# MGT Capital Investments, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [MGT Capital Investments, Inc.](/companies/mgti.md) (CIK 1001601)
- Form: 10-Q
- Filed: 2022-11-14
- Accepted by EDGAR: Nov 14, 2022, 16:45 ET
- Period: 2022-09-30
- Accession: 0001493152-22-032162
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1001601/000149315222032162/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1001601/000149315222032162/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $146.0k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $685.0k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$472.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | −$2.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-01 to 2022-09-30 | $5.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-01-01 to 2022-09-30 | $5.0k | us-gaap:InterestExpense |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$16.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$17.9m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.02 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.03 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | −$1.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2022-09-30 | $1.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $1.3m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $2.5m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $18.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $18.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-09-30 | −$15.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 24,943 characters.

This report contains forward-looking statements including our liquidity. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include a decrease in the price of Bitcoin, unforeseen issues at our hosting facility as well those risk factors contained in our filings with the SEC, including our Form 10-K filed on March 31, 2022. Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

### Executive summary

MGT Capital Investments, Inc. (“MGT” or the “Company”) is a Delaware corporation that was incorporated in Delaware in 2000. MGT was originally incorporated in Utah in 1977. MGT’s corporate office is in Raleigh, North Carolina.

All dollar figures set forth in this report are in thousands, except per-share amounts.

#### Current Operations

MGT conducts cryptocurrency activities at a company-owned and managed Bitcoin mining facility in LaFayette, Georgia. Located adjacent to a utility substation, the several-acre property has access to about 20 megawatts (MW) of electrical power, half of which is presently utilized by the Company. Business activities are comprised of self-mining operations and leasing space to third parties.

As of September 30, 2022 and November 15, 2022, the Company owned 430 and 230 Antminer S17 Pro (the “S17 miners”), respectively and 37 Antminer S19 Pro Bitcoin miners. All miners are located at our Georgia facility. In October 2022, we scrapped 200 S17 miners. We are in the process of selling our remaining S17 miners, as well as loose hash boards, power supplies, controller boards, and other parts.

In addition to its self-mining operations, the Company leases its owned space to other Bitcoin miners and also provides hosting services for owners of mining equipment. These measures improve utilization of the electrical infrastructure and better insulate us against the volatility of Bitcoin mining.

MGT’s miners are housed in a modified shipping container on the Company’s owned property in Georgia. The entire facility, including the land and improvements, five 2500 KVA 3-phase transformers, three mining containers, and miners, are owned by MGT. We continue to explore ways to grow and maintain our current operations including but not limited to further potential equipment sales and raising capital to acquire the newest generation miners. The Company is also investigating other sites to develop into Bitcoin mining facilities in addition to expansion at its current property.

### Critical accounting policies and estimates

Our discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The notes to the unaudited condensed financial statements contained in this report describe our significant accounting policies used in the preparation of the unaudited condensed financial statements. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. We continually evaluate our critical accounting policies and estimates.

We believe the critical accounting policies listed below reflect significant judgments, estimates and assumptions used in the preparation of our unaudited condensed financial statements.

#### Revenue recognition

#### Cryptocurrency mining

The Company recognizes revenue under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, (“ASC 606”). The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

- Step 1: Identify the contract with the customer
- Step 2: Identify the performance obligations in the contract
- Step 3: Determine the transaction price
- Step 4: Allocate the transaction price to the performance obligations in the contract
- Step 5: Recognize revenue when the Company satisfies a performance obligation

In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).

If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:

- Variable consideration
- Constraining estimates of variable consideration
- The existence of a significant financing component in the contract
- Noncash consideration
- Consideration payable to a customer

Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.

The Company has entered into digital asset mining pools by agreeing to terms and conditions, as amended from time to time, with the mining pool operators to provide computing power to the mining pool. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which are recorded as a component of cost of revenues), for successfully adding a block to the Blockchain. The terms of the agreement provide that neither party can dispute settlement terms after thirty-five days following settlement. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.

