assets (also known as cryptocurrency) are a medium of exchange that
uses encryption techniques to control the creation of monetary
units and to verify the transfer of funds. Many consumers use
digital assets because it offers cheaper and faster peer-to-peer
payment options without the need to provide personal details. Every
single transaction and the ownership of every single digital asset
in circulation is recorded in the blockchain. Miners use powerful
computers that tally the transactions to run the blockchain. These
miners update each time a transaction is made and ensure the
authenticity of information. The miners receive a transaction fee
for their service in the form of a portion of the new digital
“coins” that are issued.
Performance Metrics – Hashing
We operate mining hardware which performs computational operations
in support of the blockchain measured in “hash rate” or “hashes per
second.” A “hash” is the computation run by mining hardware in
support of the blockchain; therefore, a miner’s “hash rate” refers
to the rate at which it is capable of solving such computations.
The original equipment used for mining bitcoin utilized the Central
Processing Unit (CPU) of a computer to mine various forms of
cryptocurrency. Due to performance limitations, CPU mining was
rapidly replaced by the Graphics Processing Unit (GPU), which
offers significant performance advantages over CPUs. General
purpose chipsets like CPUs and GPUs have since been replaced in the
mining industry by Application Specific Integrated Circuits (ASIC)
chips like those found in the Bitmain S9 Antiminers and the next
generation Bitmain S17 Pro Antiminers currently utilized by the
Company at its mining facility. These ASIC chips are designed
specifically to maximize the rate of hashing operations.
We
measure our mining performance
and competitive position based on overall hash rate being produced
in our mining sites. The latest equipment utilized in our OKC
mining operation, the Bitmain S17 Pro Antminer, performs in the
range of approximately 50 - 62 terahash per second (TH/s) per unit.
This mining hardware is on the cutting edge of available mining
equipment and we believe our acquisition of new units places us
among leaders of publicly-traded cryptocurrency miners; however,
advances and improvements to the technology are ongoing and may be
available in quantities to the market in the near future which may
affect our perceived position.
Government Regulation
Government
regulation of blockchain and cryptocurrency is being actively
considered by the United States federal government via a number of
agencies and regulatory bodies, as well as similar entities in
other countries. State government regulations also may apply to our
activities such and other activities in which we participate or may
participate in the future. Other regulatory bodies are governmental
or semi-governmental and have shown an interest in regulating or
investigating companies engaged in the blockchain or cryptocurrency
business.
Regulations
may substantially change in the future and it is presently not
possible to know how regulations will apply to our businesses, or
when they will be effective. As the regulatory and legal
environment evolves, we may become subject to new laws, further
regulation by the SEC and other agencies, which may affect our
mining and other activities. For instance, various bills have also
been proposed in Congress related to our business, which may be
adopted and have an impact on us. For additional discussion
regarding our belief about the potential risks existing and future
regulation pose to our business, see the Section entitled “Risk
Factors” herein.
Intellectual Property
We
actively use specific hardware and software for our cryptocurrency
mining operation. In certain cases, source code and other software
assets may be subject to an open source license, as much technology
development underway in this sector is open source. For these
works, Riot intends to adhere to the terms of any license
agreements that may be in place.
We do
not currently own, and do not have any current plans to seek, any
patents in connection with our existing and planned blockchain and
cryptocurrency related operations. We do expect to rely upon trade
secrets, trademarks, service marks, trade names, copyrights and
other intellectual property rights and expect to license the use of
intellectual property rights owned and controlled by others. In
addition, we have developed and may further develop certain
proprietary software applications for purposes of our
cryptocurrency mining operation.
Competition
In
cryptocurrency mining, companies, individuals and groups generate
units of cryptocurrency through mining. Miners can range from
individual enthusiasts to professional mining operations with
dedicated data centers. Miners may organize themselves in mining
pools. The Company competes or may in the future compete with other
companies that focus all or a portion of their activities on owning
or operating cryptocurrency exchanges, developing programming for
the blockchain, and mining activities. At present, the information
concerning the activities of these enterprises is not readily
available as the vast majority of the participants in this sector
do not publish information publicly or the information may be
unreliable. Published sources of information include “bitcoin.org”
and “blockchain.info”; however, the reliability of that information
and its continued availability cannot be assured.
Several
public companies (traded in the U.S. and Internationally), such as
the following, may be considered to compete with us, although we
believe there is no company, including the following, which engages
in the same scope of activities as we do.
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Overstock.com
Inc. |
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Bitcoin
Investment Trust |
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Blockchain
Industries, Inc. (formerly Omni Global Technologies,
Inc.) |
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Bitfarms
Technologies Ltd. (formerly Blockchain Mining Ltd) |
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DMG
Blockchain Solutions Inc. |
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Digihost
International, Inc. |
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Hive
Blockchain Technologies Inc. |
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Hut 8
Mining Corp. |
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HashChain
Technology, Inc. |
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MGT
Capital Investments, Inc. |
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DPW
Holdings, Inc. |
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Layer1
Technologies, LLC |
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Northern
Data AG |
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Riot
BlockChain |
While
there is limited available information regarding our non-public
competitors, we believe that our recent acquisition and deployment
of new miners (as discussed further above) positions us well among
the publicly traded companies involved in the cryptocurrency mining
industry. The cryptocurrency industry is a highly competitive and
evolving industry and new competitors and/or emerging technologies
could enter the market and affect our competitiveness in the
future.
Patent
Enforcement Litigation
As of
June 26, 2020, we were not involved in any active patent
enforcement litigation.
Employees
As of
June 26, 2020, we had 3 full-time employees. We believe our
employee relations to be good.
DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
The
following table presents information with respect to our officers,
directors and significant employees as of the date of this
Report:
|
Name
and Address |
|
Age |
|
Date
First Elected
or Appointed |
|
Position(s) |
| Merrick
Okamoto |
|
59 |
|
August
13, 2017 |
|
Chief
Executive Officer |
| David
Lieberman |
|
76 |
|
August
13, 2017 |
|
Chief
Financial Officer and Director |
| James
Crawford |
|
45 |
|
March
1, 2013 |
|
Chief
Operating Officer |
| Fred
Thiel |
|
59 |
|
April
24, 2018 |
|
Director |
| Michael
Rudolph |
|
69 |
|
August
17. 2018 |
|
Director |
| Michael
Berg |
|
70 |
|
August
17, 2018 |
|
Director |
Background
of officers and directors
The
following is a brief account of the education and business
experience during at least the past five years of our officers and
directors, indicating each person’s principal occupation during
that period, and the name and principal business of the
organization in which such occupation and employment were carried
out.
