0001493152-19-012321.txt : 20190814 0001493152-19-012321.hdr.sgml : 20190814 20190814090119 ACCESSION NUMBER: 0001493152-19-012321 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 55 CONFORMED PERIOD OF REPORT: 20190630 FILED AS OF DATE: 20190814 DATE AS OF CHANGE: 20190814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MGT CAPITAL INVESTMENTS, INC. CENTRAL INDEX KEY: 0001001601 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 134148725 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-32698 FILM NUMBER: 191023106 BUSINESS ADDRESS: STREET 1: 512 S. MANGUM STREET STREET 2: SUITE 408 CITY: DURHAM STATE: NC ZIP: 27701 BUSINESS PHONE: (919) 973-0954 MAIL ADDRESS: STREET 1: 512 S. MANGUM STREET STREET 2: SUITE 408 CITY: DURHAM STATE: NC ZIP: 27701 FORMER COMPANY: FORMER CONFORMED NAME: MGT CAPITAL INVESTMENTS INC DATE OF NAME CHANGE: 20070117 FORMER COMPANY: FORMER CONFORMED NAME: MEDICSIGHT INC DATE OF NAME CHANGE: 20021113 FORMER COMPANY: FORMER CONFORMED NAME: HTTP TECHNOLOGY INC DATE OF NAME CHANGE: 20001016 10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10–Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ______________

 

Commission file number: 001–32698

 

MGT CAPITAL INVESTMENTS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   13–4148725
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

512 S. Mangum Street, Suite 408

Durham, NC 27701

(Address of principal executive offices)

 

(914) 630–7430

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S–T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non–accelerated filer [  ] Smaller reporting company [X]
  Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act).

Yes [  ] No [X]

 

As of August 13, 2019, there were 319,721,130 shares of the registrant’s Common stock, $0.001 par value per share, issued and outstanding.

 

 

 

   
 

 

MGT CAPITAL INVESTMENTS, INC.

 

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2019

 

TABLE OF CONTENTS

 

  Page
PART I. FINANCIAL INFORMATION  
Item 1. Financial statements  
Condensed Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and December 31, 2018 1
Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2019 and 2018 2
Condensed Consolidated Statement of Changes in Stockholders’ (Deficit) Equity (Unaudited) for the six months ended June 30, 2019 3
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three and six months ended June 30, 2019 and 2018 4
Notes to the Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management’s discussion and analysis of financial condition and results of operations 22
Item 3. Quantitative and qualitative disclosures about market risk 26
Item 4. Controls and procedures 27
PART II. OTHER INFORMATION 28
Item 1. Legal proceedings 28
Item 1A. Risk factors 28
Item 2. Unregistered sales of equity securities and use of proceeds 28
Item 3. Defaults upon senior securities 28
Item 4. Mine safety disclosures 28
Item 5. Other information 28
Item 6. Exhibits 28
Signatures 29

 

 

 

 

PART 1 - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per-share amounts)

 

   June 30, 2019   December 31, 2018 
    (Unaudited)      
           
Assets          
Current assets          
Cash and cash equivalents  $3,059   $96 
Prepaid expenses and other current assets   413    193 
Intangible digital assets   84    30 
Total current assets   3,556    319 
           
Non-current assets          
Property & equipment, at cost, net   72    - 
Deferred offering costs   70    - 
Right of use asset, operating lease, net of accumulated amortization   51    - 
Other assets   200    204 
Total assets  $3,949   $523 
           
Liabilities and Stockholders’ Equity (Deficit)          
Current liabilities          
Accounts payable  $409   $537 
Accrued expenses and other payables   88    10 
Notes payable, net of discount   443    1,285 
Operating lease liability   47    - 
Total current liabilities   987    1,832 
           
Total liabilities   987    1,832 
           
Commitments and Contingencies          
           
Stockholders’ Equity (Deficit)          
Undesignated preferred stock, $0.001 par value, 8,489,800 and 8,500,000 shares authorized at June 30, 2019 and December 31, 2018, respectively. No shares issued or outstanding at June 30, 2019 and December 31, 2018   -    - 
Series B preferred stock, $0.001 par value, 10,000 and 0 shares authorized at June 30, 2019 and December 31, 2018, respectively. 0 and 0 shares issued or outstanding at June 30, 2019 and December 31, 2018, respectively.   -    - 
Series C convertible preferred stock, $0.001 par value, 200 and 0 shares authorized at June 30, 2019 and December 31, 2018, respectively. 140 and 0 shares issued or outstanding at June 30, 2019 and December 31, 2018, respectively   -    - 
Common stock, $0.001 par value; 2,500,000,000 shares authorized; 270,957,766 and 111,079,683 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively.   271    111 
Additional paid-in capital   413,694    403,299 
Accumulated deficit   (411,003)   (404,719)
Total stockholders’ equity (deficit)   2,962    (1,309)
           
Total Liabilities and Stockholders’ Equity (Deficit)  $3,949   $523 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 

 

 1 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per-share amounts)

(Unaudited)

 

   For the Three Months Ended June 30,   For the Six Months Ended June 30, 
   2019   2018   2019   2018 
                 
Revenue  $70   $409   $98   $1,365 
                     
Operating expenses                    
Cost of revenue   18    1,015    104    1,896 
General and administrative   2,074    3,283    3,988    7,492 
Restructuring charge   -    2,499    -    2,499 
Sales and marketing   -    -    -    55 
Research and development   -    -    -    47 
Total operating expenses   2,092    6,797    4,092    11,989 
                     
Operating loss   (2,022)   (6,388)   (3,994)   (10,624)
                     
Other non-operating income (expense)                    
Interest income (expense)   3    -    -    - 
Accretion of debt discount   (2,731)   (117)   (3,822)   (117)
Warrant modification expense   -    -    -    (139)
Loss on sale of business unit   -    -    -    (127)
Gain (loss) on sale of property and equipment   -    -    82    (47)
Gain on extinguishment of debt   1,131    -    2,406    - 
Total other non-operating income (expense)   (1,597)   (117)   (1,334)   (430)
                     
Net loss   (3,619)   (6,505)   (5,328)   (11,054)
                     
Deemed dividend   (959)   -    (959)   (2,514)
                     
Net loss attributable to common stockholders  $(4,578)  $(6,505)  $(6,287)  $(13,568)
                     
Per-share data                    
Basic and diluted loss per share  $(0.02)  $(0.10)  $(0.04)  $(0.22)
                     
Weighted average number of common shares outstanding  $210,625,579    65,781,192    166,758,828    62,649,062 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 

 

 2 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(Dollars in thousands, except per-share amounts)

(Unaudited)

 

   Preferred Stock   Common Stock   Additional Paid-In   Subscription   Accumulated   Total (Deficit) Equity Attributable to MGT   Non-controlling   Total
Stockholders’
(Deficit)
 
   Shares   Amount   Shares   Amount   Capital   Receivable   Deficit   Stockholders   interest   Equity 
                                         
Balance at January 1, 2019   -   $-   $111,079,683   $111   $403,299   $-   $(404,719)  $(1,309)  $-   $(1,309)
                                                   
Stock based compensation   -    -         -    894    -    -    894    -    894 
Stock issued for services - employee restricted stock   -    -    160,500    -    60    -    -    60    -    60 
Sale of stock under equity purchase agreement   -    -    43,100,000    43    2,111    (346)   -    1,808    -    1,808 
Cumulative effect adjustment related to ASU adoption   -    -    -    -    -    -    3    3    -    3 
Net loss   -    -    -    -    -    -    (1,709)   (1,709)   -    (1,709)
                                                   
Balance at March 31, 2019   -    -    154,340,183    154    406,364    (346)   (406,425)   (253)   -    (253)
                                                   
Stock based compensation - employee restricted stock   -    -    -    -    730    -    -    730    -    730 
Stock issued for services   -    -    -    -    -    -    -    -    -    - 
Sale of stock under equity purchase agreement   -    -    23,900,000    24    1,502    346    -    1,872    -    1,872 
Common stock issued on conversion of notes payable   -    -    57,224,243    57    1,640    -    -    1,697    -    1,697 
Stock sold in connection with registered direct placements   -    -    17,500,000    18    507    -    -    525    -    525 
Sale of preferred stock   190    -    -    -    1,890    -    -    1,890    -    1,890 
Conversion of preferred stock   (50)   -    13,993,340    14    (14)   -    -    -    -    - 
Exercise of warrants   -    -    4,000,000    4    116    -    -    120    -    120 
Deemed dividend   -    -    -    -    959    -    (959)   -    -    - 
Adoption of ASC 842   -    -    -    -    -    -    -    -    -    - 
Net loss   -    -    -    -    -    -    (3,619)   (3,619)   -    (3,619)
                                                   
Balance at June 30, 2019   140   $-    270,957,766    271    413,694    -    (411,003)   2,962    -   $2,962 
                                                   
Balance at January 1, 2018   -   $-    58,963,009   $59   $390,736    -   $(378,900)  $11,895   $(22)  $11,873 
                             -                     
Stock-based compensation - employee restricted stock   -    -    850,000    1    1,086    -    -    1,087    -    1,087 
Forfeiture of employee restricted stock   -    -    -    -    -    -         -    -    - 
Stock issued for services   -    -    448,551    1    838    -    -    839    -    839 
Stock issued for prior year notes payable conversion   -    -    3,381,816    3    (3)   -    -    -    -    - 
Stock sold in connection with private placements   -    -    200,000    -    80    -    -    80    -    80 
Issuance of common stock for prior year sale   -    -    -    -    -    -         -    -      
Exercise of warrants   -    -    2,224,250    2    279    -    -    281    -    281 
Stock issued in disposition of cybersecurity assets   -    -    60,000    -    120    -    -    120    -    120 
Warrant modification expense   -    -    -    -    139    -    -    139    -    139 
Deemed dividend   -    -    -    -    2,514    -    (2,514)   -    -    - 
Net loss   -    -    -    -    -    -    (4,549)   (4,549)   -    (4,549)
                                                   
Balance at March 31, 2018   -   -    66,127,626   $66   $395,789    -   $(385,963)  $9,892   $(22)  $9,870 
                                                   
Stock-based compensation - employee restricted stock   -    -    1,500,000    1    1,248    -    -    1,249    -    1,249 
Forfeiture of employee restricted stock   -    -    (550,000)   (1)   (232)   -    -    (233)        (233)
Stock issued for services   -    -    730,000    -    875    -    -    875    -    875 
Stock issued for prior year notes payable conversion   -    -    -    -    -    -    -    -    -    - 
Stock sold in connection with private placements   -    -    -    -    -    -    -    -    -    - 
Issuance of common stock for prior year sale   -    -    750,000    1    (1)   -    -    -    -      
Exercise of warrants   -    -    3,200,000    4    621    -    -    625    -    625 
Stock issued in disposition of cybersecurity assets   -    -    -    -    -    -    -    -    -    - 
Warrant modification expense   -    -    -    -    -    -    -    -    -    - 
Deemed dividend   -    -    -    -    -    -    -    -    -    - 
Net loss   -    -    -    -    -    -    (6,505)   (6,505)   -    (6,505)
                                                   
Balance at June 30, 2018   -    $-    71,757,626    71    398,300    -    (392,468)   5,903    (22)   5,881 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 3 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per-share amounts)

(Unaudited)

 

   For the Six Months Ended June 30, 
   2019   2018 
Cash Flows From Operating Activities          
Net loss  $(5,328)  $(11,054)
Adjustments to reconcile net loss to net cash used in operating activities          
Depreciation   -    1,189 
Stock-based compensation expense   1,679    3,908 
Warrant modification expense   -    139 
Loss on sale of business unit   -    127 
Extinguishment of note payable   (2,406)   - 
Amortization of note discount   3,822    117 
(Gain) loss on sale of property and equipment   (82)   47 
Change in operating assets and liabilities          
Prepaid expenses and other current assets   (220)   438 
Intangible digital assets   (54)   (203)
Right of use asset   36    - 
Lease liability   (37)   - 
Other assets   4    (368)
Accounts payable   (108)   (223)
Accrued expenses   83    566 
Net cash used in operating activities   (2,611)   (5,317)
           
Cash Flows From Investing Activities          
Proceeds from sale of cybersecurity assets   -    60 
Purchase of property and equipment   (72)   (6,994)
Proceeds from sale of property and equipment   -    427 
Net cash used in investing activities   (72)   (6,507)
           
Cash Flows From Financing Activities          
Proceeds from sale of common stock   525    80 
Payment of deferred offering costs   (8)   (83)
Proceeds from the issuance of notes payable, net of original issue discount   -    3,700 
Proceeds from sale of stock under equity purchase agreement, net of issuance costs   3,329    - 
Sale of preferred stock, net of issuance costs   1,890    - 
Repayment of notes payable   (210)   - 
Proceeds from exercise of warrants   120    906 
Net cash provided by financing activities   (5,646)   4,603 
           
Net change in cash and cash equivalents   2,963    (7,221)
           
Cash and cash equivalents, beginning of period   96    9,519 
           
Cash and cash equivalents, end of period  $3,059   $2,298 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 

 

 4 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per-share amounts)

(Unaudited)

 

   For the Six Months Ended June 30, 
   2019   2018 
Supplemental disclosure of cash flow information        
Cash paid for interest  $3   $- 
           
Cash paid for income tax  $-   $- 
           
Non-cash investing and financing activities          
Deemed dividend on warrant modification and beneficial conversion feature of preferred stock  $959   $- 
Deemed dividend on triger of down round provision  $-   $2,514 
Stock issued for services not yet rendered  $-   $15 
Cumulative effect adjustment related to ASU adoption  $3   $- 
Conversion of notes payable into common stock  $1,697   $- 
Repayment of note payable and interest through the issuance of shares under the equity purchase agreement  $354   $- 
Non-cash deferred offering costs  $62   $- 
Conversion of Series C convertible preferred stock into common stock  $14   $- 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 

 

 5 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per–share amounts)

 

Note 1. Organization and Basis of Presentation

 

Organization

 

MGT Capital Investments, Inc. (“MGT” or the “Company”) was incorporated in Delaware in 2000. MGT was originally incorporated in Utah in 1977. MGT is comprised of the parent company and its wholly owned subsidiary MGT Sweden AB. MGT’s corporate office is located in Durham, North Carolina.

 

On February 27, 2019, the Company’s stockholders approved an increase in the Company’s authorized common shares from 125,000,000 to 2,500,000,000 and the Company filed an amendment to its Certificate of Incorporation with the state of Delaware to reflect this change.

 

On June 4, 2019, the Company filed a registration statement on Form S-1 covering up to 76,558,643 shares of common stock the Company may sell from time to time. On June 25, 2019, this registration was declared effective by the Securities and Exchange Commission (“SEC”). Through August 14, the Company sold 30,500,000 shares of its common stock under this registration statement for gross proceeds of $1,291.

 

Cryptocurrency mining

 

Following a review of its Bitcoin mining operations, the Company has determined to consolidate its activities going forward in Company-owned and managed facilities. Central to this strategy is the recent purchase of land in LaFayette, GA and the entry into a favorable contract for electricity there. Located adjacent to a utility substation, the several acre property has access to over 20 megawatts (MW) of low-cost power. MGT has also ordered transformers with a total load capacity of 12.5 MW to accommodate the first phase of this project and has begun the construction and physical site development. The facility will accommodate shipping containers racked with miners with individual capacities of up to 1 MW.

 

The Company’s agreements with third-party hosting facilities allow for reduced commitments and provide for flexibility to deploy miners at the new Georgia location upon its readiness. MGT is now mining with 1,260 Bitmain S9 miners in Colorado Springs, representing its entire commitment in this location. In Coshocton, Ohio, MGT is now operating approximately 1,000 S9 miners, including miners in the first Pod5ive container delivered in late July. The Company is contractually committed to a total of 1,800 miners in Ohio, with full deployment dependent upon the speed of the facility buildout by its third-party partner.

 

On July 15, 2019, the Company announced it entered into a purchase agreement with Bitmaintech Pte. Ltd, a Singapore private limited company, to purchase 1,100 Antminer S17 Bitcoin miners for an aggregate purchase price of approximately $2,770, subject to adjustments, with delivery expected in October 2019 to the Company’s facility in Lafayette, GA.

 

During the three and six months ended June 30, 2019, the Company mined 0.01 and 7.83 Bitcoin for total revenue of $70 and $98, respectively. These coins were earned from hosting facilities located in Washington, Colorado and Ohio. On March 22, 2019, the Company terminated its hosting arrangement in Washington and conveyed its ownership of its machines in satisfaction of outstanding hosting service fees. Bitcoin results above exclude production attributable to investor-owned machines, equaling 38.00 and 38.00 Bitcoin worth $309 and $309 during the three and six months ended June 30, 2019, respectively. The Company recognized revenue of $47 under these agreements as described in Note 9.

 

 6 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per–share amounts)

 

Note 1. Organization and Basis of Presentation, continued

 

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10–Q and Rule 10 of Regulation S–X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America. However, in the opinion of the management of the Company, all adjustments necessary for a fair presentation of the financial position and operating results have been included in these statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10–K for the fiscal year ended December 31, 2018, as filed with the SEC on April 16, 2019. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for any subsequent quarters or for the year ending December 31, 2019.

 

Note 2. Going Concern and Management’s Plans

 

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of June 30, 2019, the Company had incurred significant operating losses since inception and continues to generate losses from operations. As of June 30, 2019, the Company had an accumulated deficit of $411,003.

 

Management’s plans include the consolidation of its activities in Company-owned and managed facilities, executing on its expansion model to secure low cost power and grow its cryptocurrency assets. Based on current budget assumptions, the Company believes that it will be able to meet its operating expenses and obligations for one year from the date these unaudited condensed consolidated financial statements are issued. The Company will need to raise additional funding to grow its operations and to pay current maturities of debt. 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. 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 consolidated financial statements. Management’s plans, including the consolidation of its activities in Company-owned and managed facilities, the raising of additional capital and potentially curtailing its operations alleviate such substantial doubt. The accompanying unaudited condensed consolidated 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.

