Target Price Revision Technology January 5, 2021 Marathon Patent Group, Inc. (MARA) Kevin Dede, CFA 415-779-5876 Rating: Buy kdede@hcwresearch.com This Really Is a Race and Dominant Miners Are Emerging; Raising Our Price Target to $17 and Reit Buy Stock Data 01/04/2021 Never short on surprises, last week's announcement takes the Price $11.01 cake—the winner's cake thus far. Early last week, Marathon Patent Exchange NASDAQ announced yet another forward purchase agreement with Bitmain Price Target $17.00 Technologies, the father of Antminer mining machines, but this one 52-Week High $14.66 clearly establishes the front running industrial bitcoin miner in North 52-Week Low $0.35 America, even among the leading private companies we know. Per Enterprise Value (M) $683 the company's announcement, an additional 70,000 next-generation Market Cap (M) $701 miners are joining Marathon's fleet starting in July with the last of the Public Market Float (M) 9.7 shipments due in Dec. 2021, more than tripling Marathon's existing Shares Outstanding (M) 63.6 33,000 next-gen miners and raising the fleet hash rate to 10.36 EH/ 3 Month Avg Volume 24,511,950 s from 3.56 EH/s—see our Dec. 14 note (yes, just four weeks ago, Short Interest (M) 7.83 Marathon announced a 10,000 miner purchase) Miner Purchase Maxes Hardin Output—$20K Bitcoin Means More to Come; PT Up, Reit Buy. Balance Sheet Metrics For competitive context, Core Scientific (private) announced a 59,000 Cash (M) $17.3 miner purchase Dec. 17, also from Bitmain, that triples its fleet to Total Debt (M) $0.1 roughly 77,000 miners generating 7.26 EH/s using 250MW, while Riot Total Cash/Share $0.27 Blockchain (RIOT; Buy) announced a 10,000 Antminer purchase Dec. Cash (M): Cash balance reflects 3Q20 report while the company share count has expanded to 63.6M from 31.5M reported average 21, raising its fleet capacity to 3.8 EH/s from 2.3 EH/s, and lastly, outstanding for 3Q20. Marathon's Jan. 4 press indicated the Foundry (a subsidiary of privately held DCG) announced an intent to company's cash balance stood at $217.6M and there are roughly invest $100M in crypto mining, which we estimate could translate to 74.7M shares outstanding as of year-end 2020. roughly 4.5 EH/s (in bitcoin terms), but we are scratching our head EPS ($) Diluted on where Foundry might be able to find machines at this juncture. Full Year - Dec 2019A 2020E 2021E Bitmain is sold out, contractually, as we understand it, but MicroBT, 1Q (0.15) (0.12)A -- the manufacturer of WhatsMiner, might be an option as yesterday's 2Q (0.09) (0.13)A -- HIVE Blockchain (HIVE-TSX; not rated) announcement serves, and 3Q (0.12) (0.06)A -- there are other lesser known manufacturers. Another publicly traded 4Q (0.17) (0.01) -- Canadian bitcoin miner announced plans to deploy machines totaling 3 FY (0.53) (0.19) 1.10 EH/s in South America, but the company has yet—publicly announced Revenue ($M) —to secure location or power to meet that strategic goal. Full Year - Dec 2019A 2020E 2021E Valuation scenarios as a function of assumptions. As 1Q 0.2 0.6A -- straightforward as the math is in calculating an individual miner's 2Q 0.4 0.3A -- hash rate, the subsequent calculations required to figure revenue and 3Q 0.3 0.8A -- earnings are infinitely complicated by the assumptions behind them, 4Q 0.3 2.6 -- and we have struggled defending our process through the three years FY 1.2 4.4 161.2 of our miner coverage. It has become clear to us, many prefer to use 2020 Annual: EPS do not add for full-year 2020 on account of stock issuance and rounding. the "as if" scenario in looking what a miner fleet is capable of, and Vol. (mil) Price we see Marathon falling into this bucket save a modest gain in overall 250 15 network hash, also widely referred to as the difficulty index. While the construct helps to detail how things could look with all variables 200 stagnant at current levels, we see the process failing to deliver on what 10 we perceive to be a more likely scenario incorporating a moderate 150 network hash rate, flattish to modestly escalating bitcoin prices, and 100 inclusion of miner machine depreciation. We are particularly hard on that 5 latter point in effort to mitigate the "headline risk" in quarterly earnings 50 reports. Consider the outcome of the full-year 2021 earnings report, where we see Marathon generating roughly $161M in revenue and 0 0 JAN-20 MAY-20 SEP-20 JAN-21 EPS of $1.10 on a GAAP basis, given we have