Annual report pursuant to Section 13 and 15(d)

Property and Equipment and Intangible Assets

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Property and Equipment and Intangible Assets
12 Months Ended
Dec. 31, 2019
Property And Equipment And Intangible Assets  
Property and Equipment and Intangible Assets

NOTE 4 – PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

 

On September 30, 2019, the Company consummated the purchase of 6000 S-9 Bitmain 13.5 TH/s Bitcoin Antminers (“Miners”) from SelectGreen Blockchain Ltd., 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. The $513,700 set forth on the balance sheet for mining servers payable reflects the fair value of 583,750 shares to be issued at $0.88 per share to conclude the purchase of the Miners at December 31, 2019. The Company recorded change in fair value of mining payable of $507,862 during the year ended December 31, 2019. There is no requirement for the Company to make a payment in cash in lieu of issuing the remaining shares.

 

On February 7, 2018, Marathon Crypto Mining, Inc. (“MCM”), a Nevada corporation and wholly owned subsidiary of the Company, entered into an agreement to acquire 1,400 Bitmain’s Antminer S9 miners (“Antminer S9s”). The purchase price was $4,557,072. The Company also paid installation costs of $694,647 (total paid and capitalized was $5,251,719). The Company will depreciate the Antminer S9’s and related installation costs over a two-year period. Depreciation for the year ended December 31, 2018 was $2,003,696. During the year ended December 31, 2018, the Company recorded a $2,222,688 charge for the impairment of the mining equipment and $447,776 for the impairment of the leasehold improvements during the year ended December 31, 2019.

 

On February 12, 2018, in connection with the intended mining operations of MCM, the Company assumed a lease contract dated November 11, 2017 (the “Lease Agreement”) by and between 9349-0001 Quebec Inc. (the “Lessor”) and Blocespace Inc., formerly known as Cryptoespace Inc. (the “Lessee”). Pursuant to the Lease Agreement, among other things, the Lessee leases a building of 26,700 square feet (the “Property”) in Quebec, Canada, for an initial term of five (5) years (the “Term”), commencing on December 1, 2017 and terminating on November 30, 2022. The Lessee shall pay a monthly rent of $10,013 CAD plus tax, or an annual rent of $120,150 CAD plus tax (“Yearly Rent”). At the signing of the Lease Agreement, the Lessee paid the Lessor a deposit equal to the Yearly Rent which amount will be dispersed during the Term as set forth in the Lease Agreement. Lease expense for the year ended December 31, 2019 and 2018 were $107,372 and $88,043.

 

The Lessee assigned the Lease Agreement to MCM pursuant to an Assignment and Assumption Agreement (the “Assignment”) by and between the Company and the Lessee’s parent company, Bloctechnologies Canada Inc. Subject to the terms and conditions of the Assignment, MCM agreed to observe all the covenants and conditions of the Lease Agreement, including the payment of all rents due. The Company shall be responsible for all necessary capital expenditures in connection with capital improvements to the Property to set up MCM’s mining operations.

 

The components of property, equipment and intangible assets as of December 31, 2019 and 2018 are:

 

    Useful life (Years)     December 31, 2019     December 31, 2018  
Website     7     $ 121,787     $ 121,787  
Mining equipment     2       7,120,505       3,029,031  
Mining patent     17       1,210,000       1,210,000  
Gross property, equipment and intangible assets             8,452,292       4,360,818  
Less: Accumulated depreciation and amortization             (3,623,745 )     (2,181,488 )
Property, equipment and intangible assets, net           $ 4,828,547     $ 2,179,330  

 

The Company’s depreciation expense for the years ended December 31, 2019 and 2018 were $0.9 million and $2.0 million, and amortization expense were $71,177 and $66,017 for the year ended December 31, 2019 and 2018, respectively.

 

As of December 31, 2019, intangible assets amortization are as follows:

 

2020   $ 71,176  
2021     71,176  
2022     71,176  
2023     71,176  
2024     71,176  
Thereafter     717,698  
Total   $ 1,073,578