 

Note 3. Summary of Significant Accounting Policies

 

Principles of consolidation

 

The unaudited condensed consolidated financial statements include the accounts of MGT and MGT Sweden AB. All intercompany transactions and balances have been eliminated.

 

Use of estimates and assumptions and critical accounting estimates and assumptions

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and also affect the amounts of revenues and expenses reported for each period. Actual results could differ from those which result from using such estimates. Management utilizes various other estimates, including but not limited to determining the estimated lives of long-lived assets, determining the potential impairment of long-lived assets, the fair value of warrants issued, the fair value of conversion features, the recognition of revenue, the valuation allowance for deferred tax assets and other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary.

 

 7 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per–share amounts)

 

Note 3. Summary of Significant Accounting Policies, continued

 

Prior Period Financial Statement Correction of an Immaterial Misstatement

 

During the first quarter of 2019, the Company identified certain adjustments required to correct balances within notes payable, accretion of debt discount, and the gain on extinguishment of debt relating to the modification to the June 2018 Note (as defined in Note 5) that had occurred on December 10, 2018. The Company had incorrectly calculated the fair value of the June 2018 Note as the date of its modification, which in turn, led the Company to calculate an incorrect gain on extinguishment and an incorrect accretion of debt discount. The errors discovered resulted in an overstatement of the Company’s notes payable balance of $566 as of December 31, 2018, and an overstatement of the accretion of debt discount of $14 and understatement on the gain on extinguishment of $580 for the year ended December 31, 2018.

 

Based on an analysis of Accounting Standards Codification (“ASC”) 250 – “Accounting Changes and Error Corrections” (“ASC 250”), Staff Accounting Bulletin 99 – “Materiality” (“SAB 99”) and Staff Accounting Bulletin 108 – “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company determined that these errors were immaterial to the previously-issued consolidated financial statements, and as such no restatement was necessary. Correcting prior year financial statements for immaterial errors would not require previously filed reports to be amended. Such correction may be made the next time the registrant files the prior year financial statements. Accordingly, the misstatements were corrected during the period ended March 31, 2019 in the accompanying consolidated balance sheet as of December 31, 2018.

 

The effect on these revisions on the Company’s consolidated balance sheet as of December 31, 2018 is as follows:

 

  

As previously reported at December 31, 2018

   Adjustment   As revised at December 31, 2018 
Notes payable, net of discount  $1,851   $(566)  $1,285 
Total current liabilities   2,398    (566)   1,832 
Total liabilities   2,398    (566)   1,832 
Accumulated deficit   (405,285)   566    (404,719)
Total stockholders’ deficit   (1,875)   566    (1,309)

 

Revenue recognition

 

The Company’s primary revenue stream is related to the mining of digital currencies. The Company derives its revenue by solving “blocks” to be added to the blockchain and providing transaction verification services within the digital currency networks of cryptocurrencies, such as Bitcoin and Ethereum, commonly termed “cryptocurrency mining.” In consideration for these services, the Company receives digital currency (“Coins”). The Coins are recorded as revenue, using the average spot price of Bitcoin on the date of receipt. The Coins are recorded on the balance sheet as an intangible digital asset valued at the lower of cost or net realizable value. Net realizable value adjustments, to adjust the value of the Coins to their market value, is included in cost of revenue on the Company’s consolidated statements of operation. Any gain or loss on sale would be recorded to cost of revenues. Costs of revenues includes equipment depreciation, rent, net realizable value adjustments, and electricity costs.

 

The Company also recognizes revenue from its management agreements. The Company receives a fee from each management agreement based on the amount of Bitcoin mined and is reimbursed for any electricity costs incurred to run the Bitcoin mining machines it manages in its facility.

 

Additionally, the Company has machines located in a facility in Ohio and Colorado. The Company receives an allocation of profits from this facility, as further described in Note 9. The Company records the net amount of the bitcoin received as revenue on its statement of operations.

 

 8 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per–share amounts)

 

Note 3. Summary of Significant Accounting Policies, continued

 

Income taxes

 

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes”. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and established for all the entities a minimum threshold for financial statement recognition of the benefit of tax positions and requires certain expanded disclosures. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse. The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management’s opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

Loss per share

 

Basic loss per share is calculated by dividing net loss applicable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing the net loss attributable to common shareholders by the sum of the weighted average number of common shares outstanding plus potential dilutive common shares outstanding during the period. Potential dilutive securities, comprised of unvested restricted shares, convertible debt stock warrants and stock options, are not reflected in diluted net loss per share because such potential shares are anti–dilutive due to the Company’s net loss.

 

Accordingly, the computation of diluted loss per share for the three and six months ended June 30, 2019 excludes 1,100,001 unvested restricted shares, 6,000,000 shares issuable under stock options, 74,776,203 shares issuable upon the conversion of convertible debt, 1,450,000 shares issuable under warrants, and 48,780,488 shares under preferred stock. The computation of diluted loss per share for the three and six months ended June 30, 2018 excludes 1,250,000 shares issuable to the investors of the December 2017 private placement, 3,600,000 unvested restricted shares, 6,000,000 shares issuable under stock options, and 9,440,796 shares issuable under warrants.

 

Stock–based compensation

 

The Company recognizes compensation expenses for all equity–based payments in accordance with ASC 718 “Compensation – Stock Compensation”. Under fair value recognition provisions, the Company recognizes equity–based compensation net of an estimated forfeiture rate and recognizes compensation cost only for those shares expected to vest over the requisite service period of the award.

 

Restricted stock awards are granted at the discretion of the compensation committee of the board of directors of the Company. These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods, typically over a 12 to 24-month period (vesting on a straight–line basis). The fair value of a stock award is equal to the fair market value of a share of the Company’s common stock on the grant date.

 

The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are inputs into the model. These assumptions are the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Expected volatility is calculated based on the historical volatility of the Company’s common stock over the expected term of the option. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term.

 

Determining the appropriate fair value model and calculating the fair value of equity–based payment awards requires the input of the subjective assumptions described above. The assumptions used in calculating the fair value of equity–based payment awards represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. The Company is required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest.

 

 9 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per–share amounts)

 

Note 3. Summary of Significant Accounting Policies, continued

 

The Company accounts for share–based payments granted to non–employees in accordance with ASC 505–50, “Equity Based Payments to Non–Employees.” The Company determines the fair value of the stock–based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more readily determinable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete. The fair value of unvested equity instruments is re-measured each reporting period and such re-measured value is amortized over the requisite remaining service period.

 

Gain (Loss) on Modification/Extinguishment of Debt

 

In accordance with ASC 470, a modification or an exchange of debt instruments that adds a conversion option or eliminates a conversion option that was substantive at the date of the modification or exchange is considered a substantive change and must be measured and accounted for as extinguishment of the original instrument along with the recognition of a gain/loss. Additionally, under ASC 470, a substantive modification of a debt instrument is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. A substantive modification is accounted for as an extinguishment of the original instrument along with the recognition of a gain/loss.

 

Recent accounting pronouncements

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying unaudited condensed consolidated financial statements, other than those disclosed below.

 

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance is effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, ASU 2018-07 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. On January 1, 2019, the Company adopted ASU 2018-07, which has not had a material effect on the Company’s financial statements.

 

In February 2016, the FASB issued ASU 2016-02 Leases which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases with terms greater than 12 months. In July 2018, the FASB issued ASU 2018-10 Leases, Codification Improvements and ASU 2018-11 Leases, Targeted Improvements, to provide additional guidance for the adoption of ASU 2016-02. ASU 2018-10 clarifies certain provisions and corrects unintended applications of the guidance such as the application of implicit rate, lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders’ (deficit) equity. ASU 2018-11 provides an alternative transition method and practical expedient for separating contract components for the adoption of ASU 2016-02. ASU 2016-02, ASU 2018-10, ASU 2018-11, (collectively, “Topic 842”) are effective for fiscal years beginning after December 15, 2018, with early adoption permitted.

 

On January 1, 2019, the Company adopted Topic 842 and made the following elections:

 

  The Company did not elect the hindsight practical expedient, for all leases.
     
  The Company elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs for all leases.
     
  In March 2018, the FASB approved an optional transition method that allows companies to use the effective date as the date of initial application on transition. The Company elected this transition method, and as a result, will not adjust its comparative period financial information or make the newly required lease disclosures for periods before the effective date.
     
  The Company elected to not separate lease and non-lease components, for all leases.

 

 10 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per–share amounts)

 

Note 3. Summary of Significant Accounting Policies, continued

 

On January 1, 2019, the Company recorded a Right of Use Asset of $87, a corresponding Lease Liability of $84 and a corresponding cumulative adjustment to accumulated deficit of $3 in accordance with Topic 842.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which is intended to improve the effectiveness of fair value measurement disclosures. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting this pronouncement.

 

In August 2018, the FASB issued ASU 2018-15, Intangible – Goodwill and Other – Internal-Use Software (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting this pronouncement.

 

Management’s evaluation of subsequent events

 

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the review, other than what is described in Note 11 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the unaudited condensed consolidated financial statements.

 

Note 4. Property, Plant, and Equipment

 

In connection with the Company’s strategy to consolidate its activities in Company-owned and managed facilities, the Company acquired 6 acres of land in LaFayette, Georgia in May 2019 for a total cost of $57 and other equipment for $15 in June 2019.

 

The Company recorded depreciation expense of $0 and $708 for the three months ended June 30, 2019 and 2018, respectively. The Company recorded depreciation expense of $0 and $1,189 for the six months ended June 30, 2019 and 2018, respectively. Depreciable assets acquired during the three months ended June 30, 2019 were not placed in service and therefore depreciation has not yet commenced.

 

Note 5. Notes Payable

 

On May 23, 2018, the Company entered into a securities purchase agreement with two accredited investors, pursuant to which the Company issued $840 in unsecured promissory notes for aggregate consideration of $700 (the “May 2018 Notes”). The outstanding balance of the May 2018 Notes was to be made in nine equal monthly installments beginning July 23, 2018. The May 2018 Notes were scheduled to mature on March 23, 2019. Subject to the terms and conditions set forth in the May 2018 Notes, the Company may prepay all or any portion of the outstanding balance at any time without pre-payment penalty. Upon the occurrence of an event of default, the outstanding balance of the May 2018 Notes shall immediately increase to 120% of the outstanding balance immediately prior to the event of default and become immediately due and payable.

 

On June 1, 2018, the Company entered into a note purchase agreement with an accredited investor, pursuant to which the Company issued an unsecured promissory note in the amount of $3,600 (the “June 2018 Note”) for consideration of $3,000. The outstanding balance of the June 2018 Note was to be made in nine equal monthly installments beginning August 1, 2018. The June 2018 Note was scheduled to mature on April 1, 2019. Subject to the terms and conditions set forth in the June 2018 Note, the Company may prepay all or any portion of the outstanding balance at any time without pre-payment penalty. Upon the occurrence of an event of default, the outstanding balance of the June 2018 Note shall immediately increase to 120% of the outstanding balance immediately prior to the event of default and become immediately due and payable.

 

 11 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per–share amounts)

 

Note 5. Notes Payable, continued

 

On December 6, 2018, the Company entered into a note purchase agreement with an accredited investor, pursuant to which the Company issued an unsecured promissory note in the amount of $598 (the “December 2018 Note”) for consideration of $500. The outstanding balance of the December 2018 Note had a maturity date of May 6, 2019 and was paid in full in March 2019. The December 2018 Note bore interest at a rate of 8% per annum and, subject to the terms and conditions set forth in the December 2018 Note, the Company was permitted to prepay all or any portion of the outstanding balance at any time without pre-payment penalty.

 

On January 7, 2019, and again on March 28, 2019 the Company entered into amendments to one of the May 2018 Notes. Pursuant to the amendments, the borrower has agreed to extend the maturity date of the note to July 15, 2019 and does not require the Company to make its monthly installment payments due from December 2018, through March 2019, provided that the Company makes all installment payments for the months thereafter beginning April 15, 2019. Installment payments shall be paid in cash unless the Company elects to make payments in shares of the Company’s common stock, in which case the number of shares to be issued will be based on the lowest VWAP of the Company’s common stock during the preceding twenty trading days multiplied by 70%, or any lower price made available to any other holder of the Company’s securities. In consideration of these amendments, the Company incurred extension fees payable to the borrower of $121.

 

On January 28, 2019, the Company entered into an amendment to the June 2018 Note. Pursuant to the amendment, the borrower has agreed to extend the maturity date to October 1, 2019 and not require the Company to make its installment payment due under the Note Purchase Agreement during January, February, and March 2019. The Company and the borrower have agreed that the Company is to pay all installment payments in cash unless both the Company and the borrower agree to make payments in shares of the Company’s common stock, in which case the number of shares to be issued will be based on the lowest intra-day trade price of the Company’s common stock during the preceding twenty trading days multiplied by 70%. In consideration of this amendment, the Company incurred an extension fee payable to the borrower of $527.

 

Because the January 2019 and March 2019 amendments were considered a substantive change, the Company has treated the modification as an extinguishment of debt and determined the gain or loss on the exchange of instruments. Based on the analysis performed, the Company determined that there was a gain on extinguishment of debt of $1,275.

 

On April 9, 2019, the Company entered an amendment to one of its May 2018 Notes to (a) forego the installment payments due on February 23, 2019 and March 23, 2019, (b) extend the maturity date of the note to August 15, 2019, and (c) include a substantial conversion feature allowing the debt holder, in its sole discretion, to have the right to convert the April 15, 2019 monthly payment, and each payment thereafter, into shares of the Company’s common stock. The number of shares to be issued will be based on the lower of: i) 70% of the lowest intra-day price of the Company’s common stock during the

 

preceding twenty (20) trading days, or ii) any lower price that is made available to any other holder of the Company’s securities, whether by sale or conversion, on the date of a conversion notice. In exchange for the amendment, the Company compensated the holder of the note by increasing the outstanding principal due by $50. The Company accounted for this amendment as an extinguishment of debt and recorded a gain of $127.

 

On May 10, 2019, the original holders of the Company’s May 2018 Notes assigned and sold all notes to Oasis Capital, LLC (“Oasis Capital”). On the same date, the Company and Oasis Capital executed a letter agreement to amend the terms of the May 2018 Notes allowing Oasis Capital to convert the total outstanding principal amount of $421 into shares of the Company’s common stock, at a price equal to 70% of the lowest trading price during the 20 days preceding the conversion dates, or any lower price made available to any other holder of the Company’s securities. This amendment also eliminated the Company’s mandatory monthly amortization payments and extended the maturity of the May 2018 Notes until August 15, 2019. After such date, and within 10 business days, any outstanding balance shall be satisfied, at the Company’s election, either with cash, common stock conversion or any combination thereof. On May 15, 2019, the Company issued 10,568,087 shares of its common stock pursuant to the full conversion of the May 2018 Notes.

 

 12 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per–share amounts)

 

Note 5. Notes Payable, continued

 

On May 10, 2019, the Company executed a letter agreement with the holder of the June 2018 Note to amend the terms of the June 2018 Note allowing the holder to covert the total outstanding principal amount of $3,159 into shares of the Company’s common stock, at a price equal to 70% of the lowest trading price during the 20 day period preceding the conversion dates, or any lower price made available to any other holder of the Company’s securities. This amendment also eliminates the Company’s mandatory monthly amortization payments and extends the maturity of the June 2018 Note until December 15, 2019. After such date, and within 10 business days, any outstanding balance shall be satisfied, at the Company’s election, either with: cash, common stock conversion, or any combination thereof. The Company accounted for this amendment as an extinguishment of debt and recorded a gain of $1,004. During the three months ended June 30, 2019, the Company issued 46,656,156 shares of its common stock upon the conversion of $1,275 in outstanding principal by the holder, and reducing the outstanding principle to $1,884 as of June 30, 2019. The holder of the June 2018 Note also acquired 17,500,000 shares of the Company’s common stock on April 12, 2019 and is an affiliate of the acquirer of 150 shares of the Preferred Shares acquired on April 12, 2019, see Note 7 below, and are collectively subject to a maximum beneficial ownership of 9.99%

 

Notes payable consisted of the following:

 

   As of June 30, 2019 
   Principal   Discount   Net 
June 2018 Note  $1,884   $(1,441)  $443 
Total notes payable  $1,884   $(1,441)  $443 

 

   As of December 31, 2018 
   Principal   Discount   Net 
May 2018 Notes  $400   $(25)  $375 
June 2018 Note   2,448    (1,803)   645 
December 2018 Note   351    (86)   265 
Total notes payable  $3,199   $(1,914)  $1,285 

 

During the three months ended June 30, 2019 and 2018, the Company recorded amortization of debt discount of $2,731 and $117, respectively.

 

During the six months ended June 30, 2019 and 2018, the Company recorded amortization of debt discount of $3,822 and $117, respectively.

 

 13 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per–share amounts)

 

Note 6. 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.

 

Lease rental expense totaled $40 and $36 during the six months ended June 30, 2019 and 2018, respectively, and $20 and $20 during the three months ended June 30, 2019 and 2018, respectively.

 

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

 

Years ended December 31,  Amount 
2019 (remaining nine months)  $42 
2020   7 
Total undiscounted minimum future lease payments  $49 
Less imputed interest   (2)
Present value of operating lease liabilities  $47 

 

At June 30, 2019, the weighted average remaining lease term and discount rate for operating leases was 0.58 years and 10.8%, respectively. The Company’s lease agreement does not contain any material residual value guarantees or material restrictive covenants.