Merrick D. Okamoto - Chief Executive Officer
Mr.
Merrick D. Okamoto, age 59, serves as the President at Viking Asset
Management which he co-founded in 2002. Mr. Okamoto is responsible
for research, due diligence, and structuring potential investment
opportunities. He has been instrumental in providing capital to
over 200 private and public companies. He is also responsible for
the firm’s trading operations. Prior to Viking, Mr. Okamoto
co-founded TradePortal.com, Inc. in 1999 and served as its
President until 2001. He was instrumental in developing the
proprietary Trade Matrix software platform offered by TradePortal
Securities. Mr. Okamoto’s negotiations were key in selling a
minority stake in TradePortal.com Inc. to Thomson Financial. Prior
to that, he held Vice President positions with Shearson Lehman
Brothers, Prudential Securities, and Paine Webber.
David P. Lieberman - Chief Financial Officer and
Director
Mr.
David Lieberman, age 75, is a seasoned business executive with over
40 years of financial experience beginning with five years as an
accountant with Price Waterhouse. He has extensive experience as a
senior operational and financial executive serving both multiple
public and non-public companies. Mr. Lieberman currently serves as
the President of Cobra International and Lieberman Financial
Consulting where he acts as administrator for several investment
groups. Previously he served as CFO and Director for MEDL Mobile
Holdings, Inc., and CFO and Director of Datascension, Inc., a
telephone market research company that provides both outbound and
inbound services to corporate customers, since January 2008 and a
director of that company since 2006. From 2006 to 2007, he served
as Chief Financial Officer of Dalrada Financial Corporation, a
publicly traded payroll processing company based in San Diego. From
2003 to 2006, he was the Chief Financial Officer for John Goyak
& Associates, Inc., a Las Vegas-based aerospace consulting
firm. Mr. Lieberman attended the University of Cincinnati, where he
received his B.A. in Business, and is a licensed CPA in the State
of California.
James Crawford - Chief Operating Officer
Mr.
Crawford, age 45, was a founding member of Kino Interactive, LLC,
and of AudioEye, Inc. Mr. Crawford’s experience as an entrepreneur
spans the entire life cycle of companies from start-up capital to
compliance officer and director of reporting public companies.
Prior to his involvement as Chief Operating Officer of the Company,
Mr. Crawford served as a director and officer of Augme
Technologies, Inc. beginning March 2006, and assisted the company
in maneuvering through the initial challenges of acquisitions
executed by the company through 2011 that established the company
as a leading mobile marketing company in the United States. Mr.
Crawford is experienced in public company finance and compliance
functions. He has extensive experience in the area of intellectual
property creation, management and licensing. Mr. Crawford also
served on the board of directors Modavox and Augme Technologies,
and as founder and managing member of Kino Digital, Kino
Communications, and Kino Interactive.
Fred Thiel - Director
Mr.
Thiel, age 59, has been the Chairman of SPROCKET, INC. since June
2017, a Blockchain/Cryptocurrency technology and financial services
company whose mission is to reduce the risk and friction of
cryptocurrency trading across marketplaces, regions and exchanges
by establishing a federation of exchanges that together create a
single aggregated global trading market place with large scale
liquidity, rapid execution, minimal counter-party risk, and price
transparency. From January 2013 until November 2015, Mr. Thiel
served as a director of Local Corporation, which was a NASDAQ
listed entity which was a leader in on-line local search and
digital media, mobile search monetization and programmatic
retargeting markets. He served as Chairman of the Board of LOCAL
from January 2014 to November 2015 and as its Chief Executive
Officer from May 2014 to November 2015. Mr. Thiel has been the
principal of Thiel Advisors Inc. since 2013. Thiel Advisors is a
boutique advisory firm providing PE and VC firms, as well as public
and private company boards of director, with deep technology
industry operating expertise and strategic advisory
services.
Michael Rudolph - Director
Mr.
Rudolph, age 69, has served as the President and Chief Executive
Officer of the Edgehill Group since July 1995, a consulting firm
which provides financial management, operational expertise,
strategic and tactical advice, project management and change
management guidance. In connection therewith, he served as a
contract Chief Financial Officer of ConsejoSano, Inc., a Hispanic
telehealth provider, from May 2016 to July 2017; as the Chief
Financial Officer of Fullbottle Group, Inc., an online advertising
agency, from April 2014 to May 2017; as a contract Chief Financial
Officer and Chief Administrator Officer of Calaborate Inc., a
mobile app developer, from October 2013 to April 2014; and as
interim Chief Financial Officer and Chief Administrative Officer of
a software subsidiary company, Videro LLC and Videro, Inc from July
2011 to September 2015. In addition, Mr. Rudolph provided interim
management as CEO and CFO for several online businesses and firms.
From January 2001 until March 2016, Mr. Rudolph co-founded and
served as Chief Financial Officer and Managing Member of Viking
Asset Management, LLC, an SEC registered investment adviser (“RIA”)
where he was responsible for finance, operations, treasury, audit,
tax, legal, compliance and investor relations for the funds and the
RIA and had direct management responsibility for 17 full time
employees. From November 1989 to June 1995, Mr. Rudolph was the
managing director at Charles Schwab & Co., Inc., in San
Francisco, California, during which he managed non-trading
functions for the Institutional Brokerage Division including
sales/marketing, operations, compliance, financial
planning/reporting and research and managed 10 full time employees
and a $4.5 million budget. Mr. Rudolph attended Washington
University in St. Louis, MO, where he received his M.B.A. in
Finance/Marketing. He received his B.S. in Biochemistry from Purdue
University in West Lafayette, IN, and was a licensed FINRA
registered investment advisor from April 2001 to March
2011.
Michael Berg - Director
Mr.
Berg, age 70, has been a practicing Certified Public Accountant for
over 30 years and currently serves as an advisor to several small
public companies. From September of 1977 until June of 1985, he was
an audit manager for Coopers & Lybrand (now PWC) in San
Francisco and in January 2008, co-founded and served as the West
Coast PIC of PMB Helin Donovan, a 100+ person CPA firm. From
September 1988 until December 2000, Mr. Berg served as the Chief
Financial Officer of a public real estate company and a high tech
manufacturer and a research and development company. He has
established several independent companies including EXIS in January
1992, which sold and installed a proprietary software product which
he helped develop for distributed general ledgers systems. Most
recently, in January 2014, he formed the Registry of Accredited
Investors that provides services to investors and companies in Reg
D offerings. His industry experience ranges from finance and
distribution to high tech, pharma, real estate and construction.