incorporated three-year double-declining balance depreciation. Cash EPS could be on the order of $1.65 per share by our calculation—or higher, again depending on network hash rate and bitcoin pricing assumptions. Were we to exclude the accounting treatment and Marathon's quarter print EPS showed values considerably less than our cash-based estimates, we imagine the result would be reflected in negative stock action. For definitions and the distribution of analyst ratings, analyst certifications, and other disclosures, please refer to pages 8 - 9 of this report. Marathon Patent Group, Inc. January 5, 2021 The "as if" option. Although we have chosen to side-step this approach for our own published estimates, it is helpful in appreciating the potential Marathon has established with its forward purchase contracts. There are some considerations, however, worth addressing up front: (1) mining profitability is subject to bitcoin price and the overall network hash rate, and those variables are unavoidable and always overhead; and (2) the arrangements Marathon has structured call for huge miner shipments both early and late next year, on top of the equipment promised to competitors, such as Riot Blockchain, where we estimate roughly 28,000 Bitmain miners ship through October next year, and Core Scientific, where 59,000 machines are contracted to ship from Bitmain. Marathon expects to collect roughly 17,000 in the first half 2021 and the remaining 84,000 in the second half, with almost half the latter number expected in the month of December alone. While we understand there is a hard and fast contractual agreement between Bitmain and Marathon, we wonder if Bitmain can scale rapidly enough to produce and ship to North America almost 190,000 next-generation machines prior to the end of this year. And if not, which customer might Bitmain slight? Perhaps the Most Widely Underestimated Factor: Network Hash Rate Note: As shown from source missing "1" digit in 2021, far right bottom; our apologies. Source: Blockchain.com January 4, 2021. In the "as if" scenario, only a minor escalation in network hash is accorded in the forecast, and bitcoin pricing is assumed to be stable. Bitcoin traded in the $32,500 range late yesterday afternoon, past the close of stock market trading on January 4, suggesting that Marathon could generate more than $730 million in revenue at current to modestly higher network hash rates. At a $25,000 bitcoin price, Marathon could generate roughly $560 million in bitcoin mined revenue, both under the assumption that the 10.4 EH/s hash rate starts immediately, i.e., the 100,000 or so next-gen Bitmain miners are assumed to be installed pro forma and begin contributing to mining hash power at the beginning of the 2021 year. Further, these "as if" assumptions neglect the treatment of miner depreciation. We suspect Marathon may push to use a five-year depreciation schedule in providing its GAAP figures, but we also expect the company uses cash only figures to monitor its performance internally. Finally, perhaps Marathon's greatest stand-out feature we see is the wholly consistent low cost energy and management fees baked into its contract we showed in our November 23 report, Emerging as a Leader in the Great North American Mining Competition; Initiate Buy, detailing Marathon's contract that costs $0.034 per kilowatt-hour, well below most other agreements we have seen. These costs are so light, Marathon's cash gross profits trend in the 83-85% range, again, based on our rough estimates and excluding machine depreciation from the calculus. We remain more conservative than other approaches. Our estimates harbor a more conservative view, given inherent volatility in both bitcoin pricing and the network hash rate specifically, as displayed in the chart above. Beyond factoring in machine contribution when the miners are scheduled to arrive, we use standard hash power calculations (this is as Marathon does), to form the backbone of our projections. One glance at the chart above, however, suggests to us that forecasting network hash is anyone's guess. We have seen estimates as high as 260 EH/s by mid-year next year. The push-back on that assumption is deliverable computing power. We thought historical trends may provide a little better understanding given that bitcoin pricing, semiconductor design, and profits generated by the mining computer manufacturers may easily attract new entrants with new