 

 14 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per–share amounts)

 

Note 6. Leases, continued

 

Right of use asset

 

The Company has recognized a right of use asset of $51 in the unaudited condensed consolidated Balance Sheet as of June 30, 2019.

 

Note 7. Common Stock, Preferred Stock and Warrants

 

Common stock

 

Equity Purchase Agreement under Form S-3

 

From January 1, 2019 through April 16, 2019, the Company sold shares of its common stock pursuant to an equity purchase agreement with Oasis Capital. The equity purchase agreement was entered on August 30, 2018 and was amended on November 30, 2018, whereby the Company could issue and sell to Oasis Capital from time to time up to $50,000 of the Company’s common stock that was registered with the SEC under a registration statement on Form S–3. Subject to the terms of the equity purchase agreement, the Company provided notice (a “Put Notice”) requiring Oasis Capital to purchase a number of shares (the “Put Shares”) of the common stock equal to the lesser of $500 and 200% of the average trading volume of the common stock in the ten trading days immediately preceding the date of such Put Notice. The terms also provided the purchase price for such Put Shares to be the lowest traded price on a principal market for any trading day during the five trading days either following or beginning on the date on which Oasis Capital receives delivery of the Put Shares, multiplied by 95.0%.

 

During the three and six months ended June 30, 2019, the Company issued 23,900,000 and 67,000,000 shares of its common stock in exchange for $1,575 and $3,731, respectively. Of the proceeds received during the three months ended March 31, 2019, $354 was applied directly as payment against the December 2018 Note.

 

On April 16, 2019, the Company became ineligible to issue shares under its registration statement on Form S-3 as the aggregate market value of the Company’s common stock held by non-affiliates was below the regulatory threshold of $75,000. In connection with this ineligibility, the equity purchase agreement was terminated.

 

Equity Purchase Agreement under Form S-1

 

On June 3, 2019, the Company entered into an equity purchase agreement with Oasis Capital, whereby the Company shall have the right, but not the obligation, to direct Oasis Capital to purchase shares of the Company’s common stock (the “New Put Shares”) in an amount in each instance up to the lesser of $1,000 or 250% of the average daily trading volume by delivering a notice to Oasis Capital (the “New Put Notice”). The purchase price (the “Purchase Price”) for the New Put Shares shall equal 95% of the one lowest daily volume weighted average price on a principal market during the five trading days immediately following the date Oasis receives the New Put Shares via DWAC associated with the applicable New Put Notice (the “Valuation Period”). The closing of a New Put Notice shall occur within one trading day following the end of the respective Valuation Period, whereby (i) Oasis shall deliver the Investment Amount (as defined below) to the Company by wire transfer of immediately available funds and (ii) Oasis shall return surplus New Put Shares if the value of the New Put Shares delivered to Oasis causes the Company to exceed the maximum commitment amount. The Company shall not deliver another New Put Notice to Oasis within ten trading days of a prior New Put Notice. The “Investment Amount” means the aggregate Purchase Price for the New Put Shares purchased by Oasis, minus clearing costs payable to Oasis’s broker or to the Company’s transfer agent for the issuance of the New Put Shares. The shares issuable under the equity purchase agreement are registered with the SEC under a registration statement on Form S-1 that was declared effective on June 25, 2019 and are subject to a maximum beneficial ownership by Oasis Capital of 9.99%.

 

 15 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per–share amounts)

 

Note 7. Common Stock, Preferred Stock and Warrants, continued

 

Other Common Stock Sales and Issuances

 

On April 12, 2019, the Company entered into a purchase agreement with an accredited investor whereby it sold 17,500,000 shares of its common stock for $525 pursuant to the Company’s then-effective registration statement on Form S-3. The holder of these shares is also the holder of the June 2018 Note and an affiliate of the acquirer of 150 shares of the Preferred Shares acquired on April 12, 2019 described below.

 

During the six months ended June 30, 2019, the Company issued 160,500 shares of its common stock to consultants in exchange for services. These services were valued based upon the value of the shares issued of $60. During the six months ended June 30, 2018, the Company issued 1,178,551 shares of its common stock to consultants in exchange for services. These services were valued based upon the value of the shares issued of $1,714.

 

Preferred Stock

 

On January 11, 2019, the Company’s Board of Directors approved the authorization of 10,000 shares of Series B Preferred Stock with a par value of $ 0.001 (“Series B Preferred Shares”). The holders of the Series B Preferred Shares shall be entitled to receive, when, as and if declared by the Board of Directors of the Company, out of funds legally available for such purpose, dividends in cash at a rate of 12% of the stated value per annum on each Series B Preferred Share. Such dividends shall be cumulative and shall accrue without interest from the date of issuance of the respective share of the Series B Preferred Shares. Each holder shall also be entitled to vote on all matters submitted to stockholders of the Company and shall be entitled to 55,000 votes for each Series B Preferred Share owned at the record date for the determination of stockholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is taken. In the event of a liquidation event, any holders of the Series B Preferred Shares shall be entitled to receive, for each Series B Preferred Shares, the stated value in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its stockholders. The Series B Preferred Shares are not convertible into shares of the Company’s common stock.

 

On April 12, 2019, the Company’s Board of Directors approved the authorization of 200 shares of Series C Convertible Preferred Stock with a par value of $0.001 and a stated value of $10,000 per share (“Preferred Shares”). The holders of the Preferred Shares have no voting rights, receive no dividends, and are entitled to a liquidation preference equal to the stated value. At any time prior to the one-year anniversary from the issuance date, the Company may redeem the Preferred Shares at 1.4 times the stated value, following which the Company may redeem the Preferred Shares at 1.2 times the stated value.

 

Each Preferred Share is convertible into shares of the Company’s common stock in an amount equal to the greater of: (a) 200,000 shares of common stock or (b) the amount derived by dividing the stated value by the product of 0.7 times the market price of the Company’s common stock, defined as the lowest trading price of the Company’s common stock during the ten day period preceding the conversion date. The holder may not convert any Preferred Shares if the total amount of shares held, together with holdings of its affiliates, following a conversion exceeds 9.99% of the Company’s common stock. The Company has accounted for the beneficial conversion feature of the Preferred Shares, convertible at 0.7 times the market price of the Company’s common stock, as a deemed dividend of $859, measured as the difference between the conversion price of the Preferred Shares and the fair value of the underlying common stock.

 

The common shares issued upon conversion have been registered under the Company’s then-effective registration statement on Form S-3. On April 12, 2019, the Company sold 190 Preferred Shares for $1,890, net of issuance costs. During April, May and June 2019, holders of the preferred shares converted 50 of their Preferred Shares into 14,077,092 shares of common stock. Given the right of redemption is solely at the option of the Company, the Preferred Shares are not considered mandatorily redeemable, and as such are classified in shareholders’ equity on the Company’s condensed consolidated balance sheet.

 

 16 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per–share amounts)

 

Note 7. Common Stock, Preferred Stock and Warrants, continued

 

Warrants

 

The following table summarizes information about shares issuable under warrants outstanding during the six months ended June 30, 2019:

 

   Warrant
shares
outstanding
   Weighted
average
exercise price
   Weighted average remaining life   Intrinsic value 
Outstanding at January 1, 2019   5,477,975   $1.01           
Issued   -    -           
Exercised   (4,000,000)  $1.12           
Expired or cancelled   (27,975)  $0.79           
Outstanding at June 30, 2019   1,450,000   $0.72    0.82   $- 
                     
Exercisable at June 30, 2019   1,450,000   $0.72    0.82   $- 

 

On June 5, 2019, the Company entered into an agreement with a holder of a warrant for 10,000 shares of common stock, whereby the holder agreed to sell the warrant back to the Company for a nominal amount. The Company subsequently cancelled the warrant.

 

On May 9, 2019, the Company entered into a modification agreement with the holder of six separate warrants. Under the terms of the initial warrant agreements, the holder was entitled to purchase 4,000,000 shares of the Company’s common stock at prices of between $0.50 per share and $2.00 per share at various times through September 2022. Under the terms of the modification agreement, the holder was permitted to exercise all 4,000,000 warrants at a price of $0.03 per share, or $120. The Company accounted for this modification as a down-round feature under the guidance of ASC 260-10-30, whereby the change in fair value of the warrants before and after the down-round was triggered was recorded as a deemed dividend in the amount of $101.

 

Note 8. Stock–Based Compensation

 

Issuance of restricted common stock – directors, officers and employees

 

The Company’s activity in restricted common stock was as follows for the six months ended June 30, 2019:

 

   Number of shares   Weighted average
grant date fair
value
 
Non–vested at January 1, 2019   3,355,000   $1.46 
Vested   (2,254,999)  $1.39 
Non–vested at June 30, 2019   1,100,001   $1.59 

 

For the three months ended June 30, 2019 and 2018, the Company has recorded $730 and $1,247, in employee and director stock–based compensation expense, which is a component of general and administrative expenses in the consolidated statement of operations.

 

For the six months ended June 30, 2019 and 2018, the Company has recorded $1,624 and $2,334 in employee and director stock–based compensation expense, which is a component of general and administrative expenses in the consolidated statement of operations.

 

As of June 30, 2019, unamortized stock-based compensation costs related to restricted share arrangements was $843 and will be recognized over a weighted average period of 0.68 years.

 

 17 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per–share amounts)

 

Note 8. Stock–Based Compensation, continued

 

Stock options

 

The following is a summary of the Company’s stock option activity for the six months ended June 30, 2019:

 

   Options   Weighted
average
exercise price
   Weighted average Grant date fair value   Weighted average remaining life   Intrinsic value 
Outstanding – January 1, 2019   6,000,000   $0.71   $1.29           
Granted                        
Exercised                        
Forfeited/Cancelled                        
Outstanding – June 30, 2019   6,000,000   $0.71   $1.29    0.59   $ 
                          
Exercisable – June 30, 2019   6,000,000   $0.71   $1.29    0.59   $ 

 

As of June 30, 2019, there were no unrecognized compensation costs, as all outstanding stock options are fully vested.

 

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 successfully inspect 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.

 

 18 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per–share amounts)

 

Note 9. Commitments and Contingencies, continued

 

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 (as defined in the Ohio Hosting Agreement) 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 and six 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.

 

 19 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per–share amounts)

 

Note 9. Commitments and Contingencies, continued

 

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.

 

Note 10. Employee Benefit Plans

 

The Company maintains defined contribution benefit plans under Section 401(k) of the Internal Revenue Code covering substantially all qualified employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company may make discretionary contributions of up to 100% of employee contributions. During the six months ended June 30, 2019 and 2018, the Company made contributions to the 401(k) Plan of $9 and $18, respectively.

 

 20 
 

 

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per–share amounts)

 

Note 11. Subsequent Events

 

The Company has evaluated the impacts of subsequent events through August 14, 2019, and has determined that no such events occurred that were required to be reflected in the unaudited condensed consolidated financial statements, except as described within the above notes and described below.

 

Subsequent to June 30, 2019, through August 14, 2019, the Company issued 30,500,000 shares of its common stock under the equity purchase agreement for gross proceeds of $1,291.

 

In July and August 2019, the holder of the June 2018 Note converted $325 of debt principle into 11,537,510 shares of common stock, reducing the outstanding principal to $1,759.

 

On July 15, 2019, the Company announced it entered into a purchase agreement with Bitmaintech Pte. Ltd, a Singapore private limited company, to purchase 1,100 Antminer-S-17 Bitcoin miners for an aggregate purchase price of approximately $2,770, subject to adjustments, with delivery expected in October 2019 to the Company’s facility in Lafayette, GA.

 

On July 12, 2019, the acquirer of 150 shares of Preferred Shares on April 12, 2019, converted 25 shares of Preferred Shares into 6,725,854 shares of common stock. The same entity acquired 10 shares of the Preferred Shares for $100 on July 15, 2019.

 

 21 
 

 

Item 2. Management’s discussion and analysis of financial condition and results of operations

 

This Quarterly Report on Form 10–Q contains forward–looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward–looking statements. The statements contained herein that are not purely historical are forward–looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward–looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “estimates,” “should,” “expect,” “guidance,” “project,” “intend,” “plan,” “believe” and similar expressions or variations intended to identify forward–looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward–looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward–looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10–K for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission (“SEC”) on April 16, 2019, in addition to other public reports we filed with the SEC. The forward–looking statements set forth herein speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward–looking statements to reflect events or circumstances after the date of such statements.

 

Executive summary

 

MGT Capital Investments, Inc. (“MGT”, “the Company”, “we”, or “us”) is a Delaware corporation, incorporated in 2000. The Company was originally incorporated in Utah in 1977. MGT is comprised of the parent company, and its wholly–owned subsidiary MGT Sweden AB. Our corporate office is located in Durham, North Carolina.

 

All dollar figures set forth in this Quarterly Report on this Form 10-Q are in thousands, except per-share amounts.

 

Following a review of its Bitcoin mining operations, the Company has determined to consolidate its activities going forward in Company-owned and managed facilities. Central to this strategy is the recent purchase of land in LaFayette, GA and the entry into a favorable contract for electricity there. Located adjacent to a utility substation, the several acre property has access to over 20 megawatts (MW) of low-cost power. MGT has also ordered transformers with a total load capacity of 12.5 MW to accommodate the first phase of this project and has begun the construction and physical site development. The facility will accommodate shipping containers racked with miners with individual capacities of up to 1 MW.

 

Our agreements with third-party hosting facilities allow for reduced commitments and provide for flexibility to deploy miners at the new Georgia location upon its readiness. MGT is now mining with 1,260 Bitmain S9 miners in Colorado Springs, representing its entire commitment in this location. In Coshocton, Ohio, MGT is now operating approximately 1,000 S9 miners, including miners in the first Pod5ive container delivered in late July. We are contractually committed to a total of 1,800 miners in Ohio, with full deployment dependent upon the speed of the facility buildout by our third-party partner.

 

On July 15, 2019, the Company announced it entered into a purchase agreement with Bitmaintech Pte. Ltd, a Singapore private limited company, to purchase 1,100 Antminer S17 Bitcoin miners for an aggregate purchase price of approximately $2,770, subject to adjustments, with delivery expected in October 2019 to the Company’s facility in Lafayette, GA.

 

Critical accounting policies and estimates

 

Our discussion and analysis of financial condition and results of operations are based upon our consolidated 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 consolidated financial statements contained in this Quarterly Report describe our significant accounting policies used in the preparation of the unaudited condensed consolidated 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 consolidated financial statements.

 

Revenue recognition

 

The Company’s primary revenue stream is related to the mining of digital currencies. The Company derives its revenue by solving “blocks” to be added to the blockchain and providing transaction verification services within the digital currency networks of cryptocurrencies, such as Bitcoin and Ethereum, commonly termed “cryptocurrency mining.” In consideration for these services, the Company receives digital currency (“Coins”). The Coins are recorded as revenue, using the average spot price of Bitcoin on the date of receipt. The Coins are recorded on the balance sheet as an intangible digital asset valued at the lower of cost or net realizable value. Net realizable value adjustments, to adjust the value of the Coins to their market value, is included in cost of revenue on the Company’s consolidated statements of operation. Any gain or loss on sale would be recorded to cost of revenues. Costs of revenues includes equipment depreciation, rent, net realizable value adjustments, and electricity costs.

 

 22 
 

 

The Company also recognizes revenue from its management agreements. The Company receives a fee from each management agreement based on the amount of Bitcoin mined and is reimbursed for any electricity costs incurred to run the Bitcoin mining machines it manages in its facility.

 

Stock–based compensation

 

The Company recognizes compensation expense for all equity–based payments in accordance with Accounting Standards Codification (“ASC”) 718 “Compensation – Stock Compensation”. Under fair value recognition provisions, the Company recognizes equity–based compensation net of an estimated forfeiture rate and recognizes compensation cost only for those shares expected to vest over the requisite service period of the award.

 

Restricted stock awards are granted at the discretion of the compensation committee of the board of directors of the Company. These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods, typically over a 12 to 24-month period (vesting on a straight–line basis). The fair value of a stock award is equal to the fair market value of a share of the Company’s common stock on the grant date.

 

The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are inputs into the model. These assumptions are the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Expected volatility is calculated based on the historical volatility of the Company’s common stock over the expected term of the option. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term.

 

Determining the appropriate fair value model and calculating the fair value of equity–based payment awards requires the input of the subjective assumptions described above. The assumptions used in calculating the fair value of equity–based payment awards represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. The Company is required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest.

 

The Company accounts for share–based payments granted to non–employees in accordance with ASC 505–50, “Equity Based Payments to Non–Employees”. The Company determines the fair value of the stock–based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more readily determinable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete. The fair value of unvested equity instruments is re–measured each reporting period and such re-measured value is amortized over the requisite remaining service period.

 

Results of operations

 

Three months ended June 30, 2019 and 2018

 

Revenues

 

Our revenues for the three months ended June 30, 2019 decreased by $339, or 83%, to $70 as compared to $409 for the three months ended June 30, 2018. Our revenue is derived from cryptocurrency mining. The decrease in revenues is a result of our decision to not operate the majority of our miners due to the unfavorable economics of decreased price of Bitcoin and increased difficulty.

 

Operating Expenses

 

Operating expenses for the three months ended June 30, 2019 decreased by $4,705, or 69%, to $2,092 as compared to $6,797 for the three months ended June 30, 2018. The decrease in operating expenses was primarily due to a decrease in general and administrative expenses of $1,209, the absence of the Sweden restructuring charge in 2018 of $2,499, and a decrease of $997 in cost of sales from cryptocurrency mining operations.

 

The decrease in general and administrative expenses of $1,209 or 37% to $2,074 as compared to $3,283 for the three months ended June 30, 2018, was primarily due to a decrease in stock-based compensation of $951, a decrease in payroll and related expenses of $161, a decrease in administrative and travel costs to operate the Sweden facility of $483, offset by an increase in legal and professional fees of $268 and an increase in consulting fees of $226 primarily related to Company’s facility in Georgia.