Mr. Berg has worked extensively with public companies and has
participated in many public offerings in national markets. From
January 1989 until October 1996, he was the President of the Board
of Directors of the Names Project and formed a not-for-profit
called the Permanent Display aimed at creating a San Francisco
landmark for the AIDs Quilt. In March 2005, Mr. Berg also helped
found Welcome, a 501C (3) that provides homeless outreach in the
Upper Polk Street area of San Francisco. Mr. Berg attended San
Francisco State University, where he received his B.A. in
Accounting, and is a licensed CFF and CPA in the States of
California.
Code
of Business Conduct and Ethics
We
have adopted a Code of Business Conduct and Ethics that applies to
our principal executive officer, principal financial officer,
principal accounting officer or controller or persons performing
similar functions and also to other employees. Our Code of Business
Conduct and Ethics can be found on the Company’s website at
www.marathonpg.com.
Family
Relationships
There
are no family relationships between any of our directors, executive
officers or directors.
Involvement
in Certain Legal Proceedings
During
the past ten years, none of our officers, directors, promoters or
control persons have been involved in any legal proceedings as
described in Item 401(f) of Regulation S-K.
Term
of Office
Our
Board of Directors is comprised of five directors, of which all
five seats are currently occupied, and is divided among three
classes, Class I, Class II and Class III. Class I directors will
serve until the 2021 annual meeting of stockholders and until their
respective successors have been duly elected and qualified, or
until such director’s earlier resignation, removal or death. Class
III directors will serve until the 2020 annual meeting of
stockholders and until their respective successors have been duly
elected and qualified, or until such director’s earlier
resignation, removal or death. Class II directors, elected at the
Company’s annual shareholder meeting held on September 28, 2016,
will serve until the 2019 annual meeting of stockholders and until
their respective successors have been duly elected and qualified,
or until such director’s earlier resignation, removal or death. All
officers serve at the pleasure of the Board.
Director
Independence
Mr.
Fred Thiel, Mr. Michael Berg and Mr. Michael Rudolph are
“independent” directors based on the definition of independence in
the listing standards of the NASDAQ Stock Market LLC
(“NASDAQ”).
Committees
of the Board of Directors
Our
Board has established three standing committees: an audit
committee, a nominating and corporate governance committee and a
compensation committee, which are described below. Members of these
committees are elected annually at the regular board meeting held
in conjunction with the annual stockholders’ meeting. The charter
of each committee is available on our website at
www.marathonpg.com.
Audit
Committee
The
Audit Committee members are currently Mr. Fred Thiel, Mr. Michael
Berg and Mr. Michael Rudolph, with Mr. Michael Berg as Chairman.
The Audit Committee has authority to review our financial records,
deal with our independent auditors, recommend to the Board policies
with respect to financial reporting, and investigate all aspects of
our business. All of the members of the Audit Committee currently
satisfy the independence requirements and other established
criteria of NASDAQ.
The
Audit Committee Charter is available on the Company’s website at
http://www.marathonpg.com/. The Audit Committee has sole authority
for the appointment, compensation and oversight of the work of our
independent registered public accounting firm, and responsibility
for reviewing and discussing with management and our independent
registered public accounting firm our audited consolidated
financial statements included in our Annual Report on Form 10-K,
our interim financial statements and our earnings press releases.
The Audit Committee also reviews the independence and quality
control procedures of our independent registered public accounting
firm, reviews management’s assessment of the effectiveness of
internal controls, discusses with management the Company’s policies
with respect to risk assessment and risk management and will review
the adequacy of the Audit Committee charter on an annual
basis.
Nominating
and Governance Committee
The
Nominating and Corporate Governance Committee members are currently
Mr. Fred Thiel, Mr. Michael Berg and Mr. Michael Rudolph, with Mr.
Michael Rudolph as Chairman. The Nominating and Corporate
Governance Committee has the following responsibilities: (a)
setting qualification standards for director nominees; (b)
identifying, considering and nominating candidates for membership
on the Board; (c) developing, recommending and evaluating corporate
governance standards and a code of business conduct and ethics
applicable to the Company; (d) implementing and overseeing a
process for evaluating the Board, Board committees (including the
Committee) and overseeing the Board’s evaluation of the Chairman
and Chief Executive Officer of the Company; (e) making
recommendations regarding the structure and composition of the
Board and Board committees; (f) advising the Board on corporate
governance matters and any related matters required by the federal
securities laws; and (g) assisting the Board in identifying
individuals qualified to become Board members; recommending to the
Board the director nominees for the next annual meeting of
shareholders; and recommending to the Board director nominees to
fill vacancies on the Board.
The
Nominating and Governance Committee Charter is available on the
Company’s website at http://www.marathonpg.com/. The Nominating and
Governance Committee determines the qualifications, qualities,
skills, and other expertise required to be a director and to
develop, and recommend to the Board for its approval, criteria to
be considered in selecting nominees for director (the “Director
Criteria”); identifies and screens individuals qualified to become
members of the Board, consistent with the Director Criteria. The
Nominating and Governance Committee considers any director
candidates recommended by the Company’s shareholders pursuant to
the procedures described in the Company’s proxy statement, and any
nominations of director candidates validly made by shareholders in
accordance with applicable laws, rules and regulations and the
provisions of the Company’s charter documents. The Nominating and
Governance Committee makes recommendations to the Board regarding
the selection and approval of the nominees for director to be
submitted to a shareholder vote at the Annual Meeting of
shareholders, subject to approval by the Board.
Compensation
Committee
The
Compensation Committee oversees our executive compensation and
recommends various incentives for key employees to encourage and
reward increased corporate financial performance, productivity and
innovation. Its members are currently Mr. Fred Thiel, Mr. Michael
Berg and Mr. Michael Rudolph with Mr. Fred Thiel as Chairman. All
of the members of the Compensation Committee currently satisfy the
independence requirements and other established criteria of
NASDAQ.