Providing computing power to solve complex cryptographic algorithms in support of the Bitcoin Blockchain (in a process known as “solving a block”) is an output of the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s agreements with mining pool operators. The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is not materially different than the fair value at contract inception or the time the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.

Fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency at the time of receipt. There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the Financial Accounting Standards Board (“FASB”), the Company may be required to change its policies, which could have an effect on the Company’s financial position and results from operations.

#### Hosting Revenues

We receive revenues from third parties renting capacity at our facility and from hosting miners owned by others. The Company recognized $119 and $533 from these sources during the three and nine months ended September 30, 2022, respectively. During the three and nine months ended September 30, 2022, two customers accounted for 91% and 79%, respectively of hosting revenue. The Company recognized $69 and $69 from these sources during the three and nine months ended September 30, 2021, respectively.

#### Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight–line method on the various asset classes over their estimated useful lives, which range from one to ten years when placed in service. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. Deposits on property and equipment are initially classified as Other Assets and upon delivery, installation and full payment, the assets are classified as property and equipment on the balance sheet.

#### Impairment of long-lived assets

Long-lived assets are reviewed for impairment whenever facts or circumstances either internally or externally may suggest that the carrying value of an asset may not be recoverable, should there be an indication of impairment, we test for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of the asset to the carrying amount of the asset or asset group. Any excess of the carrying value of the asset or asset group over its estimated fair value is recognized as an impairment loss.

#### Derivative Instruments

Derivative financial instruments are recorded in the accompanying balance sheets at fair value in accordance with ASC 815. When the Company enters into a financial instrument such as a debt or equity agreement (the “host contract”), the Company assesses whether the economic characteristics of any embedded features are clearly and closely related to the primary economic characteristics of the remainder of the host contract. When it is determined that (i) an embedded feature possesses economic characteristics that are not clearly and closely related to the primary economic characteristics of the host contract, and (ii) a separate, stand-alone instrument with the same terms would meet the definition of a financial derivative instrument, then the embedded feature is bifurcated from the host contract and accounted for as a derivative instrument. The estimated fair value of the derivative feature is recorded in the accompanying balance sheets separately from the carrying value of the host contract. Subsequent changes in the estimated fair value of derivatives are recorded as a gain or loss in the Company’s statements of operations.

### Recent accounting pronouncements

See Note 3 to our unaudited condensed financial statements appearing in Part I, Item 1 of this report for Recent Accounting Pronouncements.

### Results of operations

#### Three months ended September 30, 2022 and 2021

#### Revenues

Our revenues for the three months September 30, 2022 decreased by $27, or 16%, to $146 as compared to $173 for the three months ended September 30, 2021.

Our revenue is derived from cryptocurrency mining, which totaled $27 for the three months ended September 30, 2022 and $104 during the three months ended September 30, 2021. The decrease in mining revenues for this period is due to a decrease in the number of miners from the previous year. We also receive revenues from third parties renting capacity at our facility and from hosting miners owned by others. The company has recognized $119 and $69 during the three months ended September 30, 2022 and 2021, respectively.

#### Operating Expenses

Operating expenses for the three months ended September 30, 2022 increased by $41, or 7%, to $618, as compared to $577 for the three months ended September 30, 2021. The increase in operating expenses was primarily due to an increase in general and administrative expenses of $81, partially offset by a decrease in cost of revenue of $40.

The decrease in cost of revenue of $40 or 15% to $224, as compared to $264 for the three months ended September 30, 2021 was primarily due to decreased electricity costs from hosting services. The increase in general and administrative expenses of $81 or 26%, to $394, as compared to $313 for the three months ended September 30, 2021, was primarily due to an increase in legal and professional fees of $81.