 

 23 
 

 

Other Income and Expense

 

For the three months ended June 30, 2019, non–operating expenses consisted of interest income of $3, accretion of debt discount of $2,731 and a gain on extinguishment of debt of $1,131. During the comparable period ended June 30, 2018, non–operating expenses consisted of accretion of debt discount of $117.

 

Six months ended June 30, 2019 and 2018

 

Revenues

 

Our revenues for the six months ended June 30, 2019 decreased by $1,267, or 93%, to $98 as compared to $1,365 for the six months ended June 30, 2018. Our revenue is derived from cryptocurrency mining. The decrease in revenues is a result of our decision to not operate the majority of our miners due to the unfavorable economics of decreased price of Bitcoin and increased difficulty.

 

Operating Expenses

 

Operating expenses for the six months ended June 30, 2019 decreased by $7,897, or 66%, to $4,092 as compared to $11,989 for the six months ended June 30, 2018. The decrease in operating expenses was primarily due to a decrease in general and administrative expenses of $3,504, the absence of the Sweden restructuring charge in 2018 of $2,499, and a decrease of $1,792 in cost of sales from cryptocurrency mining operations.

 

The decrease in general and administrative expenses of $3,504, or 47% to $3,988 as compared to $7,492 for the six months ended June 30, 2018, was primarily due to a decrease in stock-based compensation of $2,230 and a decrease in payroll and related expenses of $587, a decrease in administrative and travel costs to operate the Sweden facility of $753, a decrease in marketing and research and development costs of $101, offset by an increase in legal and professional fees of $324.

 

Other Income and Expense

 

For the six months ended June 30, 2019, non–operating expenses consisted of accretion of debt discount of $3,822, gain on sale of property and equipment of $82 and a gain on extinguishment of debt of $2,406. During the comparable period ended June 30, 2018, non–operating expenses consisted of accretion of debt discount of $117, warrant modification expense of $139, loss on sale of business unit of $127, and a loss on sale of property and equipment of $47.

 

Liquidity and capital resources

 

Sources of Liquidity

 

We have historically financed our business through the sale of debt and equity instruments. We have incurred significant operating losses since inception with an accumulated deficit of $411,003 as of June 30, 2019, and continue to generate losses from operations. At June 30, 2019, our cash and cash equivalents were $3,059 and our working capital was $2,569. As of June 30, 2019, we had notes payable outstanding with a face value of $1,884.

 

Management’s plans include the consolidation of its activities in Company-owned and managed facilities, executing on its expansion model to secure low cost power and grow its cryptocurrency assets. Based on current budget assumptions, the Company believes that it will be able to meet its operating expenses and obligations for one year from the date these unaudited condensed consolidated financial statements are issued. The Company will need to raise additional funding to grow its operations and to pay current maturities of debt. 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. 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 consolidated financial statements. Management’s plans, including the consolidation of its activities in Company-owned and managed facilities, the raising of additional capital and potentially curtailing its operations alleviate such substantial doubt. The accompanying unaudited condensed consolidated 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.

 

 24 
 

 

The price of Bitcoin is volatile, and fluctuations are expected. Movements may be influenced by various factors, including, but not limited to, government regulation, security breaches experienced by service providers, as well as political and economic uncertainties around the world. Since we record revenue based on the price of earned Bitcoin and we may retain such Bitcoin as an asset or as payment for future expenses, the relative value of such revenues may fluctuate, as will the value of any Bitcoin we retain. The high and low exchange rate per Bitcoin for the six months ended June 30, 2019, as reported by Blockchain.info, were approximately $3 and $12 respectively.

 

The Company’s primary source of operating funds has been through debt and equity financing.

 

Equity Purchase Agreements

 

On August 30, 2018, and further amended on December 3, 2018, the Company and Oasis Capital, LLC (“Oasis Capital”) entered into an equity purchase agreement pursuant to which the Company issued and sold to Oasis Capital from time to time 100,650,000 shares of the Company’s common stock, registered with the SEC under a registration statement on a Form S–3, for gross proceeds of $6,491. On April 16, 2019, the Company’s registration statement on Form S–3 lost its effectiveness as the aggregate market value of the Company’s common stock held by non-affiliates was below the regulatory threshold of $75,000.

 

On June 4, 2019, the Company and Oasis Capital entered into a new equity purchase agreement pursuant to which the Company may issue and sell from time to time to Oasis Capital up 76,558,643 shares of the Company’s common stock that are registered with the SEC under a registration statement on Form S-1 that went effective on June 25, 2019. No shares were issued or sold under this registration statement during the three months ended June 30, 2019. Subsequent to June 30, 2019, 30,500,000 shares of the Company’s common stock were issued and sold for gross proceeds of $1,291.

 

Sale of Preferred Stock

 

On April 12, 2019, the Company’s Board of Directors approved the authorization of 200 shares of Series C Convertible Preferred Stock with a par value of $0.001 and a stated value of $10,000 per share (“Preferred Shares”). The holders of the Preferred Shares are not entitled to vote their shares or receive dividends. At any time prior to the one-year anniversary from the issuance date, the Company may redeem the Preferred Shares at 1.4 times the Stated Value, following which the Company may redeem the Preferred Shares at 1.2 times the Stated Value.

 

Each Preferred Share is convertible into shares of the Company’s common stock in an amount equal to the greater of: (a) 200,000 shares of common stock or (b) the amount derived by dividing the Stated Value by the product of 0.7 times the market price of the Company’s common stock, defined as the lowest trading price of the Company’s common stock during the ten day period preceding the conversion date. The holder may not convert any Preferred Shares if the total amount of shares, together with holdings of its affiliates, following a conversion shall exceed 9.99% of the Company’s common stock. The common shares issued upon conversion have been registered under the Company’s registration statement on Form S-3. On April 12, 2019, the Company sold 190 Preferred Shares for $1,890.

 

Sale of Common Stock

 

On April 12, 2019, the Company entered into a purchase agreement with an accredited investor whereby it sold 17,500,000 shares of its common stock for $525 pursuant to the Company’s registration statement on Form S-3. The holder of these shares is also the holder of the June 2018 Note and an affiliate of the holder of 150 shares of the Preferred Shares.

 

Property & Equipment Acquisitions

 

In connection with management’s plans to consolidate its activities in Company-owned and managed facilities, the Company acquired 6 acres of land in Lafayette, Georgia in May 2019 for $57, acquired electrical transformers of $177 in June and July 2019, and in July 2019 entered into an agreement to purchase 1,100 Antminer- S-17 Bitcoin miners for $2,768, of which $1,384 was paid as a deposit and the remaining balance will be paid upon delivery expected to be in October 2019. The Company will incur additional costs to complete its owned and managed facility and anticipates the funding for such costs to be provided from cash on hand and proceeds from its equity purchase agreement.

 

 25 
 

 

   Six Months ended June 30, 
   2019   2018 
Cash (used in) / provided by          
Operating activities  $(2,611)  $(5,317)
Investing activities   (72)   (6,507)
Financing activities   5,646    4,603 
Net increase (decrease) in cash and cash equivalents  $2,963   $(7,221)

 

Cash Flows

 

Operating activities

 

Net cash used in operating activities was $2,611 for the six months ended June 30, 2019 as compared to $5,317 for the six months ended June 30, 2018. Cash used in operating activities for the six months ended June 30, 2019 primarily consisted of a net loss of $5,328, partially offset by stock-based compensation of $1,679, amortization of note discounts of $3,822 less a non-cash gain on extinguishment of $2,406 with a decrease in working capital of $296. Cash used in operating activities for the six months ended June 30, 2018 primarily consisted of a net loss of $11,054 partially offset by non-cash stock-based compensation of $3,908, depreciation expense of $1,189, and an increase due to changes in working capital of $210.

 

Investing activities

 

Net cash used in investing activities was $72 for the six months ended June 30, 2019 as compared to net cash used in investing activities of $6,507 for the six months ended June 30, 2018. During the six months ended June 30, 2019, the Company used $72 in the purchase of property and equipment. During the six months ended June 30, 2018, the Company used $6,994 in the purchase of property and equipment, and realized $60 in proceeds from sales of our cybersecurity assets and $427 from the sale of property and equipment.

 

Financing activities

 

During the six months ended June 30, 2019, cash provided by financing activities totaled $5,646, which includes $3,329 from the sale of stock under our equity line of credit, sale of preferred stock of $1,890 and proceeds of $120 from the exercising of warrants offset by $210 in repayments of notes payable and payments of deferred offering costs of $8. During the six months ended June 30, 2018, cash provided by financing activities totaled $4,603, comprised of $3,700 from the net proceeds of notes payable, $80 from private placements of our common stock and $906 from the exercise of stock purchase warrants offset by $83 in deferred offering costs paid.

 

Off–balance sheet arrangements

 

As of June 30, 2019, 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.

 

Item 3. Quantitative and qualitative disclosures about market risk

 

The Company is not exposed to market risk related to interest rates on foreign currencies.

 

 26 
 

 

Item 4. Controls and procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures designed to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer (our principal executive) and Chief Financial Officer (our principal financial officer and principal accounting officer) carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2019. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) were not effective as June 30, 2019 due to a material weakness in our internal control over financial reporting as described below.

 

Limitations on Internal Control over Financial Reporting

 

An internal control system over financial reporting has inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

Management’s Quarterly Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process used to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles in the United States, and that our receipts and expenditures are being made only in accordance with the authorization of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

 

Under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive) and Chief Financial Officer (our principal financial officer and principal accounting officer), we performed a complete documentation of the Company’s significant processes and key controls, and conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of June 30, 2019 due to the material weaknesses described below.

 

A material weakness is defined within the Public Company Accounting Oversight Board’s Auditing Standard No. 5 as a deficiency or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. We determined that our internal control of financial reporting had the following material weakness:

 

  Due to the small size of the Company, the Company does not maintain sufficient segregation of duties to ensure the processing, review and authorization of all transactions including non-routine transactions.
  Our processes lacked timely and complete reviews and analysis of information used to prepare our financial statements and disclosures in accordance with accounting principles generally accepted in the United States of America.
  The Company failed to prevent and timely discover a misappropriation of assets by a key vendor of the Company.
  The Company failed to timely discover an error in the calculation of an extinguishment of debt.

 

The Company is evaluating these weaknesses to determine the appropriate remedy. Because disclosure controls and procedures include those components of internal control over financial reporting that provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, management also determined that its disclosure controls and procedures were not effective as a result of the foregoing material weaknesses in its internal control over financial reporting.

 

Changes in Internal Control over Financial Reporting

 

During the quarter ended June 30, 2019, the Company developed a plan to remediate its material weaknesses and to design an effective internal control environment. The Company anticipates having effective disclosure controls and procedures by December 31, 2019.

 

 27 
 

 

PART II. OTHER INFORMATION

 

Item 1. Legal proceedings

 

On 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.

 

Item 1A. Risk factors

 

There are no additional risk factors other than those discussed in our Annual Report on Form 10–K, as filed with the SEC on April 16, 2019.

 

Item 2. Unregistered sales of equity securities and use of proceeds

 

From July 15, 2019 through August 14, 2019, the Company issued 30,500,000 shares of the Company’s common stock, par value $0.001 to Oasis Capital, LLC in connection with the exercise of its put rights, pursuant to the Equity Purchase Agreement dated June 3, 2019 for gross proceeds of $1,291.

 

During July and August 2019, the Company issued 11,537,510 shares of common stock to Iliad Research and Trading, L.P. in connection with the conversion of $325 of outstanding principal.

 

Item 3. Defaults upon senior securities

 

None.

 

Item 4. Mine safety disclosures

 

Not applicable.

 

Item 5. Other information

 

None.

 

Item 6. Exhibits

 

  31.1   Certification pursuant to Section 302 of the Sarbanes–Oxley Act of 2002 of Principal Executive Officer*
  31.2   Certification pursuant to Section 302 of the Sarbanes–Oxley Act of 2002 of Principal Financial Officer*
  32   Certification pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 of Principal Executive Officer and Principal Financial Officer*
  101.INS   XBRL Instance Document*
  101.SCH   XBRL Taxonomy Extension Schema*
  101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document*
  101.DEF   XBRL Taxonomy Extension Definition Linkbase Document*
  101.LAB   XBRL Taxonomy Extension Labels Linkbase Document*
  101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document*
       
  *   Filed herewith

 

 28 
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  MGT CAPITAL INVESTMENTS, INC
     
Date: August 14, 2019 By: /s/ Robert B. Ladd
    Robert B. Ladd
    President and Chief Executive Officer
    (Principal Executive Officer)

 

 

 29 
 

 

EX-31.1 2 ex31-1.htm

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO SARBANES–OXLEY ACT OF 2002

 

I, Robert B. Ladd, certify that:

 

1. I have reviewed this quarterly report on Form 10–Q of MGT Capital Investments, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2019 By: /s/ Robert B. Ladd
    Robert B. Ladd
    President and Chief Executive Officer
    (Principal Executive Officer)

 

   
 

 

EX-31.2 3 ex31-2.htm

 

Exhibit 31.2

 

CERTIFICATION PURSUANT TO SARBANES–OXLEY ACT OF 2002

 

I, Robert S. Lowrey, certify that:

 

1. I have reviewed this quarterly report on Form 10–Q of MGT Capital Investments, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2019 By: /s/ Robert S. Lowrey
    Robert S. Lowrey
    Chief Financial Officer
    (Principal Financial Officer)

 

   
 

 

EX-32 4 ex32.htm

 

Exhibit 32

 

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES–OXLEY ACT OF 2002

 

In connection with the Quarterly Report of MGT Capital Investments, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
     
  2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 14, 2019 By: /s/ Robert B. Ladd
    Robert B. Ladd
    President and Chief Executive Officer
    (Principal Executive Officer)
     

 

Date: August 14, 2019 By: /s/ Robert S. Lowrey
    Robert S. Lowrey
    Chief Financial Officer
    (Principal Financial Officer)

 

   
 