ideas, and we think we are beginning to see that already. Before getting too far ahead of ourselves, note that the network hash rate, now at about 145 EH/s, climbed almost 50% year over year from the 97 EH/s level this time last year. More impressively, H.C. WAINWRIGHT & CO. EQUITY RESEARCH 2 Marathon Patent Group, Inc. January 5, 2021 the network hash posted a 118% three-year compound annual growth rate to 145 EH/s from the 14 EH/s level at the end of 2017. Using the lower growth figure suggests to us the network hash rate could close in on 220 EH/s by the end of this year, which is meaningfully higher than our forecast rate of roughly 160 EH/s. Note, the Marathon fleet hash figure implies that all of the Marathon contracted miners are placed by the end of next year, and Marathon could be delivering roughly 6.5% of the entire bitcoin network hash rate. Recent news suggests the network hash could decline nearer term...or increase nearer term. Despite the strong growth of network hash in recent history, one crypto analyst sees escalating electricity rates in China as the rainy season wanes curtailing the allotment of cheap hydroelectric power; power cost increases are perfectly inversely proportional to lower mining rates in China. Meanwhile, cryptocurrency reports on China neighbor Kazakstan call attention to an available estimated 3,000 MW of power, while import VAT exemptions on Chinese-based goods produce lucrative capital and operating cost scenarios for local miner fleets in that geography, suggesting to us escalating mining operations would translate to greater network hash rates. Both of these reports were relayed in a January 1 web-based issue of Crowdfund Insider. Lastly, a report from Oilprice.com surfaced over this past weekend, indicating that Gazpromneft, the petro-based subsidiary of Russia's state-owned natural gas giant Gazprom, began a cryptocurrency mining operation in one of its Siberian oil drilling sites, leveraging almost costless energy to power bitcoin production. As we best understand national rankings, both Russia and Kazakstan follow China and the U.S. in total mining hash rate generation, with China producing roughly 50% of the world mining hash power supply. As with experiences past, the surge in bitcoin pricing tends to draw more mining capacity in a directly simple bitcoin mining logic truth: higher bitcoin prices raise the threshold and level of profitability for mining machines. Again, we see the network potentially exploding next year, driven by new entrants, new operating methods applied to mining, such as immersive cooling, and an overall decline in the cost of the miners themselves, prompted by competition. Looking at the bitcoin miner from the component perspective, it has a mother board and a sequence of specially designed ASIC chips designed to solve the SHA-256 algorithm that form the core of the CPU, assorted other run-of-the-mill semis such as RAM storage, graphics card, and power supply, and finally a cooling system that primarily relies on fans, none of which needs to be on the cutting edge as the CPU does to deliver top-flight bitcoin mining performance. As we see it, these components should not add up much more than a typical laptop computer, and based on comparative calculations, we believe Bitmain is trying to drive the cost curve down itself. Our back-of-the-envelope calculations, such as Riot's 15,000 machines for $35 million, and 8,000 machines for $17.7 million, yield a Bitmain next-gen miner cost of approximately $2,200 to $2,300 per machine. We suggest these prices are significantly lower than the $4,000 to $9,700 Bitmain was charging for coveted S9 Antiminers during the second half of 2017, when bitcoin prices were spiking toward the $20,000 range. Meanwhile, the miner's processing capability has almost doubled just from the last machine iteration: Bitmain's S17 was released in April 2019 and had a maximum hash rate of 56 TH/s. The S19 Pros, released in May last year, are rated at 110 TH/s, and the then coveted S9s back in 2017 generated a mere 14 TH/s, almost eight times less than today's S19 Pros. The point here is that we suspect the network hash rate could expand greater than what we have estimated, again driven by market entrants entranced by the surge in bitcoin pricing and access to small geometry ASIC manufacture, which should translate into lower mining machine costs. Follow the money? Perhaps another way to look at is the tried