The
Compensation Committee Charter is available on the Company’s
website at http://www.marathonpg.com/. The Compensation Committee
is responsible for: (a) assisting our Board in fulfilling its
fiduciary duties with respect to the oversight of the Company’s
compensation plans, policies and programs, including assessing our
overall compensation structure, reviewing all executive
compensation programs, incentive compensation plans and
equity-based plans, and determining executive compensation; and (b)
reviewing the adequacy of the Compensation Committee charter on an
annual basis. The Compensation Committee, among other things,
reviews and approves the Company’s goals and objectives relevant to
the compensation of the Chief Executive Officer, evaluate the Chief
Executive Officer’s performance with respect to such goals, and set
the Chief Executive Officer’s compensation level based on such
evaluation. The Compensation Committee also considers the Chief
Executive Officer’s recommendations with respect to other executive
officers and evaluates the Company’s performance both in terms of
current achievements and significant initiatives with long-term
implications. It assesses the contributions of individual
executives and recommend to the Board levels of salary and
incentive compensation payable to executive officers of the
Company; compares compensation levels with those of other leading
companies in similar or related industries; reviews financial,
human resources and succession planning within the Company;
recommend to the Board the establishment and administration of
incentive compensation plans and programs and employee benefit
plans and programs; recommends to the Board the payment of
additional year-end contributions by the Company under certain of
its retirement plans; grants stock incentives to key employees of
the Company and administer the Company’s stock incentive plans; and
reviews and recommends for Board approval compensation packages for
new corporate officers and termination packages for corporate
officers as requested by management.
Changes
in Nominating Procedures
None.
Board
Leadership Structure and Role in Risk Oversight
Although
we have not adopted a formal policy on whether the Chairman and
Chief Executive Officer positions should be separate or combined,
we have traditionally determined that it is in the best interests
of the Company and its shareholders to partially combine these
roles. Due to the small size of the Company, we believe it is
currently most effective to have the Chairman and Chief Executive
Officer positions partially combined.
Our
Board is primarily responsible for overseeing our risk management
processes. The Board receives and reviews periodic reports from
management, auditors, legal counsel, and others, as considered
appropriate regarding the Company’s assessment of risks. The Board
focuses on the most significant risks facing the Company and our
general risk management strategy, and also ensures that risks
undertaken by us are consistent with the Board’s risk parameters.
While the Board oversees the Company, our management is responsible
for day-to-day risk management processes. We believe this division
of responsibilities is the most effective approach for addressing
the risks facing the Company and that our board leadership
structure supports this approach.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of Exchange Act requires our executive officers and directors
and persons who beneficially own more than 10% of a registered
class of our equity securities to file with the Commission initial
statements of beneficial ownership, statements of changes in
beneficial ownership and annual statement of changes in beneficial
ownership with respect to their ownership of the Company’s
securities, on Form 3, 4 and 5 respectively. Executive officers,
directors and greater than 10% shareholders are required by the
Securities and Exchange Commission regulations to furnish our
Company with copies of all Section 16(a) reports they
file.
Based
solely on our review of the copies of such reports received by us,
and on written representations by our officers and directors
regarding their compliance with the applicable reporting
requirements under Section 16(a) of the Exchange Act and without
conducting any independent investigation of our own, we believe
that with respect to the fiscal year ended December 31, 2019, our
officers and directors, and all of the persons known to us to
beneficially own more than 10% of our common stock filed all
required reports on a timely basis.
EXECUTIVE
COMPENSATION
The
following summary compensation table sets forth information
concerning compensation for services rendered in all capacities
during 2019 and 2018 awarded to, earned by or paid to our executive
officers or most highly paid individuals. The value attributable to
any option awards and stock awards reflects the grant date fair
values of stock awards calculated in accordance with FASB
Accounting Standards Codification Topic 718. As described further
in “Note 5 — Stockholders’ Equity - Common Stock Options” in our
Notes to Consolidated Financial Statements, the assumptions made in
the valuation of these option awards and stock awards is set forth
therein.
|
Name
and
Principal
Position
|
|
Year |
|
Salary |
|
|
Bonus
Awards |
|
|
Stock
Awards |
|
|
Option
Awards |
|
|
Non-Equity
Plan Compensation |
|
|
Nonqualified Deferred
Earnings |
|
|
All Other
Compensation |
|
|
Total |
|
|
|
|
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
Merrick
Okamoto (1) |
|
2019 |
|
|
352,406 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
352,406 |
|
| CEO |
|
2018 |
|
|
58,333 |
|
|
|
250,000 |
|
|
|
- |
|
|
|
1,263,925 |
|
|
|
- |
|
|
|
- |
|
|
|
223,308 |
|
|
|
1,795,566 |
|
|
David
Lieberman (2) |
|
2019 |
|
|
181,238 |
|
|
|
- |
|
|
|
- |
|
|
|
29,666 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
210,904 |
|
|
CFO &
Director |
|
2018 |
|
|
127,500 |
|
|
|
35,000 |
|
|
|
- |
|
|
|
50,577 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
213,077 |
|
|
James
Crawford (3) |
|
2019 |
|
|
120,900 |
|
|
|
- |
|
|
|
- |
|
|
|
14,833 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
135,733 |
|
| COO |
|
2018 |
|
|
110,000 |
|
|
|
5,000 |
|
|
|
- |
|
|
|
25,278 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
140,278 |
|
|
Doug
Croxall (4) |
|
2019 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Former CEO
and Chairman |
|
2018 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
80,000 |
|
|
|
80,000 |
|
|
Francis
Knuettel II (5) |
|
2019 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Former CFO
& Secretary |
|
2018 |
|
|
64,477 |
|
|
|
75,000 |
|
|
|
86,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
225,477 |
|
|
(1) |
Merrick
Okamoto entered into a new employment agreement in October 11, 2018
which replaced his prior employment agreement. |
|
(2) |
David
Lieberman entered into a new employment agreement in October 15,
2018 which replaced his prior employment agreement. |
|
(3) |
James
Crawford entered into a new employment agreement in August 30, 2017
which replaced his prior employment agreement. |
|
(4) |
Doug
Croxall entered into a Retention Agreement on August 22, 2017, as
amended, pursuant to which his employment with the Company
terminated on December 31, 2017. |
|
(5) |
Francis
Knuettel II entered into a Retention Agreement on August 30, 2017
which replaced his prior employment agreement, and his employment
with the Company was terminated on April 22, 2018. |
Employment
Agreements
On
October 11, 2018, we entered into a 2-year Employment Agreement,
subject to successive one year extensions, with Merrick Okamoto,
pursuant to which Mr. Okamoto will serve as the Executive Chairman
and Chief Executive Officer of the Company. Pursuant to the terms
of the Agreement, Mr. Okamoto shall receive a base salary at an
annual base salary of $350,000 (subject to annual 3% cost of living
increase) and an annual bonus up to 100% of base salary as
determined by the Compensation Committee or the Board. As further
consideration for Mr. Okamoto’s services, we agreed to issue Mr.
Okamoto 10-year stock options to purchase 1,250,000 shares of
Common Stock, with a strike price of $2.32 per share, vesting 50 %
on the date of grant and 25% on each 6 months anniversary of the
date of grant.