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Document And Entity Information - shares
6 Months Ended
Jun. 30, 2019
Aug. 13, 2019
Document And Entity Information    
Entity Registrant Name MGT CAPITAL INVESTMENTS, INC.  
Entity Central Index Key 0001001601  
Document Type 10-Q  
Document Period End Date Jun. 30, 2019  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity's Reporting Status Current Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business Flag true  
Entity Emerging Growth Company false  
Entity Ex Transition Period false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   319,721,130
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2019  
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Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Current assets    
Cash and cash equivalents $ 3,059 $ 96
Prepaid expenses and other current assets 413 193
Intangible digital assets 84 30
Total current assets 3,556 319
Non-current assets    
Property & equipment, at cost, net 72
Deferred offering costs 70
Right of use asset, operating lease, net of accumulated amortization 51
Other assets 200 204
Total assets 3,949 523
Current liabilities    
Accounts payable 409 537
Accrued expenses and other payables 88 10
Notes payable, net of discount 443 1,285
Operating lease liability 47
Total current liabilities 987 1,832
Total liabilities 987 1,832
Commitments and Contingencies
Stockholders' Equity (Deficit)    
Common stock, $0.001 par value; 2,500,000,000 shares authorized; 270,957,766 and 111,079,683 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively. 271 111
Additional paid-in capital 413,694 403,299
Accumulated deficit (411,003) (404,719)
Total stockholders' equity (deficit) 2,962 (1,309)
Total Liabilities and Stockholders' Equity (Deficit) 3,949 523
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Stockholders' Equity (Deficit)    
Preferred stock value
Series B Convertible Preferred Stock [Member]    
Stockholders' Equity (Deficit)    
Preferred stock value
Series C Convertible Preferred Stock [Member]    
Stockholders' Equity (Deficit)    
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Jun. 30, 2019
Dec. 31, 2018
Preferred stock, shares authorized 8,499,800 8,500,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 2,500,000,000 2,500,000,000
Common stock, shares issued 270,957,766 111,079,683
Common stock, shares outstanding 270,957,766 111,079,683
Undesignated Preferred Stock [Member]    
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 8,489,800 8,500,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Series B Convertible Preferred Stock [Member]    
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 10,000 0
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Series C Convertible Preferred Stock [Member]    
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Preferred stock, shares outstanding 140 0
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Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Income Statement [Abstract]        
Revenue $ 70 $ 409 $ 98 $ 1,365
Operating expenses        
Cost of revenue 18 1,015 104 1,896
General and administrative 2,074 3,283 3,988 7,492
Restructuring charge 2,499 2,499
Sales and marketing 55
Research and development 47
Total operating expenses 2,092 6,797 4,092 11,989
Operating loss (2,022) (6,388) (3,994) (10,624)
Other non-operating income (expense)        
Interest income (expense) 3
Accretion of debt discount (2,731) (117) (3,822) (117)
Warrant modification expense   (139)
Loss on sale of business unit (127)
Gain (loss) on sale of property and equipment 82 (47)
Gain on extinguishment of debt 1,131 2,406
Total other non-operating income (expense) (1,597) (117) (1,334) (430)
Net loss (3,619) (6,505) (5,328) (11,054)
Deemed dividend (959) (959) (2,514)
Net loss attributable to common stockholders $ (4,578) $ (6,505) $ (6,287) $ (13,568)
Per-share data        
Basic and diluted loss per share $ (0.02) $ (0.10) $ (0.04) $ (0.22)
Weighted average number of common shares outstanding 210,625,579 65,781,192 166,758,828 62,649,062
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Condensed Consolidated Statement of Changes in Stockholders' (Deficit) Equity (Unaudited) - USD ($)
$ in Thousands
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Common Stock [Member]
Additional Paid-In Capital [Member]
Subscription Receivable [Member]
Accumulated Deficit [Member]
Total (Deficit) Equity Attributable to MGT Stockholders [Member]
Non-controlling Interest [Member]
Total
Balance at Dec. 31, 2017 $ 59 $ 390,736 $ (378,900) $ 11,895 $ (22) $ 11,873
Balance, shares at Dec. 31, 2017 58,963,009            
Stock-based compensation - employee restricted stock $ 1 1,086 1,087 1,087
Stock-based compensation - employee restricted stock, shares 850,000            
Forfeiture of employee restricted stock
Forfeiture of employee restricted stock, shares            
Stock issued for services $ 1 838 839 839
Stock issued for services, shares 448,551            
Stock issued for prior year notes payable conversion $ 3 (3)  
Stock issued for prior year notes payable conversion, shares 3,381,816            
Stock sold in connection with private placements $ 80 80 80
Stock sold in connection with private placements, shares 200,000          
Issuance of common stock for prior year sale
Issuance of common stock for prior year sale, shares            
Exercise of warrants $ 2 279 281 281
Exercise of warrants, shares 2,224,250            
Stock issued in disposition of cybersecurity assets 120 120 120
Stock issued in disposition of cybersecurity assets, shares 60,000            
Warrant modification expense 139 139 139
Deemed dividend 2,514 (2,514)
Net loss (4,549) (4,549) (4,549)
Balance at Mar. 31, 2018 $ 66 395,789   (385,963) 9,892 (22) 9,870
Balance, shares at Mar. 31, 2018 66,127,626            
Balance at Dec. 31, 2017 $ 59 390,736 (378,900) 11,895 (22) 11,873
Balance, shares at Dec. 31, 2017 58,963,009            
Warrant modification expense               139
Net loss               (11,054)
Balance at Jun. 30, 2018 $ 71 398,300 (392,468) 5,903 (22) 5,881
Balance, shares at Jun. 30, 2018 71,757,626            
Balance at Mar. 31, 2018 $ 66 395,789   (385,963) 9,892 (22) 9,870
Balance, shares at Mar. 31, 2018 66,127,626            
Stock-based compensation - employee restricted stock $ 1 1,248 1,249 1,249
Stock-based compensation - employee restricted stock, shares 1,500,000            
Forfeiture of employee restricted stock $ (1) (232) (233) (233)
Forfeiture of employee restricted stock, shares (550,000)            
Stock issued for services 875 875 875
Stock issued for services, shares 730,000            
Stock issued for prior year notes payable conversion
Stock issued for prior year notes payable conversion, shares            
Stock sold in connection with private placements
Stock sold in connection with private placements, shares            
Issuance of common stock for prior year sale $ 1 (1)  
Issuance of common stock for prior year sale, shares 750,000            
Exercise of warrants $ 4 621 625 625
Exercise of warrants, shares 3,200,000            
Stock issued in disposition of cybersecurity assets
Stock issued in disposition of cybersecurity assets, shares            
Warrant modification expense
Deemed dividend  
Net loss (6,505) (6,505) (6,505)
Balance at Jun. 30, 2018 $ 71 398,300 (392,468) 5,903 (22) 5,881
Balance, shares at Jun. 30, 2018 71,757,626            
Balance at Dec. 31, 2018 $ 111 403,299 (404,719) (1,309) (1,309)
Balance, shares at Dec. 31, 2018 111,079,683            
Stock based compensation 894 894 894
Stock based compensation, shares            
Stock issued for services - employee restricted stock 60 60 60
Stock issued for services - employee restricted stock, shares 160,500            
Sale of stock under equity purchase agreement $ 43 2,111 (346) 1,808 1,808
Sale of stock under equity purchase agreement, shares 43,100,000            
Cumulative effect adjustment related to ASU adoption 3 3 3
Net loss (1,709) (1,709) (1,709)
Balance at Mar. 31, 2019 $ 154 406,364 (346) (406,425) (253) (253)
Balance, shares at Mar. 31, 2019 154,340,183            
Balance at Dec. 31, 2018 $ 111 403,299 (404,719) (1,309) $ (1,309)
Balance, shares at Dec. 31, 2018 111,079,683            
Issuance of common stock for prior year sale, shares               43,100,000
Warrant modification expense              
Cumulative effect adjustment related to ASU adoption               3
Net loss               (5,328)
Balance at Jun. 30, 2019 $ 271 413,694 (411,003) 2,962 2,962
Balance, shares at Jun. 30, 2019 140 270,957,766            
Balance at Mar. 31, 2019 $ 154 406,364 (346) (406,425) (253) (253)
Balance, shares at Mar. 31, 2019 154,340,183            
Stock-based compensation - employee restricted stock 730 730 730
Stock-based compensation - employee restricted stock, shares            
Stock issued for services
Exercise of warrants $ 4 116 120 120
Exercise of warrants, shares 4,000,000            
Deemed dividend 959 (959)
Sale of stock under equity purchase agreement $ 24 1,502 346 1,872 1,872
Sale of stock under equity purchase agreement, shares 23,900,000            
Common stock issued on conversion of notes payable $ 57 1,640 1,697 1,697
Common stock issued on conversion of notes payable 57,224,243            
Stock sold in connection with registered direct placements $ 18 507 525 525
Stock sold in connection with registered direct placements, shares 17,500,000            
Sale of preferred stock 1,890 1,890 1,890
Sale of preferred stock, shares 190            
Conversion of preferred stock $ 14 (14)
Conversion of preferred stock, shares (50) 13,993,340            
Adoption of ASC 842  
Net loss         (3,619) (3,619) (3,619)
Balance at Jun. 30, 2019 $ 271 $ 413,694 $ (411,003) $ 2,962 $ 2,962
Balance, shares at Jun. 30, 2019 140 270,957,766            
XML 16 R6.htm IDEA: XBRL DOCUMENT v3.19.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2019
Mar. 31, 2019
Jun. 30, 2018
Mar. 31, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Cash Flows From Operating Activities              
Net loss $ (3,619) $ (1,709) $ (6,505) $ (4,549) $ (5,328) $ (11,054)  
Adjustments to reconcile net loss to net cash used in operating activities              
Depreciation 0   708   1,189  
Stock-based compensation expense         1,679 3,908  
Warrant modification expense     139 139  
Loss on sale of business unit         127  
Extinguishment of note payable (1,131)     (2,406)  
Amortization of note discount 2,731   117   3,822 117  
(Gain) loss on sale of property and equipment     (82) 47  
Change in operating assets and liabilities              
Prepaid expenses and other current assets         (220) 438  
Intangible digital assets         (54) (203)  
Right of use asset         36  
Lease liability         (37)  
Other assets         4 (368)  
Accounts payable         (46) (223)  
Accrued expenses         83 566  
Net cash used in operating activities         (2,549) (5,317)  
Cash Flows From Investing Activities              
Proceeds from sale of cybersecurity assets         60  
Purchase of property and equipment         (72) (6,994)  
Proceeds from sale of property and equipment         427  
Net cash used in investing activities         (72) (6,507)  
Cash Flows From Financing Activities              
Proceeds from sale of common stock         525 80  
Payment of deferred offering costs         (70) (83)  
Proceeds from the issuance of notes payable, net of original issue discount         3,700  
Proceeds from sale of stock under equity purchase agreement, net of issuance costs         3,329  
Sale of preferred stock, net of issuance costs         1,890  
Repayment of notes payable         (210)  
Proceeds from exercise of warrants         120 906  
Net cash provided by financing activities         5,584 4,603  
Net change in cash and cash equivalents         2,963 (7,221)  
Cash and cash equivalents, beginning of period   $ 96   $ 9,519 96 9,519 $ 9,519
Cash and cash equivalents, end of period $ 3,059   $ 2,298   3,059 2,298 $ 96
Supplemental disclosure of cash flow information              
Cash paid for interest          
Cash paid for income tax          
Non-cash investing and financing activities              
Deemed dividend on warrant modification and beneficial conversion feature of preferred stock         959  
Deemed dividend on triger of down round provision         2,514  
Stock issued for services not yet rendered         15  
Cumulative effect adjustment related to ASU adoption         3  
Conversion of notes payable into common stock         1,697  
Repayment of note payable and interest through the issuance of shares under the equity purchase agreement         354  
Non-cash deferred offering costs         62  
Conversion of Series C convertible preferred stock into common stock         $ 14  
XML 17 R7.htm IDEA: XBRL DOCUMENT v3.19.2
Organization and Basis of Presentation
6 Months Ended
Jun. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Basis of Presentation

Note 1. Organization and Basis of Presentation

 

Organization

 

MGT Capital Investments, Inc. (“MGT” or the “Company”) was incorporated in Delaware in 2000. MGT was originally incorporated in Utah in 1977. MGT is comprised of the parent company and its wholly owned subsidiary MGT Sweden AB. MGT’s corporate office is located in Durham, North Carolina.

 

On February 27, 2019, the Company’s stockholders approved an increase in the Company’s authorized common shares from 125,000,000 to 2,500,000,000 and the Company filed an amendment to its Certificate of Incorporation with the state of Delaware to reflect this change.

 

On June 4, 2019, the Company filed a registration statement on Form S-1 covering up to 76,558,643 shares of common stock the Company may sell from time to time. On June 25, 2019, this registration was declared effective by the Securities and Exchange Commission (“SEC”). Through August 14, the Company sold 30,500,000 shares of its common stock under this registration statement for gross proceeds of $1,291.

 

Cryptocurrency mining

 

Following a review of its Bitcoin mining operations, the Company has determined to consolidate its activities going forward in Company-owned and managed facilities. Central to this strategy is the recent purchase of land in LaFayette, GA and the entry into a favorable contract for electricity there. Located adjacent to a utility substation, the several acre property has access to over 20 megawatts (MW) of low-cost power. MGT has also ordered transformers with a total load capacity of 12.5 MW to accommodate the first phase of this project and has begun the construction and physical site development. The facility will accommodate shipping containers racked with miners with individual capacities of up to 1 MW.

 

The Company’s agreements with third-party hosting facilities allow for reduced commitments and provide for flexibility to deploy miners at the new Georgia location upon its readiness. MGT is now mining with 1,260 Bitmain S9 miners in Colorado Springs, representing its entire commitment in this location. In Coshocton, Ohio, MGT is now operating approximately 1,000 S9 miners, including miners in the first Pod5ive container delivered in late July. The Company is contractually committed to a total of 1,800 miners in Ohio, with full deployment dependent upon the speed of the facility buildout by its third-party partner.

 

On July 15, 2019, the Company announced it entered into a purchase agreement with Bitmaintech Pte. Ltd, a Singapore private limited company, to purchase 1,100 Antminer S17 Bitcoin miners for an aggregate purchase price of approximately $2,770, subject to adjustments, with delivery expected in October 2019 to the Company’s facility in Lafayette, GA.

 

During the three and six months ended June 30, 2019, the Company mined 0.01 and 7.83 Bitcoin for total revenue of $70 and $98, respectively. These coins were earned from hosting facilities located in Washington, Colorado and Ohio. On March 22, 2019, the Company terminated its hosting arrangement in Washington and conveyed its ownership of its machines in satisfaction of outstanding hosting service fees. Bitcoin results above exclude production attributable to investor-owned machines, equaling 38.00 and 38.00 Bitcoin worth $309 and $309 during the three and six months ended June 30, 2019, respectively. The Company recognized revenue of $47 under these agreements as described in Note 9.

 

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10–Q and Rule 10 of Regulation S–X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America. However, in the opinion of the management of the Company, all adjustments necessary for a fair presentation of the financial position and operating results have been included in these statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10–K for the fiscal year ended December 31, 2018, as filed with the SEC on April 16, 2019. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for any subsequent quarters or for the year ending December 31, 2019.

XML 18 R8.htm IDEA: XBRL DOCUMENT v3.19.2
Going Concern and Management's Plans
6 Months Ended
Jun. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Going Concern and Management's Plans

Note 2. Going Concern and Management’s Plans

 

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of June 30, 2019, the Company had incurred significant operating losses since inception and continues to generate losses from operations. As of June 30, 2019, the Company had an accumulated deficit of $411,003.

 

Management’s plans include the consolidation of its activities in Company-owned and managed facilities, executing on its expansion model to secure low cost power and grow its cryptocurrency assets. Based on current budget assumptions, the Company believes that it will be able to meet its operating expenses and obligations for one year from the date these unaudited condensed consolidated financial statements are issued. The Company will need to raise additional funding to grow its operations and to pay current maturities of debt. 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. 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 consolidated financial statements. Management’s plans, including the consolidation of its activities in Company-owned and managed facilities, the raising of additional capital and potentially curtailing its operations alleviate such substantial doubt. The accompanying unaudited condensed consolidated 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.

XML 19 R9.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

Note 3. Summary of Significant Accounting Policies

 

Principles of consolidation

 

The unaudited condensed consolidated financial statements include the accounts of MGT and MGT Sweden AB. All intercompany transactions and balances have been eliminated.

 

Use of estimates and assumptions and critical accounting estimates and assumptions

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and also affect the amounts of revenues and expenses reported for each period. Actual results could differ from those which result from using such estimates. Management utilizes various other estimates, including but not limited to determining the estimated lives of long-lived assets, determining the potential impairment of long-lived assets, the fair value of warrants issued, the fair value of conversion features, the recognition of revenue, the valuation allowance for deferred tax assets and other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary.

 

Prior Period Financial Statement Correction of an Immaterial Misstatement

 

During the first quarter of 2019, the Company identified certain adjustments required to correct balances within notes payable, accretion of debt discount, and the gain on extinguishment of debt relating to the modification to the June 2018 Note (as defined in Note 5) that had occurred on December 10, 2018. The Company had incorrectly calculated the fair value of the June 2018 Note as the date of its modification, which in turn, led the Company to calculate an incorrect gain on extinguishment and an incorrect accretion of debt discount. The errors discovered resulted in an overstatement of the Company’s notes payable balance of $566 as of December 31, 2018, and an overstatement of the accretion of debt discount of $14 and understatement on the gain on extinguishment of $580 for the year ended December 31, 2018.

 

Based on an analysis of Accounting Standards Codification (“ASC”) 250 – “Accounting Changes and Error Corrections” (“ASC 250”), Staff Accounting Bulletin 99 – “Materiality” (“SAB 99”) and Staff Accounting Bulletin 108 – “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company determined that these errors were immaterial to the previously-issued consolidated financial statements, and as such no restatement was necessary. Correcting prior year financial statements for immaterial errors would not require previously filed reports to be amended. Such correction may be made the next time the registrant files the prior year financial statements. Accordingly, the misstatements were corrected during the period ended March 31, 2019 in the accompanying consolidated balance sheet as of December 31, 2018.

 

The effect on these revisions on the Company’s consolidated balance sheet as of December 31, 2018 is as follows:

 

  

As previously reported at December 31, 2018

   Adjustment   As revised at December 31, 2018 
Notes payable, net of discount  $1,851   $(566)  $1,285 
Total current liabilities   2,398    (566)   1,832 
Total liabilities   2,398    (566)   1,832 
Accumulated deficit   (405,285)   566    (404,719)
Total stockholders’ deficit   (1,875)   566    (1,309)

 

Revenue recognition

 

The Company’s primary revenue stream is related to the mining of digital currencies. The Company derives its revenue by solving “blocks” to be added to the blockchain and providing transaction verification services within the digital currency networks of cryptocurrencies, such as Bitcoin and Ethereum, commonly termed “cryptocurrency mining.” In consideration for these services, the Company receives digital currency (“Coins”). The Coins are recorded as revenue, using the average spot price of Bitcoin on the date of receipt. The Coins are recorded on the balance sheet as an intangible digital asset valued at the lower of cost or net realizable value. Net realizable value adjustments, to adjust the value of the Coins to their market value, is included in cost of revenue on the Company’s consolidated statements of operation. Any gain or loss on sale would be recorded to cost of revenues. Costs of revenues includes equipment depreciation, rent, net realizable value adjustments, and electricity costs.

 

The Company also recognizes revenue from its management agreements. The Company receives a fee from each management agreement based on the amount of Bitcoin mined and is reimbursed for any electricity costs incurred to run the Bitcoin mining machines it manages in its facility.

 

Additionally, the Company has machines located in a facility in Ohio and Colorado. The Company receives an allocation of profits from this facility, as further described in Note 9. The Company records the net amount of the bitcoin received as revenue on its statement of operations.

 

Income taxes

 

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes”. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and established for all the entities a minimum threshold for financial statement recognition of the benefit of tax positions and requires certain expanded disclosures. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse. The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management’s opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

Loss per share

 

Basic loss per share is calculated by dividing net loss applicable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing the net loss attributable to common shareholders by the sum of the weighted average number of common shares outstanding plus potential dilutive common shares outstanding during the period. Potential dilutive securities, comprised of unvested restricted shares, convertible debt stock warrants and stock options, are not reflected in diluted net loss per share because such potential shares are anti–dilutive due to the Company’s net loss.

 

Accordingly, the computation of diluted loss per share for the three and six months ended June 30, 2019 excludes 1,100,001 unvested restricted shares, 6,000,000 shares issuable under stock options, 74,766,203 shares issuable upon the conversion of convertible debt, 1,450,000 shares issuable under warrants, and 48,780,488 shares under preferred stock. The computation of diluted loss per share for the three and six months ended June 30, 2018 excludes 1,250,000 shares issuable to the investors of the December 2017 private placement, 3,600,000 unvested restricted shares, 6,000,000 shares issuable under stock options, and 9,440,796 shares issuable under warrants.

 

Stock–based compensation

 

The Company recognizes compensation expenses for all equity–based payments in accordance with ASC 718 “Compensation – Stock Compensation”. Under fair value recognition provisions, the Company recognizes equity–based compensation net of an estimated forfeiture rate and recognizes compensation cost only for those shares expected to vest over the requisite service period of the award.

