Quarterly report pursuant to Section 13 or 15(d)

Deposit, Property and Equipment and Intangible Assets

v3.20.2
Deposit, Property and Equipment and Intangible Assets
9 Months Ended
Sep. 30, 2020
Deposit Property And Equipment And Intangible Assets  
Deposit, Property and Equipment and Intangible Assets

NOTE 3 – DEPOSIT, PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

 

On May 11, 2020, the Company signed a Contract Addendum with Compute North, to pause and suspend services under its Colocation Agreement. This will suspend all production of Bitcoin using our S-9 miners.

 

Halving – The bitcoin blockchain and the cryptocurrency reward for solving a block is subject to periodic incremental halving. Halving is a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work consensus algorithm. At a predetermined block, the mining reward is cut in half, hence the term “Halving”. The next halving for bitcoin occurred on May 12, 2020. Many factors influence the price of bitcoin and potential increases or decreases in prices in advance of or following a future halving is unknown.

 

On May 11, 2020, the Company purchased 700 new generation M305+ASIC Miners from MicroBT for approximately $1.3 million. The 700 miners produce 80/Th and will generate 56 PH/s (petahash) of hashing power, compared to the Company’s current S-9 production of 46 PH/s. These next generation MicroBT ASIC miners are markedly more energy efficient than our existing Bitmain models. These miners were delivered to the Company’s Hosting Facility in June 2020 and are producing Bitcoins.

 

The Company purchased 660 latest generation Bitmain S19 Pro Miners on May 12, 2020, 500 units on May 18, 2020 and an additional 500 units on June 11, 2020. These miners produce 110 TH/s and will generate 73 PH/s (petahash) of hashing power, compared to the Company’s S-9 production of 46 PH/s. The Company made the payments of approximately $4.2 million in the second quarter of 2020 and expects 660 of the 1,660 units to take delivery at its Hosting Facility in mid-August, and its hosting partner, Compute North, expects to install them within 48 hours of their arrival. The 1,000 remaining S-19 Pro Miners arrived in the 4th quarter and will produce an additional 110 PH/s increasing the Company to an aggregate Hashpower of 294 PH/s.

 

On July 29, 2020, the Company announced the purchase of 700 next generation M31S+ASIC Miners from MicroBT. The miners arrived mid-August. Additionally, 660 of the 1,660 Bitmain S-19 Pro Miners previously purchased were delivered in mid-August. The 1,000 remaining S-19 Pro Miners due to arrive in the 4th quarter will produce an additional 110 PH/s, which when installed will give the Company an aggregate Hashpower of 294 PH/s.

 

On August 13, 2020, the Company entered into a Long Term Purchase Contract with Bitmaintech PTE., LTD (“Bitmain”) for the purchase of 10,500 next generation Antminer S-19 Pro ASIC Miners. The purchase price per unit is $2,362.00 ($2,205.63 with a 6.62% discount) for a total purchase price of $24,801,000.00 (with a 6.62% discount for a discounted price of $23,159,173.80). The parties confirm that the total hashrate of the Antminers under this agreement shall not be less than 1,155,000.00TH/s.

 

The Company shall pay for the Antminers as follows:

 

  (1) Twenty percent (20%) of the total purchase price shall be paid as a nonrefundable down payment within forty-eight (48) hours of execution of the agreement.  
       
  (2) The Company shall pay the twenty percent (20%) of the total purchase price prior to September 20, 2020.  
       
  (3) The Company shall pay the ten percent (10%) of the total purchase price prior to October 10, 2020.  
       
  (4) The Company shall pay the remaining fifty percent (50%) of the total purchase price in equal monthly installments due not less than fifty-five (55) days prior to the scheduled delivery of the Product(s) as follows:  

 

  a) eight-point thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the first installment of products to be shipped to the Company in January 2021.  
       
  b) eight-point thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the second installment of the products to be shipped to the Company in February 2021.  
       
  c) eight-point thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the third installment of the products to be shipped to the Company in March 2021.  
       
  d) eight-point thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the fourth installment of the products to be shipped to the Company in April 2021.  
       
  e) eight-point thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the fifth installment of the products to be shipped to the Company in May 2021.  
       
  f) eight-point thirty-three percent (8.33%) no later than 55 days prior to each scheduled delivery period as to the sixth installment of the products to be shipped to the Company in June 2021.  

 

Subject to the timely payment of the purchase price, Bitmain shall deliver products according to the following schedule: 1,500 Units on or before January 31, 2021; and 1,800 units on or before each of February 28, 2021; March 31, 2021; April 30, 2021, May 31, 2021 and June 30, 2021.

 

As of April 6, 2020, the Company received notice from the Nasdaq Capital Market (the “Capital Market”) that the Company has failed to maintain a minimum closing bid price of $1.00 per share of its Common Stock over the last consecutive 30 business days based upon the closing bid price for its common stock as required by Rule 5550(a)(2). However, the Rules also provide the Company a compliance period of 180 calendar days in which to regain compliance during which time it must maintain a minimum closing bid price of at least $1.00 per share for a minimum period of 10 consecutive business days, which must be completed by October 5, 2020. On April 20, 2020, the Company received a further notice from the Nasdaq Capital Market that the Company’s time to maintain a minimum closing bid price of at least $1.00 per share for a minimum period of 10 consecutive business days has been extended from October 5, 2020 to December 17, 2020. In August 2020, the Company regained compliance with Rule 5550(a)(2) as the closing bid price has been in excess of $1.00 per share for the requisite time period.  

 

As of September 30, 2020, approximately $13.27   million cash paid for Miners was recorded as a deposit on the balance sheet.

 

The components of property, equipment and intangible assets as of September 30, 2020 and December 31, 2019 are :  

 

    Useful life (Years)   September 30, 2020     December 31, 2019  
Website   7   $ 121,787     $ 121,787  
Mining equipment   2     9,845,788       7,120,505  
Mining patent   17     1,210,000       1,210,000  
Gross property, equipment and intangible assets         11,177,575       8,452,292  
Less: Accumulated depreciation and amortization         (5,475,086 )     (3,623,745 )
Property, equipment and intangible assets, net       $ 5,702,489     $ 4,828,547  

 

The Company’s depreciation expense for the three months ended September 30, 2020 and 2019 were $787,689 and $137,361, and amortization expense were $17,794 and $17,794 for the three months ended September 30, 2020 and 2019, respectively. The Company’s depreciation expense for the nine months ended September 30, 2020 and 2019 were $1.8 million and $412,083, and amortization expense were $53,382 and $53,382 for the nine months ended September 30, 2020 and 2019, respectively.