On
October 15, 2018, we entered into a 2-year Employment Agreement,
subject to successive one year extensions, with David Lieberman,
pursuant to which Mr. Lieberman will serve as the Chief Financial
Officer of the Company. Pursuant to the terms of the Lieberman
Agreement, Mr. Lieberman shall receive a base salary at an annual
base salary of $180,000 (subject to annual 3% cost of living
increase) and an annual bonus up to 100% of base salary as
determined by the Compensation Committee or the Board. As further
consideration for Mr. Lieberman’s services, we agreed to issue Mr.
Lieberman 10-year stock options to purchase 50,000 shares of Common
Stock, with a strike price of $2.32 per share, vesting 50% on the
date of grant and 25% on each 6 months anniversary of the date of
grant.
Directors’
Compensation
The
following summary compensation table sets forth information
concerning compensation for services rendered in all capacities
during 2019 and 2018 awarded to, earned by or paid to our
directors. The value attributable to any warrant awards reflects
the grant date fair values of stock awards calculated in accordance
with FASB Accounting Standards Codification Topic 718. As described
further in “Note 5 — Stockholders’ Equity (Deficit) — Common Stock
Warrants” in our Consolidated Financial Statements, a discussion of
the assumptions made in the valuation of these warrant
awards.
|
Name |
|
Year |
|
Fees
Earned or paid in cash |
|
|
Stock
awards |
|
|
Option
awards |
|
|
Non-equity
incentive plan compensation |
|
|
Non-qualified deferred
compensation earnings |
|
|
All other
compensation |
|
|
Total |
|
|
|
|
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
David
Lieberman |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2019 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
2018 |
|
|
5,430 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,430 |
|
|
Edward
Kovalik (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2019 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
2018 |
|
|
8,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,000 |
|
|
Michael
Rudolph |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2019 |
|
|
20,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
20,000 |
|
| |
|
2018 |
|
|
7,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,500 |
|
|
Michael
Berg |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2019 |
|
|
20,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
20,000 |
|
| |
|
2018 |
|
|
7,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,500 |
|
|
Christopher Robichaud
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2019 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
2018 |
|
|
8,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,000 |
|
|
Fred
Thiel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2019 |
|
|
20,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
20,000 |
|
| |
|
2018 |
|
|
13,069 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,069 |
|
|
(1) |
Edward
Kovalik resigned from all positions with the Company as a board
member on June 28, 2018. |
|
(2) |
Christopher
Robichaud resigned from all positions with the Company as a board
member on June 28, 2018. |
Employee
Grants of Plan Based Awards and Outstanding Equity Awards at Fiscal
Year-End
On
August 1, 2012, our Board and stockholders adopted the 2012 Equity
Incentive Plan, pursuant to which 96,154 shares of our common stock
are reserved for issuance as awards to employees, directors,
consultants, advisors and other service providers, after giving
effect to the Reverse Split.
On
September 16, 2014, our Board adopted the 2014 Equity Incentive
Plan (the “2014 Plan”), and only July 31, 2015, the shareholders
approved the 2014 Plan at the Company’s annual meeting. The 2014
Plan authorizes the Company to grant stock options, restricted
stock, preferred stock, other stock-based awards, and performance
awards to purchase up to 125,000 shares of common stock. Awards may
be granted to the Company’s directors, officers, consultants,
advisors and employees. Unless earlier terminated by the Board, the
2014 Plan will terminate, and no further awards may be granted,
after September 16, 2024.
On
September 6, 2017, our Board adopted the 2017 Equity Incentive
Plan, subsequently approved by the shareholders on September 29,
2017, pursuant to which up to 625,000 shares of our common stock,
stock options, restricted stock, preferred stock, stock-based
awards and other awards are reserved for issuance as awards to
employees, directors, consultants, advisors and other service
providers.
On
January 1, 2018, our Board adopted the 2018 Equity Incentive Plan,
subsequently approved by the shareholders on March 7, 2018,
pursuant to which up to 2,500,000 shares of our common stock, stock
options, restricted stock, preferred stock, stock-based awards and
other awards are reserved for issuance as awards to employees,
directors, consultants, advisors and other service
providers.
As of
December 31, 2019, and within sixty (60) days thereafter, the
following sets forth the option and stock awards to officers of the
Company:
|
|
|
Option
Awards |
|
Stock
awards |
|
|
|
|
Number of
securities underlying unexercised options (1) |
|
|
Number of
securities underlying unexercised options |
|
|
Equity
incentive plan awards: Number of securities underlying unexercised
unearned options |
|
|
Option
exercise price |
|
|
Option
expiration
date
|
|
Number of
shares of units of stock that have not vested |
|
|
Market
value of shares of units of stock that have not vested |
|
|
Equity
incentive plan awards: Number of unearned shares, units or other
rights that have not vested |
|
|
Equity
incentive plan awards: Market or payout value of unearned shares,
units or other rights that have not vested |
|
|
|
|
(#)
exercisable |
|
|
(#)
unexercisable |
|
|
(#)
unexercisable |
|
|
($) |
|
|
|
|
(#) |
|
|
($) |
|
|
(#) |
|
|
($) |
|
|
Merrick
Okamoto |
|
|
1,250,000 |
|
|
|
- |
|
|
|
- |
|
|
$ |
2.32 |
|
|
10/12/28 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
David
Lieberman |
|
|
50,000 |
|
|
|
- |
|
|
|
- |
|
|
$ |
2.32 |
|
|
10/12/28 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
David
Lieberman |
|
|
25,000 |
|
|
|
- |
|
|
|
- |
|
|
$ |
2.04 |
|
|
7/22/2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Crawford |
|
|
5,000 |
|
|
|
- |
|
|
|
- |
|
|
$ |
102.4 |
|
|
10/31/24 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
James
Crawford |
|
|
2,188 |
|
|
|
- |
|
|
|
- |
|
|
$ |
29.76 |
|
|
10/14/25 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
James
Crawford |
|
|
1,875 |
|
|
|
- |
|
|
|
- |
|
|
$ |
66.64 |
|
|
05/14/24 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
James
Crawford |
|
|
25,000 |
|
|
|
- |
|
|
|
- |
|
|
$ |
2.32 |
|
|
10/12/28 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
James
Crawford |
|
|
12,500 |
|
|
|
- |
|
|
|
- |
|
|
$ |
2.04 |
|
|
7/22/2024 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Compensation
Committee Interlocks and Insider Participation
None
of our executive officers serves as a member of the Board or
Compensation Committee of any other entity that has one or more of
its executive officers serving as a member of our Board.