 

Restricted stock awards are granted at the discretion of the compensation committee of the board of directors of the Company. These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods, typically over a 12 to 24-month period (vesting on a straight–line basis). The fair value of a stock award is equal to the fair market value of a share of the Company’s common stock on the grant date.

 

The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are inputs into the model. These assumptions are the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Expected volatility is calculated based on the historical volatility of the Company’s common stock over the expected term of the option. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term.

 

Determining the appropriate fair value model and calculating the fair value of equity–based payment awards requires the input of the subjective assumptions described above. The assumptions used in calculating the fair value of equity–based payment awards represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. The Company is required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest.

 

The Company accounts for share–based payments granted to non–employees in accordance with ASC 505–50, “Equity Based Payments to Non–Employees.” The Company determines the fair value of the stock–based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more readily determinable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete. The fair value of unvested equity instruments is re-measured each reporting period and such re-measured value is amortized over the requisite remaining service period.

 

Gain (Loss) on Modification/Extinguishment of Debt

 

In accordance with ASC 470, a modification or an exchange of debt instruments that adds a conversion option or eliminates a conversion option that was substantive at the date of the modification or exchange is considered a substantive change and must be measured and accounted for as extinguishment of the original instrument along with the recognition of a gain/loss. Additionally, under ASC 470, a substantive modification of a debt instrument is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. A substantive modification is accounted for as an extinguishment of the original instrument along with the recognition of a gain/loss.

 

Recent accounting pronouncements

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying unaudited condensed consolidated financial statements, other than those disclosed below.

 

In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance is effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, ASU 2018-07 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. On January 1, 2019, the Company adopted ASU 2018-07, which has not had a material effect on the Company’s financial statements.

 

In February 2016, the FASB issued ASU 2016-02 Leases which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases with terms greater than 12 months. In July 2018, the FASB issued ASU 2018-10 Leases, Codification Improvements and ASU 2018-11 Leases, Targeted Improvements, to provide additional guidance for the adoption of ASU 2016-02. ASU 2018-10 clarifies certain provisions and corrects unintended applications of the guidance such as the application of implicit rate, lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders’ (deficit) equity. ASU 2018-11 provides an alternative transition method and practical expedient for separating contract components for the adoption of ASU 2016-02. ASU 2016-02, ASU 2018-10, ASU 2018-11, (collectively, “Topic 842”) are effective for fiscal years beginning after December 15, 2018, with early adoption permitted.

 

On January 1, 2019, the Company adopted Topic 842 and made the following elections:

 

  The Company did not elect the hindsight practical expedient, for all leases.
     
  The Company elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs for all leases.
     
  In March 2018, the FASB approved an optional transition method that allows companies to use the effective date as the date of initial application on transition. The Company elected this transition method, and as a result, will not adjust its comparative period financial information or make the newly required lease disclosures for periods before the effective date.
     
  The Company elected to not separate lease and non-lease components, for all leases.

 

On January 1, 2019, the Company recorded a Right of Use Asset of $87, a corresponding Lease Liability of $84 and a corresponding cumulative adjustment to accumulated deficit of $3 in accordance with Topic 842.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which is intended to improve the effectiveness of fair value measurement disclosures. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting this pronouncement.

 

In August 2018, the FASB issued ASU 2018-15, Intangible – Goodwill and Other – Internal-Use Software (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting this pronouncement.

 

Management’s evaluation of subsequent events

 

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the review, other than what is described in Note 11 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the unaudited condensed consolidated financial statements.

XML 20 R10.htm IDEA: XBRL DOCUMENT v3.19.2
Property, Plant, and Equipment
6 Months Ended
Jun. 30, 2019
Property, Plant and Equipment [Abstract]  
Property, Plant, and Equipment

Note 4. Property, Plant, and Equipment

 

In connection with the Company’s strategy to consolidate its activities in Company-owned and managed facilities, the Company acquired 6 acres of land in LaFayette, Georgia in May 2019 for a total cost of $57 and other equipment for $15 in June 2019.

 

The Company recorded depreciation expense of $0 and $708 for the three months ended June 30, 2019 and 2018, respectively. The Company recorded depreciation expense of $0 and $1,189 for the six months ended June 30, 2019 and 2018, respectively. Depreciable assets acquired during the three months ended June 30, 2019 were not placed in service and therefore depreciation has not yet commenced.

XML 21 R11.htm IDEA: XBRL DOCUMENT v3.19.2
Notes Payable
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Notes Payable

Note 5. Notes Payable

 

On May 23, 2018, the Company entered into a securities purchase agreement with two accredited investors, pursuant to which the Company issued $840 in unsecured promissory notes for aggregate consideration of $700 (the “May 2018 Notes”). The outstanding balance of the May 2018 Notes was to be made in nine equal monthly installments beginning July 23, 2018. The May 2018 Notes were scheduled to mature on March 23, 2019. Subject to the terms and conditions set forth in the May 2018 Notes, the Company may prepay all or any portion of the outstanding balance at any time without pre-payment penalty. Upon the occurrence of an event of default, the outstanding balance of the May 2018 Notes shall immediately increase to 120% of the outstanding balance immediately prior to the event of default and become immediately due and payable.

 

On June 1, 2018, the Company entered into a note purchase agreement with an accredited investor, pursuant to which the Company issued an unsecured promissory note in the amount of $3,600 (the “June 2018 Note”) for consideration of $3,000. The outstanding balance of the June 2018 Note was to be made in nine equal monthly installments beginning August 1, 2018. The June 2018 Note was scheduled to mature on April 1, 2019. Subject to the terms and conditions set forth in the June 2018 Note, the Company may prepay all or any portion of the outstanding balance at any time without pre-payment penalty. Upon the occurrence of an event of default, the outstanding balance of the June 2018 Note shall immediately increase to 120% of the outstanding balance immediately prior to the event of default and become immediately due and payable.

 

On December 6, 2018, the Company entered into a note purchase agreement with an accredited investor, pursuant to which the Company issued an unsecured promissory note in the amount of $598 (the “December 2018 Note”) for consideration of $500. The outstanding balance of the December 2018 Note had a maturity date of May 6, 2019 and was paid in full in March 2019. The December 2018 Note bore interest at a rate of 8% per annum and, subject to the terms and conditions set forth in the December 2018 Note, the Company was permitted to prepay all or any portion of the outstanding balance at any time without pre-payment penalty.

 

On January 7, 2019, and again on March 28, 2019 the Company entered into amendments to one of the May 2018 Notes. Pursuant to the amendments, the borrower has agreed to extend the maturity date of the note to July 15, 2019 and does not require the Company to make its monthly installment payments due from December 2018, through March 2019, provided that the Company makes all installment payments for the months thereafter beginning April 15, 2019. Installment payments shall be paid in cash unless the Company elects to make payments in shares of the Company’s common stock, in which case the number of shares to be issued will be based on the lowest VWAP of the Company’s common stock during the preceding twenty trading days multiplied by 70%, or any lower price made available to any other holder of the Company’s securities. In consideration of these amendments, the Company incurred extension fees payable to the Borrower of $121.

 

On January 28, 2019, the Company entered into an amendment to the June 2018 Note. Pursuant to the amendment, the borrower has agreed to extend the maturity date to October 1, 2019 and not require the Company to make its installment payment due under the Note Purchase Agreement during January, February, and March 2019. The Company and the borrower have agreed that the Company is to pay all installment payments in cash unless both the Company and the borrower agree to make payments in shares of the Company’s common stock, in which case the number of shares to be issued will be based on the lowest intra-day trade price of the Company’s common stock during the preceding twenty trading days multiplied by 70%. In consideration of this amendment, the Company incurred an extension fee payable to the borrower of $527.

 

Because the January 2019 and March 2019 amendments were considered a substantive change, the Company has treated the modification as an extinguishment of debt and determined the gain or loss on the exchange of instruments. Based on the analysis performed, the Company determined that there was a gain on extinguishment of debt of $1,275.

 

On April 9, 2019, the Company entered an amendment to one of its May 2018 Notes to (a) forego the installment payments due on February 23, 2019 and March 23, 2019, (b) extend the maturity date of the note to August 15, 2019, and (c) include a substantial conversion feature allowing the debt holder, in its sole discretion, to have the right to convert the April 15, 2019 monthly payment, and each payment thereafter, into shares of the Company’s common stock. The number of shares to be issued will be based on the lower of: i) 70% of the lowest intra-day price of the Company’s common stock during the preceding twenty (20) trading days, or ii) any lower price that is made available to any other holder of the Company’s securities, whether by sale or conversion, on the date of a conversion notice. In exchange for the amendment, the Company compensated the holder of the note by increasing the outstanding principal due by $50. The Company accounted for this amendment as an extinguishment of debt and recorded a gain of $127.

 

On May 10, 2019, the original holders of the Company’s May 2018 Notes assigned and sold all notes to Oasis Capital, LLC (“Oasis Capital”). On the same date, the Company and Oasis Capital executed a letter agreement to amend the terms of the May 2018 Notes allowing Oasis Capital to convert the total outstanding principal amount of $421 into shares of the Company’s common stock, at a price equal to 70% of the lowest trading price during the 20 days preceding the conversion dates, or any lower price made available to any other holder of the Company’s securities. This amendment also eliminated the Company’s mandatory monthly amortization payments and extended the maturity of the May 2018 Notes until August 15, 2019. After such date, and within 10 business days, any outstanding balance shall be satisfied, at the Company’s election, either with: cash, common stock conversion or any combination thereof. On May 15, 2019, the Company issued 10,568,087 shares of its common stock pursuant to the full conversion of the May 2018 Notes.

 

On May 10, 2019, the Company executed a letter agreement with the holder of the June 2018 Note to amend the terms of the June 2018 Note allowing the holder to covert the total outstanding principal amount of $3,159 into shares of the Company’s common stock, at a price equal to 70% of the lowest trading price during the 20 day preceding the conversion dates, or any lower price made available to any other holder of the Company’s securities. This amendment also eliminates the Company’s mandatory monthly amortization payments and extended the maturity of the June 2018 Note until December 15, 2019. After such date, and within 10 business days, any outstanding balance shall be satisfied, at the Company’s election, either with: cash, common stock conversion, or any combination thereof. The Company accounted for this amendment as an extinguishment of debt and recorded a gain of $1,004. During the three months ended June 30, 2019, the Company issued 46,656,156 shares of its common stock upon the conversion $1,250 in outstanding principal by the holder, reducing the outstanding principle to $1,884 as of June 30, 2019. The holder of the June 2018 Note also acquired 17,500,000 shares of the Company’s common stock on April 12, 2019 and is an affiliate of the acquirer of 150 shares of the Preferred Shares acquired on April 12, 2019, see Note 7 below, and are collectively subject to a maximum beneficial ownership of 9.99%

 

Notes payable consisted of the following:

 

   As of June 30, 2019 
   Principal   Discount   Net 
June 2018 Note  $1,884   $(1,441)  $443 
Total notes payable  $1,884   $(1,441)  $443 

 

   As of December 31, 2018 
   Principal   Discount   Net 
May 2018 Notes  $400   $(25)  $375 
June 2018 Note   2,448    (1,803)   645 
December 2018 Note   351    (86)   265 
Total notes payable  $3,199   $(1,914)  $1,285 

 

During the three months ended June 30, 2019 and 2018, the Company recorded amortization of debt discount of $2,731 and $117, respectively.

 

During the six months ended June 30, 2019 and 2018, the Company recorded amortization of debt discount of $3,822 and $117, respectively.

XML 22 R12.htm IDEA: XBRL DOCUMENT v3.19.2
Leases
6 Months Ended
Jun. 30, 2019
Leases [Abstract]  
Leases

Note 6. 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.

 

Lease rental expense totaled $40 and $36 during the six months ended June 30, 2019 and 2018, respectively, and $20 and $20 during the three months ended June 30, 2019 and 2018, respectively.

 

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

 

Years ended December 31,  Amount 
2019 (remaining nine months)  $42 
2020   7 
Total undiscounted minimum future lease payments  $49 
Less imputed interest   (2)
Present value of operating lease liabilities  $47 

 

At June 30, 2019, the weighted average remaining lease term and discount rate for operating leases was 0.58 years and 10.8%, respectively. The Company’s lease agreement does not contain any material residual value guarantees or material restrictive covenants.

 

Right of use asset

 

The Company has recognized a right of use asset of $51 in the unaudited condensed consolidated Balance Sheet as of June 30, 2019.

XML 23 R13.htm IDEA: XBRL DOCUMENT v3.19.2
Common Stock, Preferred Stock and Warrants
6 Months Ended
Jun. 30, 2019
Equity [Abstract]  
Common Stock, Preferred Stock and Warrants

Note 7. Common Stock, Preferred Stock and Warrants

 

Common stock

 

Equity Purchase Agreement under Form S-3

 

From January 1, 2019 through April 16, 2019, the Company sold shares of its common stock pursuant to an equity purchase agreement with Oasis Capital. The equity purchase agreement was entered on August 30, 2018 and was amended on November 30, 2018, whereby the Company could issue and sell to Oasis Capital from time to time up to $50,000 of the Company’s common stock that was registered with the SEC under a registration statement on Form S–3. Subject to the terms of the equity purchase agreement, the Company provided notice (a “Put Notice”) requiring Oasis Capital to purchase a number of shares (the “Put Shares”) of the common stock equal to the lesser of $500 and 200% of the average trading volume of the common stock in the ten trading days immediately preceding the date of such Put Notice. The terms also provided the purchase price for such Put Shares to be the lowest traded price on a principal market for any trading day during the five trading days either following or beginning on the date on which Oasis Capital receives delivery of the Put Shares, multiplied by 95.0%.

 

During the three and six months ended June 30, 2019, the Company issued 23,900,000 and 67,000,000 shares of its common stock in exchange for $1,575 and $3,731, respectively. Of the proceeds received during the three months ended March 31, 2019, $354 was applied directly as payment against the December 2018 Note.

 

On April 16, 2019, the Company became ineligible to issue shares under its registration statement on Form S-3 as the aggregate market value of the Company’s common stock held by non-affiliates was below the regulatory threshold of $75,000. In connection with this ineligibility, the equity purchase agreement was terminated.

 

Equity Purchase Agreement under Form S-1

 

On June 3, 2019, the Company entered into an equity purchase agreement with Oasis Capital, whereby the Company shall have the right, but not the obligation, to direct Oasis Capital to purchase shares of the Company’s common stock (the “New Put Shares”) in an amount in each instance up to the lesser of $1,000 or 250% of the average daily trading volume by delivering a notice to Oasis Capital (the “New Put Notice”). The purchase price (the “Purchase Price”) for the New Put Shares shall equal 95% of the one lowest daily volume weighted average price on a principal market during the five trading days immediately following the date Oasis receives the New Put Shares via DWAC associated with the applicable New Put Notice (the “Valuation Period”). The closing of a New Put Notice shall occur within one trading day following the end of the respective Valuation Period, whereby (i) Oasis shall deliver the Investment Amount (as defined below) to the Company by wire transfer of immediately available funds and (ii) Oasis shall return surplus New Put Shares if the value of the New Put Shares delivered to Oasis causes the Company to exceed the maximum commitment amount. The Company shall not deliver another New Put Notice to Oasis within ten trading days of a prior New Put Notice. The “Investment Amount” means the aggregate Purchase Price for the New Put Shares purchased by Oasis, minus clearing costs payable to Oasis’s broker or to the Company’s transfer agent for the issuance of the New Put Shares. The shares issuable under the equity purchase agreement are registered with the SEC under a registration statement on Form S-1 that was declared effective on June 25, 2019 and are subject to a maximum beneficial ownership by Oasis Capital of 9.99%.

 

Other Common Stock Sales and Issuances

 

On April 12, 2019, the Company entered into a purchase agreement with an accredited investor whereby it sold 17,500,000 shares of its common stock for $525 pursuant to the Company’s then-effective registration statement on Form S-3. The holder of these shares is also the holder of the June 2018 Note and an affiliate of the acquirer of 150 shares of the Preferred Shares acquired on April 12, 2019 described below.

 

During the six months ended June 30, 2019, the Company issued 160,500 shares of its common stock to consultants in exchange for services. These services were valued based upon the value of the shares issued of $60. During the six months ended June 30, 2018, the Company issued 1,178,551 shares of its common stock to consultants in exchange for services. These services were valued based upon the value of the shares issued of $1,714.

 

Preferred Stock

 

On January 11, 2019, the Company’s Board of Directors approved the authorization of 10,000 shares of Series B Preferred Stock with a par value of $ 0.001 (“Series B Preferred Shares”). The holders of the Series B Preferred Shares shall be entitled to receive, when, as and if declared by the Board of Directors of the Company, out of funds legally available for such purpose, dividends in cash at a rate of 12% of the stated value per annum on each Series B Preferred Share. Such dividends shall be cumulative and shall accrue without interest from the date of issuance of the respective share of the Series B Preferred Shares. Each holder shall also be entitled to vote on all matters submitted to stockholders of the Company and shall be entitled to 55,000 votes for each Series B Preferred Share owned at the record date for the determination of stockholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is taken. In the event of a liquidation event, any holders of the Series B Preferred Shares shall be entitled to receive, for each Series B Preferred Shares, the stated value in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its stockholders. The Series B Preferred Shares are not convertible into shares of the Company’s common stock.

 

On April 12, 2019, the Company’s Board of Directors approved the authorization of 200 shares of Series C Convertible Preferred Stock with a par value of $0.001 and a stated value of $10,000 per share (“Preferred Shares”). The holders of the Preferred Shares have no voting rights, receive no dividends, and are entitled to a liquidation preference equal to the stated value. At any time prior to the one-year anniversary from the issuance date, the Company may redeem the Preferred Shares at 1.4 times the stated value, following which the Company may redeem the Preferred Shares at 1.2 times the stated value.

