Commitments and Contingencies

12 Months Ended

Dec. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 14. Commitments and Contingencies

Operating leases

On August 9, 2016, the Company entered into a sublease agreement for an office lease in Durham, North Carolina. The lease commenced on September 1, 2016 and expires on January 31, 2020. Monthly rent was $6 for the first 12–month period and $7 each month thereafter until expiration of the lease. A security deposit of $13 was required upon execution of the sublease. Prior to the sublease, the Company paid $4 per month of office rent.

Lease rental expense totaled $110 and $81 during the years ended December 31, 2017 and 2016, respectively.

Total future minimum payments required under the sublease agreement are as follows.

Years ended December 31,	Amount
2018	$	85
2019		85
2020		7
	$	177

Commitments

Employment Agreements

Robert B. Ladd

On July 7, 2016, the Company entered into an employment agreement with Robert B. Ladd, to act as its President and Chief Operating Officer, at an annual salary of $240. Mr. Ladd is eligible for a cash and/or equity bonus as determined by the Nomination and Compensation Committee. Further, Mr. Ladd received 2,000,000 shares of the Company’s common stock, 1/3 of which shall vest within 12 months from the execution of the agreement, another 1/3 within 18 months, and the remaining 1/3 within 24 months from the execution of the agreement. Lastly, the agreement also provides for certain rights granted to Mr. Ladd in the event of his death, permanent incapacity, voluntary termination or discharge for cause.

On August 16, 2017, Mr. Ladd was appointed Chief Executive Officer.

John McAfee

On November 18, 2016, the Company entered into an employment agreement with John McAfee pursuant to which Mr. McAfee joined the Company as Executive Chairman of the Board of Directors and Chief Executive Officer of the Company. Mr. McAfee has a base annual salary of $1.00 per day; payable at such times as the Company customarily pays its other senior level employees. In addition, Mr. McAfee was granted an option to purchase an aggregate of six million (6,000,000) shares of the Company’s common stock, which shall be exercisable for a period of five (5) years as follows:

● options to purchase 1,000,000 shares of the Company’s common stock at a purchase price of $0.25 per share;

● options to purchase 2,000,000 shares of the Company’s common stock at a purchase price of $0.50 per share; and

● options to purchase 3,000,000 shares of the Company’s common stock at a purchase price of $1.00 per share.

Mr. McAfee was also eligible to earn a cash and/or equity bonus as the Compensation Committee determined, from time to time, based on meeting performance objectives and bonus criteria to be mutually identified by Mr. McAfee and the Nomination and Compensation Committee.

On August 16, 2017, Mr. McAfee resigned as the Executive Chairman of the Board and as the Chief Executive Officer of the Company, effective on August 15, 2017. On August 16, 2017, Mr. McAfee accepted the appointment as the Chief Cybersecurity Visionary of the Company overseeing the design of the Company’s cybersecurity platforms, effective immediately. In connection with Mr. McAfee’s new appointment as Chief Cybersecurity Visionary, Mr. McAfee entered into a new employment, effective August 14, 2017. Mr. McAfee’s new agreement is for a term of 24 months at a rate of $7.25 or the minimum wage of the state of North Carolina, whichever is higher. Upon execution, the Company notified Mr. McAfee’s previously granted stock options to (a) extend their term to August 4, 2022 and (b) cause them to be immediately exercisable.

On January 26, 2018, Mr. McAfee resigned from his role as Chief Cybersecurity Visionary. As part of Mr. McAfee’s resignation, the Company paid him a lump sum of $136 and allowed his stock options to remain outstanding and exercisable.

Robert S. Lowrey

On March 8, 2018, the Company entered into an employment with Mr. Lowrey, effective March 1, 2018. Mr. Lowrey’s employment agreement provides that he has been appointed for an initial term of two years. Mr. Lowrey is entitled to receive an annualized base salary of $240. Mr. Lowrey will also receive a one-time signing bonus of $10. Mr. Lowrey is also eligible for a cash and/or equity bonus as the Compensation Committee may determine, from time to time, based on meeting performance objectives and bonus criteria to be mutually identified by Mr. Lowrey and the Compensation Committee. In connection with the execution of his employment agreement, the Company issued to Mr. Lowrey 750,000 shares of the Company’s restricted common stock, pursuant to the Company’s 2016 Stock Option Plan vesting over a two year period.