and true "follow the money" approach. Just last week, Marathon announced adding $170 million to the estimated $75 million already spent on mining machines last year, where Riot has spent roughly $76 million last year (again, our estimate), and Core Scientific, based on its announced 59,000 machine buy in December and its 17,600 machine purchase back in July 2020, has spent roughly $153 million on machines last year, again by our estimate. All told, the purchases represent a cool but rough $475-500 million by just the top three North American miners. Looking at overall network hash by geography, the majority by far is generated in Asia, and the miners there know well enough that individual network hash must keep pace with the overall bitcoin network growth or performance and profitability degrade. On those thoughts, we continue to believe it prudent to expect strong bitcoin network hash rate expansion. On to bitcoin pricing itself—our estimates increase. We have included a bitcoin price fluctuation in the $24,000 to $26,000 range for the 2021E year. Beyond 2021E, we assume bitcoin drifts toward the $30,000 range by the end of 2022E. While perhaps overly pessimistic in light of bitcoin's current $32,500 level, we prefer a conservative view given the number of times we have been beaten by bitcoin trading action over the past three years. Of course, we stand as ultimate bitcoin bulls, seeing the escalation of institutional interest in bitcoin as a investment vehicle as the critical determinant, another point we made in our November 23 2020 report. Further, while still left to be proven on a broad scale, we believe there lies a utilitarian use of bitcoin, and cryptocurrency in general, for populations underserved by financial institutions and/or in countries where inflation runs rampant. Crypto-based debit cards sponsored by Visa Inc. (V; not rated) and the like certainly raise bitcoin's practical side, but we believe there is far more room to grow. H.C. WAINWRIGHT & CO. EQUITY RESEARCH 3 Marathon Patent Group, Inc. January 5, 2021 Bitcoin Price Surge Dares More Mining Market Entrants Source: Coinbase, January 4, 2021. Back to 2021. This year, of course, is not what we see as the first full year of Marathon's 10.36 EH/s—2022E should have the full contribution of the newly ordered machines. We are hesitant to offer formal Marathon projections for full-year 2022 just yet given the volatility experienced this past year, some Covid-inspired, no doubt, some unexplainable. With all said and done, and Marathon adding more miners to generate 10.36 EH/s by the end of this year, our sales forecast for 2021 now stands at $161.2 million, up from our previous $67.5 million. EPS become discernibly positive at $1.10 per share, implying a 10.0x P/ E multiple at the current $11 share price level while including the roughly 75 million issued and outstanding shares Marathon reported for year-end 2020. From a cash perspective, we have included roughly $44 million of machine depreciation through the current year, where we gravely suspect we could be forced to make adjustments as we refine our model to match Marathon's reporting paradigm. Removing that machine depreciation cost drives cash EPS to the $1.65 level per share, implying a 6.7x P/E at current levels. Interestingly, looking one year out and incorporating our rough escalating network mining growth and bitcoin appreciation levels of 210 EH/s and $28,000, respectively, we could see Marathon generate roughly $4.00 per share on a GAAP basis—again, on very preliminary assumptions given the two-year forecast period—leading to a 2.8x P/E at current levels. The 2022 fiscal year is "interesting", because it represents the first full year of operation of the entire 103,000 machine mining fleet, on the assumption that Bitmain meets contractual production and shipping requirements. Why winning the short-term race is important. Because we understand Bitmain to be constrained in its ability to deliver next-gen machines beyond the almost $500 million worth already promised to the leading North American miners, securing machines presents the opportunity to exploit current bitcoin pricing levels. The opportunity cost of not having those machines in operation escalates on the near-term future bitcoin pricing assumption. Clearly, Marathon Patent stands as a huge bitcoin bull. We are the first to admit we are horrible at projecting bitcoin pricing, and our three-year experience