#### Other Income and Expense

For the three months ended September 30, 2022, non–operating expense of $15,944 consisted primarily of a loss on change in fair value of warrants derivative liability of $4,109, change in the fair value of the derivative liability of $6,318, accretion of debt discount of $5,339, loss on settlement of derivative of $178, loss on settlement of debt of $48, and interest income of $1, partially offset by other income of $52 and interest income of $1. Other income of $52 consisted of an amount settled with a vendor. During the comparable period ended September 30, 2021, non–operating income of $30 consisted primarily of change in fair value of warrants derivative liability of $451, gain on settlement of payables of $675 and a gain on sale of property and equipment of $254, partially offset by accretion of debt discount of $256, loss on settlement of debt of $511, other expense of $235, change in fair value of derivative liability of $46 and interest expense of $302.

#### Nine months ended September 30, 2022 and 2021

#### Revenues

Our revenues for the nine months ended September 30, 2022 decreased by $12, or 2%, to $685 as compared to $697 for the nine months ended September 30, 2021. Our revenue is derived from cryptocurrency mining, which totaled $152 for the nine months ended September 30, 2022 and $628 during the nine months ended September 30, 2021. The decrease in mining revenues is due to a decrease in the number of miners from the previous year.

We also receive revenues from third parties renting capacity at our facility and from hosting miners owned by others. The company recognized $533 and $69 during the nine months ended September 30, 2022 and 2021, respectively.

#### Operating Expenses

Operating expenses for the nine months ended September 30, 2022 increased by $705 or 35%, to $2,703 as compared to $1,998 for the nine months ended September 30, 2021. The increase in operating expenses was due to increases in cost of revenue of $772, offset by decreases in general and administrative expenses of $67.

The increase in cost of revenue of $772, or 103%, to $1,523, as compared to $751 for the nine months ended September 30, 2021 was primarily due to increased electricity costs from hosting services. The decrease in general and administrative expenses of $67 or 5% to $1,180 as compared to $1,247 for the nine months ended September 30, 2021, was primarily due to decreases in legal and professional fees of $68.

#### Other Income and Expense

For the nine months ended September 30, 2022, non–operating expense of $15,881 consisted primarily of a loss on change in fair value of warrants derivative liability of $3,517, change in the fair value of derivative liability of $6,318, accretion of debt discount of $5,339, loss on settlement of derivative of $757, and interest expense of $5, partially offset by other income of $52 and interest income of $3. Other income of $52 consisted of an amount settled with a vendor. During the comparable period ended September 30, 2021, non–operating expenses of $319 consisted primarily of loss on settlement of debt of $541, other expense of $222, accretion of debt discount of $526, change in fair value of derivative of $79, and interest expense of $341, partially offset by gain on settlement of payables of $675, a gain on sale of property and equipment of $264, and change of fair value of warrants liability of $451.

### Liquidity and capital resources

#### Sources of Liquidity

We have historically financed our business through the sale of debt and equity interests. In September 2022, we raised $1,335 from the sale of a $1,500 of Original Issue Discount Secured Convertible Promissory Note (the “Note”). The Note: (i) is convertible into 30% of the Company’s outstanding shares of the Company’s common stock on the conversion date of the Note on a post-conversion basis, (ii) matures December 31, 2023 and (iii) bears an interest rate of 6% per annum. In addition, the Company issued to the investor three series of warrants of which each of the warrants is exercisable into 60% of the Conversion Shares. In addition, in August 2022, the Company issued to one investor 22,800,000 shares of common stock and 22,800,000 warrants to purchase common stock for consideration of $228,000.

We have incurred significant operating losses since inception and continue to generate losses from operations and as of September 30, 2022 have an accumulated deficit of $437,827. At September 30, 2022, our cash and cash equivalents were $1,251, and our working capital deficit was $16,875.

The Company will need to raise additional capital to fund operating losses and grow its operations. There can be no assurance however that the Company will be able to raise additional capital when needed, or at terms deemed acceptable, if at all. The Company’s ability to raise additional capital will also be impacted by the volatility of Bitcoin and the ongoing SEC enforcement action against our Chief Executive Officer, both of which are highly uncertain, cannot be predicted and could have an adverse effect on the Company’s business and financial condition. The issuance of any additional shares of Common Stock, preferred stock or convertible securities could be substantially dilutive to our shareholders. Such factors raise substantial doubt about the Company’s ability to sustain operations for at least one year from the issuance of these unaudited condensed financial statements. The accompanying unaudited condensed financial statements do not include any adjustments related to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

During the period January 1, 2022 through September 30, 2022, the price of Bitcoin remained very volatile, with a low and high exchange price per Bitcoin of approximately $18 and $48, respectively.

