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Commitments and Contingencies
6 Months Ended
Jun. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 9. Commitments and Contingencies

 

Bitcoin Mining Agreements

 

On May 20, 2019, the Company entered into an agreement with a third-party consultant whereby the consultant would advise and consult with the Company on certain business and financial matters relating to crypto-currency mining. The Company engaged the consultant to: (1) assist in locating at least 5 acres of real property in Georgia within close proximity to a fully operational electric substation with a minimum of 15 MW of available capacity, subject to approval by the power company, (2) negotiate a power rate between the Company and a power company, (3) assist in the identification, purchase, and delivery of transformers required to serve the containerized mining systems, (4) successfully install the aforementioned transformers, and (5) obtain an electrical permit and successful inspection of all electrical infrastructure between the container and substation. The consulting agreement was valued at $400, payable upon successful achievement of defined milestones. As of June 30, 2019, $200 in milestone achievement was earned and has been recorded as a component of general and administrative expenses in the unaudited condensed consolidated statement of operations. The remaining $200 of unearned milestones is recorded as a prepaid expense in the unaudited condensed consolidated balance sheet and is being held in escrow until achievement of such milestones.

 

On October 23, 2018, the Company entered into a hosting agreement (“Colorado Hosting Agreement”) with a hosting facility in Colorado, whereby the service provider will provide a facility to host Bitcoin computing servers. The Colorado Hosting Agreement has been amended several times and currently provides for the hosting of 1,260 miners, a reduction of a security deposit from $204 to $85 and a termination date of December 3, 2020. Because the price of Bitcoin steadily decreased in 2018 and throughout the first quarter 2019, the Company decided it was not economically responsible to commence mining under this hosting arrangement until May 2019 when Bitcoin mining economics started to improve. During the three months ended June 30, 2019, the Company recognized revenue of $47 under this agreement.

 

On May 10, 2019, the Company, entered into a hosting agreement (“Ohio Hosting Agreement”) relating to the generation of Bitcoin mining revenues at a facility located in Coshocton, Ohio (the “Facility”) for a term that is the earlier of (i) two years, or (ii) when the parties determine that the Bitcoin mining business at the Facility is uneconomical.

 

Under the terms of the Ohio Hosting Agreement, the Company agreed to provide the necessary hardware to conduct Bitcoin mining at the Facility. In addition, the Company is required to deliver a security deposit in the amount of $240 to the service provider of the facility (the “Security Deposit”). The service provider agreed, among other things, to provide necessary hosting capacity, equipment, infrastructure and electricity to operate the mining hardware at the Facility. A third-party operator agreed, among other things, to and maintain the Facility in accordance with prudent industry standards and to maintain the hardware.

 

The service provider is required to disburse on a monthly basis: (i) the total electricity costs to the utility provider; (ii) 10% of Gross Profits (as defined in the Ohio Hosting Agreement) to the operator; (iii) the Net Profits (as defined in the Ohio Hosting Agreement) such that 10% of all Gross Profits shall be paid to the Company, 40% of all Gross Profits shall be paid to service provider, and 40% of all Gross Profits will be paid into the Security Deposit account until such time as the Security Deposit is paid in full; and (iv) subsequent to the satisfaction of the Security Deposit, Net Profits equally between the Company and the service provider.

 

During the three months ended June 30, 2019, the Company recognized $23 under this agreement, of which $18 was applied to the security deposit.

 

Employment Agreements

 

On May 1, 2019, the Company’s board of directors reappointed Mr. Robert Ladd as Chief Executive Officer of the Company. Mr. Ladd’s existing employment agreement with the Company remains in effect.

 

The Company’s Chief Operating Officer, Stephen Schaeffer resigned effective May 10, 2019. In connection with his resignation, Mr. Schaeffer and the Company entered into a resignation and release agreement providing for a lump sum payment of $100, net of appropriate payroll withholding deductions, the immediate vesting of 350,000 shares of common stock previously granted to Mr. Schaeffer, and providing health insurance benefits as available under the Company’s COBRA health insurance program.

 

Management Agreements

 

On May 2, 2019, the Company entered into amended management agreements with two accredited investors, Deep South Mining LLC and BDLM, LLC (the “Users”). The Users’ miners were reconnected and mining Bitcoin was resumed upon execution of these agreements. Due to wear and tear, the parties acknowledge the Users’ Bitcoin Hardware consist of 1,800 Bitmain Antminer S9 mining computers, collectively.

 

Legal

 

In September 2018 and October 2018, various shareholders of the Company filed putative class action lawsuits against the Company, its Chief Executive Officer and certain of its individual officers and shareholders, alleging violations of federal securities laws and seeking damages (the “2018 Securities Class Actions”). The 2018 Securities Class Actions followed and referenced the allegations made against the Company’s Chief Executive Officer and others in the SEC Action. The first putative class action lawsuit was filed on September 28, 2018, in the United States District Court for the District of New Jersey, and alleges that the named defendants engaged in a pump-and-dump scheme to artificially inflate the price of the Company’s stock, and that, as a result, defendants’ statements about the Company’s business and prospects were materially false and misleading and/or lacked a reasonable basis at relevant times. The second putative class action was filed on October 9, 2018, in the United States District Court for the Southern District of New York and makes similar allegations. On May 28, 2019, the parties to the 2018 Securities Class Actions entered into a Binding Settlement Term Sheet setting forth the essential terms of a settlement agreement of these actions. The terms provide for the payment of a cash sum to the plaintiff class and an agreement to assign certain potential cash recoveries to the class, together with dismissal of the action with prejudice and the exchange of releases. The settlement is subject to all parties’ agreement to final settlement documentation which all parties have agreed to negotiate in good faith, and to court approval.

 

On September 7, 2018, the SEC commenced a legal action in the United States District Court for the Southern District of New York (the “SEC Action”) which asserts civil charges against multiple individuals and entities who are alleged to have violated the securities laws by engaging in pump-and-dump schemes in connection with certain microcap stocks and three unidentified companies. The Company is one of the three unidentified companies but is not named as a defendant. However, the SEC named as defendants Robert Ladd, the Company’s Chief Executive Officer and President, as well as certain individuals alleged to have participated in the schemes while they were shareholders of the Company, among others. The SEC filed an amended complaint in the SEC Action on March 8, 2019. The Company, through its counsel, is monitoring the progress of the SEC Action.

 

On May 29, 2019, the SEC served a third-party subpoena on the Company seeking the production of documents in the SEC Action, to which the Company is responding in due course.