 

Each Preferred Share is convertible into shares of the Company’s common stock in an amount equal to the greater of: (a) 200,000 shares of common stock or (b) the amount derived by dividing the stated value by the product of 0.7 times the market price of the Company’s common stock, defined as the lowest trading price of the Company’s common stock during the ten day period preceding the conversion date. The holder may not convert any Preferred Shares if the total amount of shares held, together with holdings of its affiliates, following a conversion exceeds 9.99% of the Company’s common stock. The Company has accounted for the beneficial conversion feature of the Preferred Shares, convertible at 0.7 times the market price of the Company’s common stock, as a deemed dividend of $859, measured as the difference between the conversion price of the Preferred Shares and the fair value of the underlying common stock.

 

The common shares issued upon conversion have been registered under the Company’s then-effective registration statement on Form S-3. On April 12, 2019, the Company sold 190 Preferred Shares for $1,890, net of issuance costs. During April, May and June 2019, holders of the preferred shares converted 50 of their Preferred Shares into 14,077,092 shares of common stock. Given the right of redemption is solely at the option of the Company, the Preferred Shares are not considered mandatorily redeemable, and as such are classified in shareholders’ equity on the Company’s condensed consolidated balance sheet.

 

Warrants

 

The following table summarizes information about shares issuable under warrants outstanding during the six months ended June 30, 2019:

 

   Warrant
shares
outstanding
   Weighted
average
exercise price
   Weighted average remaining life   Intrinsic value 
Outstanding at January 1, 2019   5,477,975   $1.01           
Issued   -    -           
Exercised   (4,000,000)  $1.12           
Expired or cancelled   (27,975)  $0.79           
Outstanding at June 30, 2019   1,450,000   $0.72    0.82   $- 
                     
Exercisable at June 30, 2019   1,450,000   $0.72    0.82   $- 

 

On June 5, 2019, the Company entered into an agreement with a holder of a warrant for 10,000 shares of common stock, whereby the holder agreed to sell the warrant back to the Company for a nominal amount. The Company subsequently cancelled the warrant.

 

On May 9, 2019, the Company entered into a modification agreement with the holder of six separate warrants. Under the terms of the initial warrant agreements, the holder was entitled to purchase 4,000,000 shares of the Company’s common stock at prices of between $0.50 per share and $2.00 per share at various times through September 2022. Under the terms of the modification agreement, the holder was permitted to exercise all 4,000,000 warrants at a price of $0.03 per share, or $120. The Company accounted for this modification as a down-round feature under the guidance of ASC 260-10-30, whereby the change in fair value of the warrants before and after the down-round was triggered was recorded as a deemed dividend in the amount of $101.

XML 24 R14.htm IDEA: XBRL DOCUMENT v3.19.2
Stock-Based Compensation
6 Months Ended
Jun. 30, 2019
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation

Note 8. Stock–Based Compensation

 

Issuance of restricted common stock – directors, officers and employees

 

The Company’s activity in restricted common stock was as follows for the six months ended June 30, 2019:

 

   Number of shares   Weighted average
grant date fair
value
 
Non–vested at January 1, 2019   3,355,000   $1.46 
Vested   (2,254,999)  $1.39 
Non–vested at June 30, 2019   1,100,001   $1.59 

 

For the three months ended June 30, 2019 and 2018, the Company has recorded $730 and $1,247, in employee and director stock–based compensation expense, which is a component of general and administrative expenses in the consolidated statement of operations.

 

For the six months ended June 30, 2019 and 2018, the Company has recorded $1,624 and $2,334 in employee and director stock–based compensation expense, which is a component of general and administrative expenses in the consolidated statement of operations.

 

As of June 30, 2019, unamortized stock-based compensation costs related to restricted share arrangements was $843 and will be recognized over a weighted average period of 0.72 years.

 

Stock options

 

The following is a summary of the Company’s stock option activity for the six months ended June 30, 2019:

 

   Options   Weighted
average
exercise price
   Weighted average Grant date fair value   Weighted average remaining life   Intrinsic value 
Outstanding – January 1, 2019   6,000,000   $0.71   $1.29           
Granted                        
Exercised                        
Forfeited/Cancelled                        
Outstanding – June 30, 2019   6,000,000   $0.71   $1.29    0.59   $ 
                          
Exercisable – June 30, 2019   6,000,000   $0.71   $1.29    0.59   $ 

 

As of June 30, 2019, there were no unrecognized compensation costs, as all outstanding stock options are fully vested.

 

XML 25 R15.htm IDEA: XBRL DOCUMENT v3.19.2
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.

XML 26 R16.htm IDEA: XBRL DOCUMENT v3.19.2
Employee Benefit Plans
6 Months Ended
Jun. 30, 2019
Retirement Benefits [Abstract]  
Employee Benefit Plans

Note 10. Employee Benefit Plans

 

The Company maintains defined contribution benefit plans under Section 401(k) of the Internal Revenue Code covering substantially all qualified employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company may make discretionary contributions of up to 100% of employee contributions. During the six months ended June 30, 2019 and 2018, the Company made contributions to the 401(k) Plan of $9 and $18, respectively.

XML 27 R17.htm IDEA: XBRL DOCUMENT v3.19.2
Subsequent Events
6 Months Ended
Jun. 30, 2019
Subsequent Events [Abstract]  
Subsequent Events

Note 11. Subsequent Events

 

The Company has evaluated the impacts of subsequent events through August 14, 2019, and has determined that no such events occurred that were required to be reflected in the unaudited condensed consolidated financial statements, except as described within the above notes and described below.

 

Subsequent to June 30, 2019, through August 14, 2019, the Company issued 30,500,000 shares of its common stock under the equity purchase agreement for gross proceeds of $1,291.

 

In July and August 2019, the holder of the June 2018 Note converted $325 of debt principle into 11,537,510 shares of common stock, reducing the outstanding principal to $1,759.

 

On July 15, 2019, the Company announced it entered into a purchase agreement with Bitmaintech Pte. Ltd, a Singapore private limited company, to purchase 1,100 Antminer-S-17 Bitcoin miners for an aggregate purchase price of approximately $2,770, subject to adjustments, with delivery expected in October 2019 to the Company’s facility in Lafayette, GA.

 

On July 12, 2019, the acquirer of 150 shares of Preferred Shares on April 12, 2019, converted 25 shares of Preferred Shares into 6,725,854 shares of common stock. The same entity acquired 10 shares of the Preferred Shares for $100 on July 15, 2019.

XML 28 R18.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Principles of Consolidation

Principles of consolidation

 

The unaudited condensed consolidated financial statements include the accounts of MGT and MGT Sweden AB. All intercompany transactions and balances have been eliminated.

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

Use of estimates and assumptions and critical accounting estimates and assumptions

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and also affect the amounts of revenues and expenses reported for each period. Actual results could differ from those which result from using such estimates. Management utilizes various other estimates, including but not limited to determining the estimated lives of long-lived assets, determining the potential impairment of long-lived assets, the fair value of warrants issued, the fair value of conversion features, the recognition of revenue, the valuation allowance for deferred tax assets and other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary.

Prior Period Financial Statement Correction of an Immaterial Misstatement

Prior Period Financial Statement Correction of an Immaterial Misstatement

 

During the first quarter of 2019, the Company identified certain adjustments required to correct balances within notes payable, accretion of debt discount, and the gain on extinguishment of debt relating to the modification to the June 2018 Note (as defined in Note 5) that had occurred on December 10, 2018. The Company had incorrectly calculated the fair value of the June 2018 Note as the date of its modification, which in turn, led the Company to calculate an incorrect gain on extinguishment and an incorrect accretion of debt discount. The errors discovered resulted in an overstatement of the Company’s notes payable balance of $566 as of December 31, 2018, and an overstatement of the accretion of debt discount of $14 and understatement on the gain on extinguishment of $580 for the year ended December 31, 2018.

 

Based on an analysis of Accounting Standards Codification (“ASC”) 250 – “Accounting Changes and Error Corrections” (“ASC 250”), Staff Accounting Bulletin 99 – “Materiality” (“SAB 99”) and Staff Accounting Bulletin 108 – “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company determined that these errors were immaterial to the previously-issued consolidated financial statements, and as such no restatement was necessary. Correcting prior year financial statements for immaterial errors would not require previously filed reports to be amended. Such correction may be made the next time the registrant files the prior year financial statements. Accordingly, the misstatements were corrected during the period ended March 31, 2019 in the accompanying consolidated balance sheet as of December 31, 2018.

 

The effect on these revisions on the Company’s consolidated balance sheet as of December 31, 2018 is as follows:

 

  

As previously reported at December 31, 2018

   Adjustment   As revised at December 31, 2018 
Notes payable, net of discount  $1,851   $(566)  $1,285 
Total current liabilities   2,398    (566)   1,832 
Total liabilities   2,398    (566)   1,832 
Accumulated deficit   (405,285)   566    (404,719)
Total stockholders’ deficit   (1,875)   566    (1,309)
Revenue Recognition

Revenue recognition

 

The Company’s primary revenue stream is related to the mining of digital currencies. The Company derives its revenue by solving “blocks” to be added to the blockchain and providing transaction verification services within the digital currency networks of cryptocurrencies, such as Bitcoin and Ethereum, commonly termed “cryptocurrency mining.” In consideration for these services, the Company receives digital currency (“Coins”). The Coins are recorded as revenue, using the average spot price of Bitcoin on the date of receipt. The Coins are recorded on the balance sheet as an intangible digital asset valued at the lower of cost or net realizable value. Net realizable value adjustments, to adjust the value of the Coins to their market value, is included in cost of revenue on the Company’s consolidated statements of operation. Any gain or loss on sale would be recorded to cost of revenues. Costs of revenues includes equipment depreciation, rent, net realizable value adjustments, and electricity costs.

 

The Company also recognizes revenue from its management agreements. The Company receives a fee from each management agreement based on the amount of Bitcoin mined and is reimbursed for any electricity costs incurred to run the Bitcoin mining machines it manages in its facility.

 

Additionally, the Company has machines located in a facility in Ohio and Colorado. The Company receives an allocation of profits from this facility, as further described in Note 9. The Company records the net amount of the bitcoin received as revenue on its statement of operations.

Income Taxes

Income taxes

 

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes”. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and established for all the entities a minimum threshold for financial statement recognition of the benefit of tax positions and requires certain expanded disclosures. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse. The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management’s opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

Loss Per Share

Loss per share

 

Basic loss per share is calculated by dividing net loss applicable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing the net loss attributable to common shareholders by the sum of the weighted average number of common shares outstanding plus potential dilutive common shares outstanding during the period. Potential dilutive securities, comprised of unvested restricted shares, convertible debt stock warrants and stock options, are not reflected in diluted net loss per share because such potential shares are anti–dilutive due to the Company’s net loss.

 

Accordingly, the computation of diluted loss per share for the three and six months ended June 30, 2019 excludes 1,100,001 unvested restricted shares, 6,000,000 shares issuable under stock options, 74,766,203 shares issuable upon the conversion of convertible debt, 1,450,000 shares issuable under warrants, and 48,780,488 shares under preferred stock. The computation of diluted loss per share for the three and six months ended June 30, 2018 excludes 1,250,000 shares issuable to the investors of the December 2017 private placement, 3,600,000 unvested restricted shares, 6,000,000 shares issuable under stock options, and 9,440,796 shares issuable under warrants.

Stock-based Compensation

Stock–based compensation

 

The Company recognizes compensation expenses for all equity–based payments in accordance with ASC 718 “Compensation – Stock Compensation”. Under fair value recognition provisions, the Company recognizes equity–based compensation net of an estimated forfeiture rate and recognizes compensation cost only for those shares expected to vest over the requisite service period of the award.

 

Restricted stock awards are granted at the discretion of the compensation committee of the board of directors of the Company. These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods, typically over a 12 to 24-month period (vesting on a straight–line basis). The fair value of a stock award is equal to the fair market value of a share of the Company’s common stock on the grant date.

 

The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires the development of assumptions that are inputs into the model. These assumptions are the expected stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock and the expected forfeiture rate. Expected volatility is calculated based on the historical volatility of the Company’s common stock over the expected term of the option. Risk–free interest rates are calculated based on continuously compounded risk–free rates for the appropriate term.

 

Determining the appropriate fair value model and calculating the fair value of equity–based payment awards requires the input of the subjective assumptions described above. The assumptions used in calculating the fair value of equity–based payment awards represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. The Company is required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest.

 

The Company accounts for share–based payments granted to non–employees in accordance with ASC 505–50, “Equity Based Payments to Non–Employees.” The Company determines the fair value of the stock–based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more readily determinable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete. The fair value of unvested equity instruments is re-measured each reporting period and such re-measured value is amortized over the requisite remaining service period.

Gain (Loss) On Modification/extinguishment of Debt

Gain (Loss) on Modification/Extinguishment of Debt

 

In accordance with ASC 470, a modification or an exchange of debt instruments that adds a conversion option or eliminates a conversion option that was substantive at the date of the modification or exchange is considered a substantive change and must be measured and accounted for as extinguishment of the original instrument along with the recognition of a gain/loss. Additionally, under ASC 470, a substantive modification of a debt instrument is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. A substantive modification is accounted for as an extinguishment of the original instrument along with the recognition of a gain/loss.

Recent Accounting Pronouncements

Recent accounting pronouncements

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying unaudited condensed consolidated financial statements, other than those disclosed below.

 

In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance is effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, ASU 2018-07 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. On January 1, 2019, the Company adopted ASU 2018-07, which has not had a material effect on the Company’s financial statements.

 

In February 2016, the FASB issued ASU 2016-02 Leases which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases with terms greater than 12 months. In July 2018, the FASB issued ASU 2018-10 Leases, Codification Improvements and ASU 2018-11 Leases, Targeted Improvements, to provide additional guidance for the adoption of ASU 2016-02. ASU 2018-10 clarifies certain provisions and corrects unintended applications of the guidance such as the application of implicit rate, lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders’ (deficit) equity. ASU 2018-11 provides an alternative transition method and practical expedient for separating contract components for the adoption of ASU 2016-02. ASU 2016-02, ASU 2018-10, ASU 2018-11, (collectively, “Topic 842”) are effective for fiscal years beginning after December 15, 2018, with early adoption permitted.

 

On January 1, 2019, the Company adopted Topic 842 and made the following elections:

 

  The Company did not elect the hindsight practical expedient, for all leases.
     
  The Company elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs for all leases.
     
  In March 2018, the FASB approved an optional transition method that allows companies to use the effective date as the date of initial application on transition. The Company elected this transition method, and as a result, will not adjust its comparative period financial information or make the newly required lease disclosures for periods before the effective date.
     
  The Company elected to not separate lease and non-lease components, for all leases.

 

On January 1, 2019, the Company recorded a Right of Use Asset of $87, a corresponding Lease Liability of $84 and a corresponding cumulative adjustment to accumulated deficit of $3 in accordance with Topic 842.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which is intended to improve the effectiveness of fair value measurement disclosures. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting this pronouncement.

 

In August 2018, the FASB issued ASU 2018-15, Intangible – Goodwill and Other – Internal-Use Software (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting this pronouncement.

Management's Evaluation of Subsequent Events

Management’s evaluation of subsequent events

 

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the review, other than what is described in Note 11 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the unaudited condensed consolidated financial statements.