#### COVID-19 pandemic:

The COVID-19 pandemic has disrupted and may continue to disrupt our operations and those of our vendors, suppliers and other third parties on which we rely, and we may not be able to obtain new miners or replacement parts for our existing miners in a timely or cost-effective manner, which could materially and adversely affect our business and results of operations.

The extent to which COVID-19 impacts our operations or our ability to obtain financing will depend on future developments which are uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions taken by governments and private businesses to contain COVID-19 to treat its impact, among others. If the disruptions posed by COVID-19 continue for an extended period of time, financial markets may not be available to the Company for raising capital in order to fund future growth. Should the Company not be able to obtain financing in the amounts necessary or under terms which are economically feasible, we may be required to reduce planned future growth and/or the scope of our operations.

### Inflation

Electricity and other prices are vulnerable to inflation.

#### Cash Flows

| Cash provided by / (used in) | Nine Months ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Operating activities | $(1,436) | $(1,354) |
| Investing activities | (68) | 385 |
| Financing activities | 1,525 | 1,990 |
| **Net increase (decrease) in cash and cash equivalents** | **$21** | **$1,021** |

#### Operating activities

Net cash used in operating activities was $1,436 for the nine months ended September 30, 2022 as compared to net cash used in operating activities of $1,354 for the nine months ended September 30, 2021. Cash used in operating activities for the nine months ended September 30, 2022 primarily consisted of a net loss of $17,899 offset by non-cash charges of $16,078 which includes depreciation of $147, loss on settlement of derivative of $757, amortization of note discount of $5,339, change in fair value of derivative liability of $6,318, and change in fair value of warrant derivative liability of $3,517 and cash provided by changes in working capital of $385.

#### Investing activities

Net cash used in investing activities was $68 for the nine months ended September 30, 2022 which consisted of purchases of property and equipment of $68.

Net cash provided by investing activities was $385 for the nine months ended September 30, 2021 which consisted of proceeds from the sale of property and equipment of $426, offset by purchases of $41.

#### Financing activities

Net cash provided by financing activities was $1,525 for the nine months ended September 30, 2022 which consisted of proceeds from convertible note payable of $1,335, proceeds from sale of stock under equity purchase agreement net of issuance costs of $228, and proceeds from loans payable of $33, partially off-set by repayment of loan payable of $71.

During the nine months ended September 30, 2021, cash provided by financing activities totaled $1,990 from proceeds of the issuance of a convertible promissory note, common stock and warrants.

#### Off–balance sheet arrangements

As of September 30, 2022, we had no obligations, assets or liabilities which would be considered off–balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off–balance sheet arrangements.

## Controls and procedures

As filed, 2,189 characters.

#### Evaluation of Disclosure Controls and Procedures

We conducted an evaluation, with the participation of our Chief Executive Officer, who is also our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”), as of September 30, 2022 to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer concluded that as of September 30, 2022, our disclosure controls and procedures were not effective at the reasonable assurance level due to the following material weaknesses in our internal control over financial reporting:

- Due to our small number of employees and limited resources, we have limited segregation of duties, as a result of which there is insufficient independent review of duties performed.
- As a result of the limited number of accounting personnel, we rely on outside consultants for the preparation of our financial reports, including financial statements and management’s discussion and analysis, which could lead to overlooking items requiring disclosure.
- Difficulty applying complex accounting principles.

25

#### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 139 characters.

There are no additional risk factors other than those discussed in our Annual Report on Form 10–K, as filed with the SEC on March 31, 2022.

Filed Nov 14, 2022.
Source: SEC EDGAR, the filing index for accession 0001493152-22-032162. Last ingested by Listed: Oct 24, 2026, 15:01 ET. No prices; not investment advice.