Operating Commitments

The Company entered a 12–month agreement with Hash The Planet (“HTP”) to host, power, connect, monitor and service the machines for $136. The hosting data center is located in Cashmere, WA. MGT launched its bitcoin mining operations and earned its first bitcoin on September 3, 2016.

On July 31, 2017, the Company’s agreement with HTP expired and the Company entered into a new agreement with Zoom Hash for the same services expiring July 31, 2018. The cost of those services is $44 per month.

Management Agreements

On October 12, 2017, MGT entered into two management agreements (each, a “Management Agreement”, collectively “Management Agreements”) with two accredited investors, Deep South Mining LLC and BDLM, LLC. On November 21, 2017, the Company entered into a third management agreement with another accredited investor, Buckhead Crypto, LLC (all three accredited investors together are “Users”). Each of the Users agreed on substantially similar terms to purchase an aggregate of 2,376 Bitmain Antminer S9 mining computers (the “Bitcoin Hardware”) for a total of $3,650 to mine bitcoins with the Company acting as the exclusive manager for each of the Users. In addition, the Users have agreed to pay to the Company, in advance, the first three months of expected electricity costs of the bitcoin mining operations in the sum of $691, which is included in Other Payables on the Company’s consolidated balance sheets as of December 31, 2017. Initial electricity cost for the first three months following delivery of the Bitcoin Hardware shall be reimbursed to User within the first three months of operation. Each Management Agreement is in effect for 24 months from the date that the Bitcoin Hardware begins mining operations, and may be terminated by mutual written agreement.

Pursuant to the Management Agreements, the Company shall provide for installation, hosting, maintenance and repair and provide ancillary services necessary to operate the Bitcoin Hardware. In accordance with each of the Management Agreements, each of the Users will gain a portion of the bitcoin mined called the User Distribution Portion. The User Distribution Portion is 50% of the amount of bitcoin mined net of the operating fee (10% of the total bitcoin mined) and the electricity cost.

Furthermore, upon execution of the Management Agreements, as an incentive to the Users the Company issued to the Users an aggregate of 436,100 shares of the Company’s common stock and a Series F Warrant to purchase 436,100 shares of the Company’s common stock at an initial exercise price of $2.00 per share exercisable for a period of three years to the Users. The Company issued the shares of common stock and issued all three Series F Warrants for the benefits of the three Users on the respective dates of the execution of the Management Agreements. The Company recorded the fair value of the shares and warrants issued to the Users of $1,572 within general and administrative expenses on the Company’s consolidated statement of operations.

Legal

On September 2, 2016, the Company and John McAfee filed an action (the “Action”) against Intel Corporation (“Intel”) in the United States District Court for the Southern District of New York (the “Court”) seeking a declaration that the use of or reference to the personal name of John McAfee and/or McAfee in its business, and specifically in the context of renaming the Company to “John McAfee Global Technologies, Inc.,” does not infringe upon Intel’s trademark rights or breach any agreement between the parties. Following a series of motions and counter-motions, both parties agreed to a court-supervised mediation process.

On June 30, 2017, the Company entered into a settlement agreement (the “Settlement Agreement”) with Intel in which the Company agreed not to use “John McAfee Global Technologies,” “John McAfee Privacy Phone,” “John McAfee” or “McAfee” as (or as part of) a trademark, logo, trade name, business name, slogan, service mark or brand name in connection with cybersecurity related products or services. Notwithstanding, the Company is permitted to use the name “John McAfee” in promotional and advertising materials and on product packages, provided that the name is used in a descriptive manner and in compliance with the specifications set forth in the Settlement Agreement. Additionally, the Company may use John McAfee’s likeness without restrictions.

On July 5, 2017, the Court dismissed with prejudice all claims and counterclaims filed in the Action, based upon a stipulation of voluntary dismissal entered into by the parties of the Action pursuant to the Settlement Agreement dated June 30, 2017. The Court will retain jurisdiction over the Parties for purposes of enforcing this Settlement Agreement.

In September 2016, various shareholders in the Company filed putative class action lawsuits against the Company, its president and certain of its individual officers and directors. The cases were filed in the Court and alleged violations of federal securities laws and seek damages. On April 11, 2017 those cases were consolidated into a single action (the “Securities Action”) and two individual shareholders were appointed lead plaintiffs by the Court. On June 30, 2017, the lead plaintiffs filed an amended complaint.