at it has clearly proven that case. For those in the bitcoin mining business, but sheepishly spending, or worse, not able to access the capital to buy mining machines at scale, participating in a rapidly growing bitcoin mining network becomes less lucrative; the disadvantage weighs heavier as the bitcoin network hash rate, or difficulty index, increases. While perhaps at first glance appearing to be an 'all-in poker bet', an idiom we have referenced in prior notes and with the latest Marathon purchase case applied as a superlative, we applaud Marathon's commitment to its beliefs while leveraging its Bitmain hegemony to create a mining network beyond North American compare, at least as far as our research indicates to date. Further, as icing on the bitcoin cake, Marathon— compounded by the collection of leading North American miners alluded to above—has strapped Bitmain's production through the next 12 months, locking would be contenders out of "easier" mining winnings near term, based on current bitcoin pricing levels. So...where is all this equipment going? No doubt that you have been asking yourselves over the past three pages or so, with its Hardin, Montana, facility maxed out at 100 MW noted in the Marathon's December 9 miner purchase press release, and our December 14 note, Miner Purchase Maxes Hardin Output—$20K Bitcoin Means More to Come; PT Up, Reit Buy, where is Marathon going to put 70,000 mining machines valued at $170 million? On many levels, this is not a trivial decision. Neatly tucked in Marathon's December 9 press besides speaking to the 10,000 S-19J Pro order, was the contemporaneous announcement of a second Beowulf-operated data center somewhere in the Northeast. Marathon appreciates the cooler operating climate in northern latitudes, but the company's poor experience in Quebec left a bad taste in the mouth, so we are H.C. WAINWRIGHT & CO. EQUITY RESEARCH 4 Marathon Patent Group, Inc. January 5, 2021 ruling Canada out. Meanwhile, Marathon's energy partner, Beowulf, has promised 100 MW initially, with the potential to expand to 250 MW, and perhaps most importantly, the new location is not only expected to operate within the parameters of Hardin's economics at $0.034 per kWh, but also is expected by the company to deliver "green" energy, an important consideration for Marathon going forward. New mining pool coming. At the time this went to press, we remain unclear on specific timing. We believe Marathon is working hard to develop a North American-specific mining pool in effort to push away from reliance on the major Chinese pools that have come to dominate the collective bitcoin mining hash rate. We have made this point clear in both our previous Marathon research reports, with the active links to each shared above. Upon aggregating as much as 10% of the bitcoin network hash rate, the operative mining pool we understand to operate as a stand-alone, not-for-profit entity, would help to preserve the integrity of the bitcoin blockchain while returning significant savings to its members. At Marathon's 6.0-6.5% of network hash rate on the full implementation of its 103,000 miner fleet, the company may not need to go much further in finding members to fill the pool's ranks to meet the critical 10% threshold, and we understand there may be interested parties already. Sundry other financial considerations. Yesterday, Marathon issued press calling attention to the ceasing of its capital market activities, intending, we gather, to communicate the era of diluting investors is over for the foreseeable future. Marathon ended the year, according to the press release, with $217.6 million of cash on its books and roughly 74.7 million shares outstanding. With the prepayments for Bitmain Antminers paid, Marathon still owes $163 million, leaving roughly $55 million in cash on the books at the settling of contracted purchase debts. Meanwhile, we suspect the company's mining activities should draw significant gains in cash generation as the fleet engages through the course of the year. New price target set at $17 on raised estimates. Our prior valuation cases were made on enterprise value-to-sales ratios viewed against large cap financial institutions less an arbitrarily assigned, often fluctuating, discount detailed more comprehensively in our November report. With nearer-term projections returning impressive per share earnings gains alluded to above, we now believe a simple price-earnings