SECURITY OWNERSHIP OF CERTAIN OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth certain information regarding beneficial
ownership of our Common Stock as of June 29, 2020: (i) by each of
our directors, (ii) by each of the named executive officers, (iii)
by all of our executive officers and directors as a group, and (iv)
by each person or entity known by us to beneficially own more than
five percent (5%) of any class of our outstanding shares. As of
June 29, 2020, there were 21,780,663 shares of our common stock
outstanding.
|
Amount and
Nature of Beneficial Ownership as of June 29, 2020 |
|
Name of
Beneficial Owner |
|
Common
Stock |
|
|
Options |
|
|
Warrants |
|
|
Total |
|
|
Percentage
of Common Stock (%) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers
and Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merrick
Okamoto (1) |
|
|
53,875 |
|
|
|
- |
|
|
|
- |
|
|
|
53,875 |
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Lieberman (2) |
|
|
9,375 |
|
|
|
- |
|
|
|
- |
|
|
|
9,375 |
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Crawford (Chief Operating Officer) (3) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fred Thiel
(4) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Berg (5) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Rudolph (6) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Directors and Executive Officers (six persons) |
|
|
63,250 |
|
|
|
|
|
|
|
- |
|
|
|
63,250 |
|
|
|
* |
|
(1)
Mr. Okamoto also owns 1,819,767 restricted stock units which vest
in equal quarterly amounts commencing on June 30, 2020.
(2)
Mr. Lieberman also owns 393,023 restricted stock units which vest
in equal quarterly amounts commencing on June 30, 2020.
(3)
Mr. Crawford also owns 245,348 restricted stock units which vest in
equal quarterly amounts commencing on June 30, 2020.
(4)
Mr. Thiel also owns 62,500 restricted stock units which vest in
equal quarterly amounts commencing on June 30, 2020.
(5)
Mr. Berg also owns 62,500 restricted stock units which vest in
equal quarterly amounts commencing on June 30, 2020.
(6)
Mr. Rudolph also owns 62,500 restricted stock units which vest in
equal quarterly amounts commencing on June 30, 2020.
*Represents
less than 1% of the issued and outstanding common shares of the
Company.
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Other
than disclosed herein, there were no transactions during the year
ended December 31, 2019 and 2018 or any currently proposed
transactions, in which the Company was or is to be a participant
and the amount involved exceeds $120,000, and in which any related
person had or will have a direct or indirect material
interest.
DESCRIPTION OF COMMON
STOCK
General
We
are authorized to issue 200,000,000 shares of common stock, at no
par value per share. As of the date of this prospectus, we have
21,780,663 shares of our common stock issued and
outstanding.
Holders
of the Company’s common stock are entitled to one vote for each
share on all matters submitted to a stockholder vote. Holders of
common stock do not have cumulative voting rights. Therefore,
holders of a majority of the shares of common stock voting for the
election of directors can elect all of the directors. Holders of
the Company’s common stock representing a third of the voting power
of the Company’s capital stock issued, outstanding and entitled to
vote, represented in person or by proxy, are necessary to
constitute a quorum at any meeting of stockholders. A vote by the
holders of a majority of the Company’s outstanding shares is
required to effectuate certain fundamental corporate changes such
as liquidation, merger or an amendment to the Company’s certificate
of incorporation.
Holders
of the Company’s common stock are entitled to share in all
dividends that the board of directors, in its discretion, declares
from legally available funds. In the event of a liquidation,
dissolution or winding up, each outstanding share entitles its
holder to participate pro rata in all assets that remain after
payment of liabilities and after providing for each class of stock,
if any, having preference over the common stock. The Company’s
common stock has no pre-emptive rights, no conversion rights and
there are no redemption provisions applicable to the Company’s
common stock.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Equity Stock
Transfer, Inc., NY, NY.
Listing
Our
common stock is currently traded on the NASDAQ Capital Market under
the symbol “MARA.”
DESCRIPTION
OF PREFERRED STOCK
General
The
Company’s articles of incorporation authorize the issuance of
50,000,000 shares of “blank check” preferred stock, no par value
per share, in one or more series, of which no series or shares were
outstanding as of March 31, 2020, subject to any limitations
prescribed by law, without further vote or action by the
stockholders. Each such series of preferred stock shall have such
number of shares, designations, preferences, voting powers,
qualifications, and special or relative rights or privileges as
shall be determined by our board of directors, which may include,
among others, dividend rights, voting rights, liquidation
preferences, conversion rights and preemptive rights.
Preferred
stock is available for possible future financings or acquisitions
and for general corporate purposes without further authorization of
stockholders unless such authorization is required by applicable
law, the rules of the NASDAQ Capital Market or other securities
exchange or market on which our stock is then listed or admitted to
trading.
Our
board of directors may authorize the issuance of preferred stock
with voting or conversion rights that could adversely affect the
voting power or other rights of the holders of common stock. The
issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes
could, under some circumstances, have the effect of delaying,
deferring or preventing a change in control of the
Company.
Securities
Offered in this Offering
We
are offering 6,666,667 shares of our common stock.
Common
Stock
The
material terms and provisions of our common stock and each other
class of our securities which qualifies or limits our common stock
are described above in this section of this prospectus.
Transfer
Agent
The
transfer agent and registrar for our common stock is Equity Stock
Transfer. The transfer agent’s address is, and its telephone number
is.
Listing
Our
common stock is listed on NASDAQ under the symbol
“MARA”.
We
have entered into an underwriting agreement with H.C. Wainwright
& Co., LLC (“Wainwright” or the “representative”) as the
representative of the underwriters named below and the sole
book-running manager of this offering, with respect to the offering
of shares of our common stock. Subject to the terms and conditions
of an underwriting agreement between us and Wainwright, we have
agreed to sell to the underwriters, and the underwriters have
agreed to purchase, at the public offering price less the
underwriting discounts set forth on the cover page of this
prospectus, the number of shares of common stock listed next to its
name in the following table:
|
Name of
Underwriter |
|
Number
of
Shares |
|
|
H.C.
Wainwright & Co., LLC |
|
|
6,666,667
|
|
|
|
|
|
|
|
|
Total |
|
|
6,666,667 |
|
The
underwriters are committed to purchase all the securities offered
by this prospectus. The underwriters are not obligated to purchase
the shares covered by the underwriter’s over-allotment option
described below. The underwriters are offering the shares of our
common stock, subject to prior sale, when, as and if issued to and
accepted by them, subject to approval of legal matters by their
counsel, and other conditions contained in the underwriting
agreement, such as the receipt by the underwriters of officer’s
certificates and legal opinions. The underwriters reserve the right
to withdraw, cancel or modify offers to the public and to reject
orders in whole or in part.