On August 29, 2017, the defendants moved to dismiss the amended complaint, which the plaintiffs opposed on October 13, 2017. On November 3, 2017, the defendants filed a reply brief in further support of their motion to dismiss the amended complaint. The Court heard oral argument on the motion to dismiss on February 7, 2018. On February 27, 2018, the Court issued a Memorandum and Order dismissing the case in its entirety, with prejudice. The time for plaintiffs to file a notice of appeal expired on March 30, 2018.

On January 24, 2017, the Company was served with a copy of a summons and complaint filed by plaintiff Atul Ojha in New York state court against certain officers and directors of the Company and the Company as a nominal defendant. The lawsuit is styled as a derivative action (the “Derivative Action”) and was originally filed (but not served on any defendant) on October 15, 2016. The Derivative Action substantively alleges that the defendants, collectively or individually, inadequately managed the business and assets of the Company resulting in the deterioration of the Company’s financial condition. The Derivative Action asserts claims including but not limited to breach of fiduciary duties, unjust enrichment and waste of corporate assets. On February 27, 2017, the parties to the Derivative Action executed a stipulated stay of proceedings pending full or partial resolution of the Securities Action. Shortly after issuance of the February 28, 2018 ruling dismissing the Securities Action, the parties to the Derivative Action agreed to extend the stay indefinitely, with the plaintiff having the option to vacate the stay on thirty days’ notice. Should the plaintiff seek to vacate the stay, the Company will address the Derivative Action.

On March 3, 2017 and April 4, 2017 respectively, two additional actions were filed against the Company by a former shareholder Barry Honig (“Honig”). The first action was filed in federal court in North Carolina (the “North Carolina Action”) against the Company and its president and alleges claims for libel, slander, conspiracy, interference with prospective economic advantage, and unfair trade practices. The North Carolina Action substantively alleges that the defendants defamed Honig by causing or allowing certain statements to be published about Honig in news blogs and articles authored by a journalist, who is also a defendant in the case. On June 5, 2017, the Company filed a motion to dismiss the lawsuit, and on July 17, 2017 the plaintiff filed on opposition brief to the motion to dismiss. The Company filed its reply on August 18, 2017. On August 24, 2017, the court in North Carolina action issued an order granting in part and denying in part the motion to dismiss. On January 3, 2018, the parties signed a settlement stipulation in which the North Carolina Action was withdrawn with prejudice. The court in the North Carolina Action thereafter dismissed the case on January 18, 2018.

The second action was brought by Honig and others in the Court (the “Breach of Contract Action”) against the Company and certain of its officers and directors. The Breach of Contract Action alleges claims for breach of contract, tortious interference with contractual relations, and unjust enrichment related to the Company’s unsuccessful attempt to acquire D–Vasive and Demonsaw in 2016 and the alleged resulting harm to certain D–Vasive, Inc. (“D-Vasive”) and Demonsaw LLC (“Demonsaw”) noteholders. The defendants filed a motion to dismiss on June 5, 2017, but after the plaintiffs filed an amended complaint on June 26, 2017, the defendants filed a motion to dismiss that complaint on July 24, 2017. On September 2, 2017, the plaintiffs and defendants completed their briefing on the defendants’ motion to dismiss the amended complaint. On March 19, 2018, the Court issued a Memorandum Opinion & Order dismissing the breach of contract and tortious interference claims, but permitting the unjust enrichment claim to proceed to discovery. The defendants are considering filing a motion asking the Court to reconsider its decision to permit the unjust enrichment claim to proceed. Should such potential reconsideration motion be denied, the Company and its officers and directors believe that they have meritorious defenses against the remaining claim and intend to defend that claim vigorously.

The Company believes that there is little merit to each of the above actions and has no indication or reason to believe that it is or will be liable for any alleged wrongdoing. The Company is consulting with its counsel to determine the appropriate legal strategy but intends to defend against the remaining actions vigorously. The Company cannot presently rule out that adverse developments in one or more of the above actions could have a materially adverse effect on the Company, and has notified its Director’s and Officer’s Liability Insurance carrier.

On September 15, 2016, the Company received a subpoena from the SEC and in December 2017 the Company’s President and Chief Executive Officer received a subpoena from the SEC. The Company has cooperated fully with the SEC and its staff in a timely manner. The Company intends to fully comply with any additional requests the Company may receive from the SEC in the future.