approach becomes both more reasonable and more credible. Clearly, there are adjustments to come once we have definitive proof of Marathon's operating expense levels and the evidence of the effect of its depreciation choice on GAAP earnings, but in the meantime, we see our take less aggressive while including deterministic mining market factors. Our new $17 price target, up from our previous $9, represents a 15.5x P/E multiple on our $1.10 EPS estimate for this year, 2021. For comparison purposes and per FactSet Research Systems Inc. (FDS; not rated), consensus P/E for the S&P 500 rounds out to 22.4x on 2021E EPS of $165.48, placing our multiple at a sound 30% discount, fairly considering, in our view, the unpredictable volatility inherent in bitcoin mining. An investment in Marathon Patent is not without a significant level of risk that includes the speculative nature of bitcoin itself as a function of bitcoin pricing and network hash rate (difficulty factor), the limitations of its financial strength in competing against other well capitalized mining operations, and its ability to raise capital to expand its operations, compounded by the dilution associated with those raises, among many others highlighted in Marathon's recent SEC documents. H.C. WAINWRIGHT & CO. EQUITY RESEARCH 5 Marathon Patent Group, Inc. January 5, 2021 Quarterly Earnings Model ($ millions, except per share data) 12/30/19A 12/30/20E Estimate Estimate 1/5/2021 Q1A Q2A Q3A Q4A YEAR Q1A Q2A Q3A Q4E YEAR YEAR FY Ending 12/31: MARA 3/31 6/30 9/30 12/31 12/31/2019 3/31 6/30 9/30 12/31 12/31/2020 12/31/2021 Revenues: mining $0.2 $0.4 $0.3 $0.3 $1.2 $0.6 $0.3 $0.8 $2.6 $4.4 $161.2 Cost of rev (+machine amort) 0.5 0.5 0.5 1.0 2.5 1.2 0.7 1.6 2.0 5.5 74.4 Gross Profit (0.3) (0.1) (0.2) (0.7) (1.3) (0.6) (0.5) (0.8) 0.6 (1.2) 86.7 Operating Costs Compensation and rel. 0.5 0.3 0.4 0.3 1.5 0.2 1.1 0.6 0.6 2.5 2.4 Consult + Prof fees 0.0 0.1 0.1 0.3 0.6 0.2 0.2 0.5 0.5 1.3 2.0 General and admin. 0.1 0.1 0.1 0.1 0.5 0.1 0.1 0.1 0.1 0.4 0.4 Other 0.0 0.0 0.0 0.4 0.4 0.0 0.0 0.0 0.0 0.0 0.0 Total opex 0.6 0.6 0.7 1.1 2.9 0.5 1.3 1.2 1.2 4.3 4.8 Operating Inc. (0.9) (0.7) (0.8) (1.8) (4.2) (1.1) (1.8) (2.0) (0.6) (5.5) 81.9 Other income (0.0) 0.2 0.0 0.0 0.2 0.1 0.0 0.0 0.0 0.1 0.0 Realized gain dig currency sale (0.0) 0.0 (0.0) 0.0 0.0 (0.0) 0.1 0.0 0.0 0.1 0.0 Warrant liability chng (0.0) (0.0) 0.1 0.0 0.0 0.0 (0.1) (0.0) 0.0 (0.1) 0.0 Interest inc. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Interest exp. (0.0) (0.0) (0.0) (0.0) (0.1) (0.0) (0.0) 0.0 0.0 (0.0) 0.0 Other exp. (0.0) 0.0 0.0 0.5 0.5 (0.1) (0.4) 0.0 0.0 (0.4) 0.0 Total other (0.1) 0.2 0.1 0.5 0.7 0.0 (0.4) (0.0) Pretax Income (1.0) (0.6) (0.8) (1.3) (3.5) (1.1) (2.1) (2.0) (0.6) (5.8) 81.9 Taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Income (1.0) (0.6) (0.8) (1.3) (3.5) (1.1) (2.1) (2.0) (0.6) (5.8) 81.9 EPS ($0.15) ($0.09) ($0.12) ($0.17) ($0.53) ($0.12) ($0.13) ($0.06) ($0.01) ($0.19) $1.10 Outstanding Shares 6.3 6.4 6.4 7.6 6.7 8.7 16.3 31.5 63.6 30.0 74.4 MARGIN ANALYSIS Gross Margin -120.5% -40.1% -48.8% -259.6% -109.4% -94.6% -158.8% -95.9% 23.7% -27.3% 53.8% Comp % sales 211.0% 92.4% 127.3% 90.4% 124.5% 39.4% 370.6% 73.6% 22.7% 57.5% 1.5% Fees % sales 8.7% 39.4% 39.1% 96.7% 46.8% 31.8% 65.3% 55.8% 18.9% 30.8% 1.2% G&A % sales 50.0% 36.2% 35.8% 38.4% 39.3% 18.4% 31.3% 13.5% 3.8% 9.4% 0.2% Op. Exp. % sales 269.6% 168.0% 202.3% 387.2% 248.3% 89.6% 467.2% 142.9% 45.4% 97.7% 3.0% Operating Margin -390.1% -208.2% -251.1% -646.7% -357.7% -184.3% -626.0% -238.8% -21.7% -125.0% 50.8% Pretax Margin -416.1% -159.1% -234.5% -457.7% -299.4% -178.6% -749.2% -238.8% -21.7% -132.5% 50.8% Tax Rate 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Net Margin -416.1% -159.1% -234.5% -457.7% -299.4% -178.6% -749.2% -238.8% -21.7% -132.5% 50.8% PERCENT CHANGE Total Sales n.a. n.a. n.a. n.a. -24.1% 156.8% -19.6% 159.6% 855.0% 267.8% 3596.3% Cost of Revs n.a. n.a. n.a. n.a. -25.9% 126.7% 48.5% 241.7% 102.8% 123.6% 1241.1% Gross Profit n.a. n.a. n.a. n.a. -27.5% 101.7% 218.1% 409.8% -187.0% -8.2% -7387.6% Operating Exp. n.a. n.a. n.a. n.a. -71.4% -14.6% 123.6% 83.4% 11.9% 44.8% 12.6% Operating Income n.a. n.a. n.a. n.a. -64.9% 21.3% 141.9% 146.8% -68.0% 28.6% -1602.8% Pretax Income n.a. n.a. n.a. n.a. -72.2% 10.2% 278.9% 164.4% -54.7% 62.8% -1518.5% Net Income n.a. n.a. n.a. n.a. -72.3% 10.2% 278.9% 164.4% -54.7% 62.8% -1518.5% Share Count n.a. n.a. n.a. n.a. 25.4% 