The
underwriting agreement provides that the underwriters’ obligation
to purchase the securities in this offering is subject to
conditions contained in the underwriting agreement. A copy of the
underwriting agreement has been filed as an exhibit to the
registration statement of which this prospectus is part. The
underwriters have advised us that they do not intend to confirm
sales to any accounts over which they exercise discretionary
authority.
No
action has been taken by us or the underwriters that would permit a
public offering of the securities included in this offering in any
jurisdiction where action for that purpose is required. None of our
securities included in this offering may be offered or sold,
directly or indirectly, nor may this prospectus or any other
offering material or advertisements in connection with the offer
and sales of any of the securities offering hereby be distributed
or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and
regulations of that jurisdiction. Persons who receive this
prospectus are advised to inform themselves about and to observe
any restrictions relating to this offering of securities and the
distribution of this prospectus. This prospectus is neither an
offer to sell nor a solicitation of any offer to buy the shares in
any jurisdiction where that would not be permitted or
legal.
Discounts
and Commissions
We
have agreed to pay the underwriters a cash fee equal to seven
percent (7.0%) of the aggregate gross proceeds raised in this
offering.
The
underwriters have advised us that they propose to offer the shares
of common stock, directly to the public at the public offering
price set forth on the cover of this prospectus. In addition, the
underwriters may offer some of the shares to other securities
dealers at such price less a concession of up to $0.0405 per share.
After the offering to the public, the offering price and other
selling terms may be changed by the underwriters without changing
the Company’s proceeds from the underwriter’s purchase of the
securities.
The
following table summarizes the public offering price, underwriting
commissions and proceeds before expenses to us assuming both no
exercise and full exercise of the underwriters’ option to purchase
additional shares of common stock. The underwriting commissions are
equal to the public offering price per share less the amount per
share the underwriter pays us for the shares.
|
|
|
Per
Share |
|
|
Total
Without
Over Allotment |
|
|
Total
With
Over Allotment |
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
offering price |
|
$ |
0.90 |
|
|
|
6,000,000 |
|
|
|
6,899,999 |
|
|
Underwriting discounts
and commissions |
|
$ |
0.063 |
|
|
|
420,000 |
|
|
|
483,000 |
|
|
Proceeds,
before expenses, to us |
|
$ |
0.837 |
|
|
|
5,580,000 |
|
|
|
6,416,999 |
|
We
estimate that the total expenses of the offering, including
registration, filing and listing fees, printing fees and legal and
accounting expenses, but excluding underwriting discounts and
commissions, will be approximately $175,000, all of which are
payable by us. This figure includes expense reimbursements we have
agreed to reimburse Wainwright for its out-of-pocket expenses,
including legal fees, related to the offering, up to a maximum of
$75,000, and for its clearing expenses in the amount of
$12,900.
Over-Allotment
Option
We
have granted to the underwriters an option, exercisable no later
than 45 calendar days after the date of the underwriting agreement,
to purchase up to 999,999 additional shares of common stock at the
public offering price listed on the cover page of this prospectus,
less underwriting discounts and commissions. If any additional
shares are purchased pursuant to this option, the underwriters will
offer these additional shares on the same terms as those on which
the other shares are being offered hereby. To the extent the option
is exercised and the conditions of the underwriting agreement are
satisfied, we will be obligated to sell to the underwriters, and
the underwriters will be obligated to purchase, these additional
securities.
Representative’s
Warrants
In
addition, we have agreed to issue to the representative or its
designees warrants to purchase 466,667 shares of common stock
(536,667 shares if the representative exercises its option to
purchase additional shares in full) with an exercise price of
$1.125 per share (or 125% of the public offering price). The
representative’s warrants will be exercisable immediately and for
five years from the effective date of the registration statement of
which this prospectus forms a part. Pursuant to FINRA Rule 5110(g),
the representative’s warrants and any shares issued upon exercise
of the representative’s warrants shall not be sold, transferred,
assigned, pledged, or hypothecated, or be the subject of any
hedging, short sale, derivative, put or call transaction that would
result in the effective economic disposition of the securities by
any person for a period of 180 days immediately following the date
of effectiveness or commencement of sales of this offering, except
the transfer of any security: (i) by operation of law or by
reason of our reorganization; (ii) to any FINRA member firm
participating in the offering and the officers or partners thereof,
if all securities so transferred remain subject to the lock-up
restriction set forth above for the remainder of the time period;
(iii) if the aggregate amount of our securities held by the
underwriter or related persons do not exceed 1% of the securities
being offered; (iv) that is beneficially owned on a pro-rata
basis by all equity owners of an investment fund, provided that no
participating member manages or otherwise directs investments by
the fund and the participating members in the aggregate do not own
more than 10% of the equity in the fund; or (v) the exercise
or conversion of any security, if all securities remain subject to
the lock-up restriction set forth above for the remainder of the
time period. Up to 472,266 of the representative’s warrants are
registered in the registration statement of which this prospectus
is a part.
Lock-up
Agreements
Our
officers and directors have agreed with the representative to be
subject to a lock-up period of 90 days following the date of
closing of the offering pursuant to this prospectus. This means
that, during the applicable lock-up period, such persons may not
offer for sale, contract to sell, sell, distribute, grant any
option, right or warrant to purchase, pledge, hypothecate or
otherwise dispose of, directly or indirectly, any shares of our
common stock or any securities convertible into, or exercisable or
exchangeable for, shares of our common stock, subject to certain
customary exceptions. The representative may, in its sole
discretion and without notice, waive the terms of any of these
lock-up agreements. We have also agreed, in the underwriting
agreement, to similar lock-up restrictions on the issuance and sale
of our securities for 90 days following the closing of this
offering, subject to certain customary exceptions, and provided
that, after 30 days following the date of closing of the offering,
we are permitted to issue share of common stock in an “at the
market” offering with H.C. Wainwright & Co., LLC as sales
agent, and we have agreed to a restriction on the issuance of
variable priced securities for 12 months following the closing of
this offering, subject to an exception, provided that each
restriction may be waived by Wainwright in its sole
discretion.
Right
of First Refusal
We
have granted Wainwright a right of first refusal to act as sole
book-running manager, sole underwriter or sole placement agent in
connection with any public or private offering or other
capital-raising financing of equity, equity-linked or debt
securities by us or any subsidiary using an underwriter or
placement agent, which right extends for twelve months from the
closing date of this offering.