36.6% 156.6% 394.7% 737.6% 350.5% 147.7% EPS n.a. n.a. n.a. n.a. -77.9% -19.3% 47.7% -46.6% -94.6% -63.9% -672.6% Sequential Sales Growth n.a. 54.2% -9.6% -13.9% 113.9% -51.7% 191.9% 216.8% So urce: Co . repo rts and H.C.W. estimates. H.C. WAINWRIGHT & CO. EQUITY RESEARCH 6 Marathon Patent Group, Inc. January 5, 2021 Balance Sheet ($'s Mil) 12/30/2019 12/30/2020 Q1A Q2A Q3A Q4A Q1A Q2A Q3A 3/31 6/30 9/30 12/31 3/31 6/30 9/30 Current Assets Cash and equiv $2.0 $1.7 $1.3 $0.7 $0.5 $0.8 $17.3 Digital currencies 0.0 0.0 0.0 0.0 0.0 0.1 $0.5 Accts receivable 0.1 0.0 0.0 Deposit 4.2 13.3 Prepaid exp and other 0.3 0.2 0.2 0.8 0.9 0.7 0.6 Total Current Assets 2.3 1.9 1.6 1.5 1.5 5.8 31.6 Property, plant and equip. 0.9 0.8 4.7 3.8 2.8 3.6 4.7 Right of use assets 0.4 0.3 0.3 0.3 0.3 0.2 0.2 Intangible assets 1.1 1.1 1.1 1.1 1.1 1.0 1.0 Total Assets 4.7 4.1 7.7 6.6 5.7 10.7 37.5 Accounts payable 1.2 1.1 1.1 1.2 1.3 0.8 1.0 Mining servers payable 0.0 0.0 1.9 0.5 0.0 0.0 0.0 Current portion lease 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Warrant liability 0.1 0.1 0.0 0.0 0.0 0.0 0.0 Total Current Liabilities 1.3 1.3 3.1 1.9 1.4 0.9 1.1 Convert notes pay, fair val. 1.0 1.0 1.0 1.0 1.0 0.0 0.0 Note payable 0.1 0.1 Lease liability 0.2 0.2 0.1 0.1 0.1 0.1 0.0 Total Liabilities 2.5 2.4 4.2 3.0 2.5 1.1 1.2 Total equity 2.2 1.7 3.5 3.6 3.2 9.7 36.3 Total Liab. & Equity 4.7 4.1 7.7 6.6 5.7 10.7 37.5 Cash & marketable securities $2.0 $1.7 $1.3 $0.7 $0.5 $0.8 $17.3 Change in cash (QoQ): (0.6) (0.3) (0.3) (0.7) (0.2) 0.3 16.5 Cash per share $0.31 $0.26 $0.18 $0.10 $0.03 $0.02 $0.33 Cash, cash equiv, digital curr. + prepd contracts (s-t equiv) $1.97 $1.69 $1.35 $0.69 $0.48 $0.88 $17.70 Chng. s-t csh equiv (QoQ): (0.6) (0.3) (0.3) (0.7) (0.2) 0.4 16.8 Debt 0.0 0.0 0.0 0.0 0.0 0.1 0.1 Cryptocurrency bal. 0.0 0.0 0.0 0.0 0.0 0.1 0.5 Change in cryptos (QoQ) 0.0 (0.0) (0.0) (0.0) 0.0 0.1 0.3 So urce: Co mpany repo rts. H.C. WAINWRIGHT & CO. EQUITY RESEARCH 7 Marathon Patent Group, Inc. January 5, 2021 Important Disclaimers This material is confidential and intended for use by Institutional Accounts as defined in FINRA Rule 4512(c). It may also be privileged or otherwise protected by work product immunity or other legal rules. If you have received it by mistake, please let us know by e-mail reply to unsubscribe@hcwresearch.com and delete it from your system; you may not copy this message or disclose its contents to anyone. The integrity and security of this message cannot be guaranteed on the Internet. H.C. WAINWRIGHT & CO, LLC RATING SYSTEM: H.C. Wainwright employs a three tier rating system for evaluating both the potential return and risk associated with owning common equity shares of rated firms. The expected return of any given equity is measured on a RELATIVE basis of other companies in the same sector. The price objective is calculated to estimate the potential movements in price that a given equity could reach provided certain targets are met over a defined time horizon. Price objectives are subject to external factors including industry events and market volatility. RETURN ASSESSMENT Market Outperform (Buy): The common stock of the company is expected to outperform a passive index comprised of all the common stock of companies within the same sector. Market Perform (Neutral): The common stock of the company is expected to mimic the performance of a passive index comprised of all the common stock of companies within the same sector. Market Underperform (Sell): The common stock of the company is expected to underperform a passive index comprised of all the common stock of companies within the same sector. Rating and Price Target History for: Marathon Patent Group, Inc. (MARA-US) as of 01-04-2021 D:BUY:$17.00 I:BUY:$7.50 BUY:$9.00 03/31/15 11/23/20 12/14/20 20 15 10 5 0 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020 Q1 Q2 Q3 2021 Q1 Rating and Price Target History for: Riot Blockchain, Inc. (RIOT-US) as of 01-04-2021 I:BUY:$9.00 BUY:$10.00 BUY:$4.00 BUY:$5.00 BUY:$3.50 BUY:$7.50 05/11/18 05/18/18 10/04/18 04/05/19 08/29/19 11/23/20 30 25 20 15 10 5 0 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020 Q1 Q2 Q3 2021 Q1 Related Companies Mentioned in this Report as of Jan/04/2021 Company Ticker H.C. Wainwright 12 Month Price Market Rating Price Target Cap Riot Blockchain, Inc. RIOT Buy $7.50 $16.48 $1113 Investment Banking Services include, but are not limited to, acting as a manager/co-manager in the underwriting or placement of securities, acting as financial advisor, and/or providing corporate finance or capital markets-related services to a company or one of its affiliates or subsidiaries within the past 12 months. H.C. WAINWRIGHT & CO. EQUITY RESEARCH 8 Marathon Patent Group, Inc. January 5, 2021 Distribution of Ratings Table as of January 4, 2021 IB Service/Past 12 Months Ratings Count Percent Count Percent Buy 438 90.68% 167 38.13% Neutral 38 7.87% 10 26.32% Sell 0 0.00% 0 0.00% Under Review 7 1.45% 4 57.14% H.C. Wainwright & Co, LLC (the “Firm”) is a member of FINRA and SIPC and a registered U.S. Broker-Dealer. I, Kevin Dede, CFA , certify that 1) all of the views expressed in this report accurately reflect my personal views about any and all subject securities or issuers discussed; and 2) no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report; and 3) neither myself nor any members of my household is an officer, director or advisory board member of these companies. None of the research analysts or the research analyst’s household has a financial interest in the securities of Marathon Patent Group, Inc. and Riot Blockchain, Inc. (including, without limitation, any option, right, warrant, future, long or short position). As of December 31, 2020 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of Marathon Patent Group, Inc. and Riot Blockchain, Inc.. Neither the research analyst nor the Firm knows or has reason to know of any other material conflict of interest at the time of publication of this research report. The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specific investment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, a substantial portion of which is derived from investment banking services. The Firm or its affiliates did receive compensation from Marathon Patent Group, Inc. and Riot Blockchain, Inc. for investment banking services within twelve months before, and will seek compensation from the companies mentioned in this report for investment banking services within three months following publication of the research report. H.C. Wainwright & Co., LLC managed or co-managed a public offering of securities for Marathon Patent Group, Inc. and Riot Blockchain, Inc. during the past 12 months. The Firm does not make a market in Marathon Patent Group, Inc. and Riot Blockchain, Inc. as of the date of this research report. The securities of the company discussed in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is no guarantee of future results. This report is offered for informational purposes only, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such would be prohibited. This research report is not intended to provide tax advice or to be used to provide tax advice to any person. Electronic versions of H.C. Wainwright & Co., LLC research reports are made available to all clients simultaneously. No part of this report may be reproduced in any form without the expressed permission of H.C. Wainwright & Co., LLC. Additional information available upon request. H.C. Wainwright & Co., LLC does not provide individually tailored investment advice in research reports. This research report is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person. Investors should seek financial advice regarding the appropriateness of investing in financial instruments and implementing investment strategies discussed or recommended in this research report. H.C. Wainwright & Co., LLC’s and its affiliates’ salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions expressed in this research report. H.C. Wainwright & Co., LLC and its affiliates, officers, directors, and employees, excluding its analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives (including options and warrants) thereof of covered companies referred to in this research report. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data on the company, industry or security discussed in the report. All opinions and estimates included in this report constitute the analyst’s judgment as of the date of this report and are subject to change without notice. Securities and other financial instruments discussed in this research report: may lose value; are not insured by the Federal Deposit Insurance Corporation; and are subject to investment risks, including possible loss of the principal amount invested. H.C. WAINWRIGHT & CO. EQUITY RESEARCH 9
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