Indemnification
We
have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, and to
contribute to payments that the underwriters may be required to
make for these liabilities.
Price
Stabilization, Short Positions, and Penalty Bids
In
connection with this offering, each underwriter may engage in
transactions that stabilize, maintain or otherwise affect the price
of our securities. Specifically, such underwriter may over-allot in
connection with this offering by selling more securities than are
set forth on the cover page of this prospectus. This creates a
short position in our securities for such underwriter’s own
accounts. The short position may be either a covered short position
or a naked short position. In a covered short position, the number
of securities over-allotted by such underwriter is not greater than
the number of securities that it may purchase in the over-allotment
option. In a naked short position, the number of securities
involved is greater than the number of securities in the
over-allotment option. To close out a short position, such
underwriter may elect to exercise all or part of the over-allotment
option. Such underwriter may also elect to stabilize the price of
our securities or reduce any short position by bidding for, and
purchasing, securities in the open market.
The
underwriters may also impose a penalty bid. This occurs when a
particular underwriter or dealer repays selling concessions allowed
to it for distributing a security in this offering because the
underwriter repurchases that security in stabilizing or short
covering transactions.
Finally,
each underwriter may bid for, and purchase, shares of our
securities in market-making transactions, including “passive”
market-making transactions pursuant to Regulation M.
These
activities may stabilize or maintain the market price of our
securities at a price that is higher than the price that might
otherwise exist in the absence of these activities. The
underwriters are not required to engage in these activities, and
may discontinue any of these activities at any time without notice.
These transactions may be effected on NASDAQ, in the
over-the-counter market, or otherwise.
Electronic
Distribution
This
prospectus in electronic format may be made available on websites
or through other online services maintained by the underwriters, or
by their affiliates. Other than this prospectus in electronic
format, the information on the underwriters’ websites and any
information contained in any other websites maintained by an
underwriter is not part of this prospectus or the registration
statement of which this prospectus forms a part, has not been
approved and/or endorsed by us or the underwriters in their
capacity as underwriter, and should not be relied upon by
investors.
Certain
Relationships
The
representative and its affiliates have engaged in, and may in the
future engage in, investment banking and other commercial dealings
in the ordinary course of business with us or our affiliates. The
representative has received, or may in the future receive,
customary fees and commissions for these transactions.
Offers
Outside the United States
Other
than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the securities
offered by this prospectus in any jurisdiction where action for
that purpose is required. The securities offered by this prospectus
may not be offered or sold, directly or indirectly, nor may this
prospectus or any other offering material or advertisements in
connection with the offer and sale of any such securities be
distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable
rules and regulations of that jurisdiction. Persons into whose
possession this prospectus comes are advised to inform themselves
about and to observe any restrictions relating to the offering and
the distribution of this prospectus. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy
any securities offered by this prospectus in any jurisdiction in
which such an offer or a solicitation is unlawful.
Listing
Our
common stock is listed on NASDAQ under the symbol
“MARA”.
LEGAL MATTERS
The
validity of the issuance of the securities offered by this
prospectus will be passed upon for us by Jolie Kahn, Esq. of New
York, NY. The underwriter is being represented by Ellenoff Grossman
& Schole LLP, New York, New York.
EXPERTS
The
consolidated balance sheet of Marathon Patent Group, Inc. as of
December 31, 2019 and 2018, and the related consolidated statements
of operations, stockholders’ equity, and cash flows for the years
then ended have been audited by RBSM, LLP, as stated in their
report, which is incorporated herein by reference. Such
consolidated financial statements are incorporated herein by
reference in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE
INFORMATION
We
file annual, quarterly and special reports, along with other
information with the SEC. Our SEC filings are available to the
public over the Internet at the SEC’s website at
http://www.sec.gov. You may also read and copy any document we file
at the SEC’s Public Reference Room at 100 F Street, NE, Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Room. Our SEC filings are also
available on our website, https://ir.marathonpatentgroup.com/under
the heading “Investors.” The information on this website is
expressly not incorporated by reference into, and does not
constitute a part of, this prospectus.
This
prospectus is part of a registration statement on Form S-3 that we
filed with the SEC to register the securities offered hereby under
the Securities Act of 1933, as amended. This prospectus does not
contain all of the information included in the registration
statement, including certain exhibits and schedules. You may obtain
the registration statement and exhibits to the registration
statement from the SEC at the address listed above or from the
SEC’s internet site.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
This
prospectus is part of a registration statement filed with the SEC.
The SEC allows us to “incorporate by reference” into this
prospectus the information that we file with them, which means that
we can disclose important information to you by referring you to
those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we
file later with the SEC will automatically update and supersede
this information. The following documents are incorporated by
reference and made a part of this prospectus:
|
|
● |
Annual Report on Form 10-K for the year ended December 31, 2019
filed on March 24, 2020 and Quarterly Report on Form 10-Q for the
quarter ended March 31, 2020, filed on May 14, 2020; |
| |
|
|
| |
● |
Our
Definitive Proxy Statement on Schedule 14A and accompanying
additional proxy materials filed with the SEC on October 15,
2019; |
| |
|
|
| |
● |
Current Reports on Form 8-K (excluding any reports or
portions thereof that are deemed to be furnished and not filed)
filed on April 9, 2020, April 22, 2020 and May 20, 2020;
and |
| |
|
|
| |
● |
Our registration statement on Form 8-A filed on April 12, 2012 and
July 22, 2014. |
We
also incorporate by reference all additional documents that we file
with the Securities and Exchange Commission under the terms of
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act that are
made after the date of the initial registration statement but prior
to effectiveness of the registration statement and after the date
of this prospectus but prior to the termination of the offering of
the securities covered by this prospectus. We are not, however,
incorporating, in each case, any documents or information that we
are deemed to furnish and not file in accordance with Securities
and Exchange Commission rules.
You
may request, and we will provide you with, a copy of these filings,
at no cost, by calling us at (702) 945-2773 or by writing to us at
the following address:
|
Marathon
Patent Group, Inc.
1180
North Town Center Drive, Suite 100
Las
Vegas, NV 89114
|
|
|
MATERIAL
CHANGES
There
have not been any material changes in the registrant’s affairs
which have occurred since the end of fiscal year 2019 (the latest
fiscal year for which audited financial statements were included in
the latest Form 10-K) and that have not been described in a Form
10-Q or Form 8-K filed under the Exchange Act.
6,666,667
Shares of
Common Stock
PROSPECTUS
H.C.
Wainwright & Co.
July
23, 2020
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