XML 29 R19.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Schedule of Effect On Company's Consolidated Balance Sheet

The effect on these revisions on the Company’s consolidated balance sheet as of December 31, 2018 is as follows:

 

  

As previously reported at December 31, 2018

   Adjustment   As revised at December 31, 2018 
Notes payable, net of discount  $1,851   $(566)  $1,285 
Total current liabilities   2,398    (566)   1,832 
Total liabilities   2,398    (566)   1,832 
Accumulated deficit   (405,285)   566    (404,719)
Total stockholders’ deficit   (1,875)   566    (1,309)
XML 30 R20.htm IDEA: XBRL DOCUMENT v3.19.2
Notes Payable (Tables)
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Schedule of Notes Payable

Notes payable consisted of the following:

 

   As of June 30, 2019 
   Principal   Discount   Net 
June 2018 Note  $1,884   $(1,441)  $443 
Total notes payable  $1,884   $(1,441)  $443 

 

   As of December 31, 2018 
   Principal   Discount   Net 
May 2018 Notes  $400   $(25)  $375 
June 2018 Note   2,448    (1,803)   645 
December 2018 Note   351    (86)   265 
Total notes payable  $3,199   $(1,914)  $1,285 
XML 31 R21.htm IDEA: XBRL DOCUMENT v3.19.2
Leases (Tables)
6 Months Ended
Jun. 30, 2019
Leases [Abstract]  
Schedule of Future Minimum Lease Payment

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

 

Years ended December 31,  Amount 
2019 (remaining nine months)  $42 
2020   7 
Total undiscounted minimum future lease payments  $49 
Less imputed interest   (2)
Present value of operating lease liabilities  $47 
XML 32 R22.htm IDEA: XBRL DOCUMENT v3.19.2
Common Stock, Preferred Stock and Warrants (Tables)
6 Months Ended
Jun. 30, 2019
Equity [Abstract]  
Summary of Warrant Outstanding

The following table summarizes information about shares issuable under warrants outstanding during the six months ended June 30, 2019:

 

   Warrant
shares
outstanding
   Weighted
average
exercise price
   Weighted average remaining life   Intrinsic value 
Outstanding at January 1, 2019   5,477,975   $1.01           
Issued   -    -           
Exercised   (4,000,000)  $1.12           
Expired or cancelled   (27,975)  $0.79           
Outstanding at June 30, 2019   1,450,000   $0.72    0.82   $- 
                     
Exercisable at June 30, 2019   1,450,000   $0.72    0.82   $- 
XML 33 R23.htm IDEA: XBRL DOCUMENT v3.19.2
Stock-Based Compensation (Tables)
6 Months Ended
Jun. 30, 2019
Share-based Payment Arrangement [Abstract]  
Schedule of Restricted Common Stock Activity

The Company’s activity in restricted common stock was as follows for the six months ended June 30, 2019:

 

   Number of shares   Weighted average
grant date fair
value
 
Non–vested at January 1, 2019   3,355,000   $1.46 
Vested   (2,254,999)  $1.39 
Non–vested at June 30, 2019   1,100,001   $1.59 
Schedule of Stock Options Activity

The following is a summary of the Company’s stock option activity for the six months ended June 30, 2019:

 

   Options   Weighted
average
exercise price
   Weighted average Grant date fair value   Weighted average remaining life   Intrinsic value 
Outstanding – January 1, 2019   6,000,000   $0.71   $1.29           
Granted                        
Exercised                        
Forfeited/Cancelled                        
Outstanding – June 30, 2019   6,000,000   $0.71   $1.29    0.59   $ 
                          
Exercisable – June 30, 2019   6,000,000   $0.71   $1.29    0.59   $ 
XML 34 R24.htm IDEA: XBRL DOCUMENT v3.19.2
Organization and Basis of Presentation (Details Narrative) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jul. 15, 2019
Jun. 25, 2019
Jun. 30, 2019
Jun. 30, 2019
Jun. 30, 2018
Jun. 04, 2019
Feb. 27, 2019
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]                
Common stock, shares authorized     2,500,000,000 2,500,000,000     125,000,000 2,500,000,000
Common stock shares outstanding     270,957,766 270,957,766       111,079,683
Sale of stock, number of shares issued in transaction   30,500,000            
Proceeds from sale of common stock   $ 1,291   $ 525 $ 80      
Description on Cryptocurrency mining       Following a review of its Bitcoin mining operations, the Company has determined to consolidate its activities going forward in Company-owned and managed facilities. Central to this strategy is the recent purchase of land in LaFayette, GA and the entry into a favorable contract for electricity there. Located adjacent to a utility substation, the several acre property has access to over 20 megawatts (MW) of low-cost power. MGT has also ordered transformers with a total load capacity of 12.5 MW to accommodate the first phase of this project and has begun the construction and physical site development. The facility will accommodate shipping containers racked with miners with individual capacities of up to 1 MW. The Company's agreements with third-party hosting facilities allow for reduced commitments and provide for flexibility to deploy miners at the new Georgia location upon its readiness. MGT is now mining with 1,260 Bitmain S9's in Colorado Springs, representing its entire commitment in this location. In Coshocton, Ohio, MGT is now operating approximately 1,000 S9 miners, including miners in the first Pod5ive container delivered in late July. The Company is contractually committed to a total of 1,800 miners in Ohio, with full deployment dependent upon the speed of the facility buildout by its third-party partner.        
Revenue related to hosting arrangement       $ 47        
0.01 Bitcoin [Member]                
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]                
Revenue on mining     $ 70          
7.83 Bitcoin [Member]                
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]                
Revenue on mining       98        
Investor-owned Machines, Equaling 38.00 Bitcoin [Member]                
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]                
Outstanding hosting service fees     $ 309 $ 309        
Subsequent Event [Member] | Bitmaintech Pte. Ltd [Member] | Purchase Agreement for purchase 1,100 Antminer S17 Bitcoin Miners [Member]                
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]                
Aggregate purchase price $ 2,770,000              
Maximum [Member]                
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]                
Common stock shares outstanding           76,558,643    
XML 35 R25.htm IDEA: XBRL DOCUMENT v3.19.2
Going Concern and Management's Plans (Details Narrative) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Accumulated deficit $ 411,003 $ 404,719
XML 36 R26.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies (Details Narrative) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2019
Mar. 31, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Jan. 02, 2019
Summary Of Significant Accounting Policies [Line Items]              
Notes payable, net of discount $ (443)     $ (443)   $ (1,285)  
Accretion of debt discount (2,731)   $ (117) (3,822) $ (117)    
Gain on extinguishment of debt 1,131   2,406    
Right of use asset 51     51   $ 87
Lease liability $ 47     47   $ 84
Cumulative adjustment to accumulated deficit   $ 3   $ 3      
Restricted Stock Awards [Member] | Minimum [Member]              
Summary Of Significant Accounting Policies [Line Items]              
Vesting period       12 months      
Restricted Stock Awards [Member] | Maximum [Member]              
Summary Of Significant Accounting Policies [Line Items]              
Vesting period       24 months      
Private Placement [Member]              
Summary Of Significant Accounting Policies [Line Items]              
Antidilutive securities excluded from computation of earnings per share, amount     1,250,000   1,250,000    
Warrants [Member]              
Summary Of Significant Accounting Policies [Line Items]              
Antidilutive securities excluded from computation of earnings per share, amount 1,450,000   9,440,796 1,450,000 9,440,796    
Preferred Stock [Member]              
Summary Of Significant Accounting Policies [Line Items]              
Antidilutive securities excluded from computation of earnings per share, amount 48,780,488     48,780,488      
Cumulative adjustment to accumulated deficit            
Stock Options [Member]              
Summary Of Significant Accounting Policies [Line Items]              
Antidilutive securities excluded from computation of earnings per share, amount 6,000,000   6,000,000 6,000,000 6,000,000    
Unvested Restricted Stock [Member]              
Summary Of Significant Accounting Policies [Line Items]              
Antidilutive securities excluded from computation of earnings per share, amount 1,100,001   3,600,000 1,100,001 3,600,000    
Conversion of Convertible Debt [Member]              
Summary Of Significant Accounting Policies [Line Items]              
Antidilutive securities excluded from computation of earnings per share, amount 74,766,203     74,766,203      
Adjustment [Member]              
Summary Of Significant Accounting Policies [Line Items]              
Notes payable, net of discount           566  
Accretion of debt discount           14  
Gain on extinguishment of debt           $ 580  
XML 37 R27.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies - Schedule of Effect On Company's Consolidated Balance Sheet (Details) - USD ($)
$ in Thousands
Jun. 30, 2019
Mar. 31, 2019
Dec. 31, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Notes payable, net of discount $ 443   $ 1,285      
Total current liabilities 987   1,832      
Total liabilities 987   1,832      
Accumulated deficit (411,003)   (404,719)      
Total stockholders' deficit $ 2,962 $ (253) (1,309) $ 5,881 $ 9,870 $ 11,873
As Previously Reported [Member]            
Notes payable, net of discount     1,851      
Total current liabilities     2,398      
Total liabilities     2,398      
Accumulated deficit     (405,285)      
Total stockholders' deficit     (1,875)      
Adjustment [Member]            
Notes payable, net of discount     (566)      
Total current liabilities     (566)      
Total liabilities     (566)      
Accumulated deficit     566      
Total stockholders' deficit     $ 566      
XML 38 R28.htm IDEA: XBRL DOCUMENT v3.19.2
Property, Plant, and Equipment (Details Narrative)
$ in Thousands
1 Months Ended 3 Months Ended 6 Months Ended
May 31, 2019
Integer
Jun. 30, 2019
USD ($)
Jun. 30, 2018
USD ($)
Jun. 30, 2019
USD ($)
Jun. 30, 2018
USD ($)
Property, Plant and Equipment [Abstract]          
Number of land acres purchased | Integer 6        
Payments to acquire land       $ 57  
Payments to acquire other equipment       15  
Depreciation expense   $ 0 $ 708 $ 1,189
XML 39 R29.htm IDEA: XBRL DOCUMENT v3.19.2
Notes Payable (Details Narrative)
$ in Thousands
3 Months Ended 6 Months Ended
May 15, 2019
shares
May 10, 2019
USD ($)
Integer
Apr. 12, 2019
shares
Apr. 09, 2019
USD ($)
Mar. 28, 2019
USD ($)
Jan. 28, 2019
USD ($)
Dec. 06, 2018
USD ($)
Jun. 01, 2018
USD ($)
May 23, 2018
USD ($)
Jun. 30, 2019
USD ($)
shares
Jun. 30, 2018
USD ($)
shares
Mar. 31, 2018
shares
Jun. 30, 2019
USD ($)
shares
Jun. 30, 2018
USD ($)
Dec. 31, 2018
USD ($)
Convertible principal amount                   $ 1,884     $ 1,884   $ 3,199
VWAP percentage of common stock     9.99%                        
Gain on extinguishment of debt                   $ 1,131   $ 2,406  
Debt conversion, shares issued | shares                   46,656,156          
Debt conversion                   $ 1,250          
Stock issued during period shares | shares                         43,100,000    
Amortization of debt discount                   2,731 $ 117   $ 3,822 $ 117  
Common Stock [Member]                              
Stock issued during period shares | shares                     750,000      
Preferred Stock [Member]                              
Stock issued during period shares | shares     190                    
May 2018 Notes [Member]                              
Notes payable   $ 421                          
VWAP percentage of common stock   70.00%                          
Debt instrument conversion description   On May 10, 2019, the original holders of the Company's May 2018 Notes assigned and sold all notes to Oasis Capital, LLC ("Oasis Capital"). On the same date, the Company and Oasis Capital executed a letter agreement to amend the terms of the May 2018 Notes allowing Oasis Capital to convert the total outstanding principal amount of $421 into shares of the Company's common stock, at a price equal to 70% of the lowest trading price during the 20 days preceding the conversion dates, or any lower price made available to any other holder of the Company's securities. This amendment also eliminated the Company's mandatory monthly amortization payments and extended the maturity of the May 2018 Notes until August 15, 2019. After such date, and within 10 business days, any outstanding balance shall be satisfied, at the Company's election, either with: cash, common stock conversion or any combination thereof. On May 15, 2019, the Company issued 10,568,087 shares of its common stock pursuant to the full conversion of the May 2018 Notes.                          
Threshold trading days | Integer   20                          
Threshold consecutive trading days | Integer   10                          
Debt conversion, shares issued | shares 10,568,087                            
June 2018 Notes [Member]                              
Notes payable   $ 3,159                          
VWAP percentage of common stock   70.00%                          
Gain on extinguishment of debt   $ 1,004                          
Debt instrument conversion description   On May 10, 2019, the Company executed a letter agreement with the holder of the June 2018 Note to amend the terms of the June 2018 Note allowing the holder to covert the total outstanding principal amount of $3,159 into shares of the Company's common stock, at a price equal to 70% of the lowest trading price during the 20 day preceding the conversion dates, or any lower price made available to any other holder of the Company's securities. This amendment also eliminates the Company's mandatory monthly amortization payments and extended the maturity of the June 2018 Note until December 15, 2019. After such date, and within 10 business days, any outstanding balance shall be satisfied, at the Company's election, either with: cash, common stock conversion, or any combination thereof. The Company accounted for this amendment as an extinguishment of debt and recorded a gain of $1,004. During the three months ended June 30, 2019, the Company issued 46,656,156 shares of its common stock upon the conversion $1,250 in outstanding principal by the holder, reducing the outstanding principle to $1,884 as of June 30, 2019.                          
Threshold trading days | Integer   20                          
Threshold consecutive trading days | Integer   10                          
Beneficial ownership percentage     9.99%                        
June 2018 Notes [Member] | Common Stock [Member]                              
Stock issued during period shares | shares     17,500,000                        
June 2018 Notes [Member] | Preferred Stock [Member]                              
Stock issued during period shares | shares     150                        
Debt Amendment [Member]                              
Gain on extinguishment of debt                         1,275    
May 2018 Notes Amendment [Member]                              
Notes payable       $ 50                      
Gain on extinguishment of debt       $ 127                      
Debt extinguishment amendment description       On April 9, 2019, the Company entered an amendment to one of its May 2018 Notes to (a) forego the installment payments due on February 23, 2019 and March 23, 2019, (b) extend the maturity date of the note to August 15, 2019, and (c) include a substantial conversion feature allowing the debt holder, in its sole discretion, to have the right to convert the April 15, 2019 monthly payment, and each payment thereafter, into shares of the Company's common stock. The number of shares to be issued will be based on the lower of: i) 70% of the lowest intra-day price of the Company's common stock during the preceding twenty (20) trading days, or ii) any lower price that is made available to any other holder of the Company's securities, whether by sale or conversion, on the date of a conversion notice. In exchange for the amendment, the Company compensated the holder of the note by increasing the outstanding principal due by $50. The Company accounted for this amendment as an extinguishment of debt and recorded a gain of $127.                      
May 2018 Notes [Member]                              
Convertible principal amount                 $ 840           400
Notes payable                 $ 700            
Maturity date of notes                 Mar. 23, 2019            
Debt instrument, description of event of default                 Upon the occurrence of an event of default, the outstanding balance of the May 2018 Notes shall immediately increase to 120% of the outstanding balance immediately prior to the event of default and become immediately due and payable.            
June 2018 Note [Member]                              
Convertible principal amount               $ 3,600   $ 1,884     $ 1,884   2,448
Notes payable               $ 3,000              
Maturity date of notes               Apr. 01, 2019              
Debt instrument, description of event of default               Upon the occurrence of an event of default, the outstanding balance of the June 2018 Note shall immediately increase to 120% of the outstanding balance immediately prior to the event of default and become immediately due and payable.              
December 2018 Note [Member]                              
Convertible principal amount             $ 598               $ 351
Notes payable             $ 500                
Maturity date of notes           Oct. 01, 2019 May 06, 2019                
Debt instrument accrued interest rate             8.00%                
VWAP percentage of common stock           70.00%                  
Fees payable to borrower           $ 527                  
May 2018 Notes [Member]                              
Maturity date of notes         Jul. 15, 2019                    
VWAP percentage of common stock         70.00%                    
Fees payable to borrower         $ 121                    
XML 40 R30.htm IDEA: XBRL DOCUMENT v3.19.2
Notes Payable - Schedule of Notes Payable (Details) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Dec. 06, 2018
Jun. 01, 2018
May 23, 2018
Principal $ 1,884 $ 3,199      
Discount (1,441) (1,914)      
Net 443 1,285      
June 2018 Note [Member]          
Principal 1,884 2,448   $ 3,600  
Discount (1,441) (1,803)      
Net $ 443 645      
May 2018 Notes [Member]          
Principal   400     $ 840
Discount   (25)      
Net   375      
December 2018 Note [Member]          
Principal   351 $ 598    
Discount   (86)      
Net   $ 265      
XML 41 R31.htm IDEA: XBRL DOCUMENT v3.19.2
Leases (Details Narrative) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Aug. 09, 2016
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Jan. 02, 2019
Dec. 31, 2018
Operating Leases Commitments And Security Deposit [Line Items]              
Monthly rent   $ 20 $ 20 $ 40 $ 36    
Weighted average remaining lease term   6 months 29 days   6 months 29 days      
Weighted average lease discount rate   10.80%   10.80%      
Right of use asset   $ 51   $ 51   $ 87
Sublease Agreement [Member]              
Operating Leases Commitments And Security Deposit [Line Items]              
Lease expiration Jan. 31, 2020            
Security deposit $ 13            
First 12-Month Period [Member]              
Operating Leases Commitments And Security Deposit [Line Items]              
Monthly rent 6            
After 12 Month Period Until Expiration [Member]              
Operating Leases Commitments And Security Deposit [Line Items]              
Monthly rent $ 7            
XML 42 R32.htm IDEA: XBRL DOCUMENT v3.19.2
Leases - Schedule of Future Minimum Lease Payment (Details)
$ in Thousands
Jun. 30, 2019
USD ($)
Leases [Abstract]  
2019 (remaining nine months) $ 42
2020 7
Total undiscounted minimum future lease payments 49
Less Imputed interest (2)
Present value of operating lease liabilities $ 47
XML 43 R33.htm IDEA: XBRL DOCUMENT v3.19.2
Common Stock, Preferred Stock and Warrants (Details Narrative) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 4 Months Ended 6 Months Ended
Jun. 03, 2019
Apr. 16, 2019
Apr. 12, 2019
Jun. 30, 2019
Jun. 30, 2018
Mar. 31, 2018
Apr. 16, 2019
Jun. 30, 2019
Jun. 30, 2018
Jun. 05, 2019
May 09, 2019
Dec. 31, 2018
Nov. 30, 2018
Debt conversion, shares issued       46,656,156                  
Debt conversion       $ 1,250                  
Stock issued during period shares               43,100,000          
Stock issued during period, value                        
Value of shares issued for services       $ 875 $ 839              
Preferred stock, shares authorized       8,499,800       8,499,800       8,500,000  
Percentage of average trading volume of common stock     9.99%                    
Conversion of stock shares converted     200,000                    
Deemed dividend     $ 859                    
Conversion of stock, description     The Company has accounted for the beneficial conversion feature of the Preferred Shares, convertible at 0.7 times the market price of the Company's common stock, as a deemed dividend of $859, measured as the difference between the conversion price of the Preferred Shares and the fair value of the underlying common stock.                    
Warrant outstanding                   10,000      
Consultants [Member]                          
Number of shares issued for services               160,500 1,178,551        
Value of shares issued for services               $ 60 $ 1,714        
Common Stock [Member]                          
Stock issued during period shares         750,000              
Stock issued during period, value         $ 1              
Number of shares issued for services         730,000 448,551              
Value of shares issued for services       $ 1              
Conversion of stock shares converted       13,993,340                  
Preferred Stock [Member]                          
Stock issued during period shares     190                
Stock issued during period, value     $ 1,890                
Number of shares issued for services                      
Value of shares issued for services                    
Conversion of stock shares converted       50                  
Series C Convertible Preferred Stock [Member]                          
Preferred stock, shares authorized     200                    
Preferred stock, par value     $ 0.001                    
Preferred stock stated value per share     $ 10,000                    
Equity Purchase Agreement [Member]                          
Debt conversion, shares issued       23,900,000       67,000,000          
Debt conversion       $ 1,575       $ 3,731          
Debt instrument regulatory threshold   $ 75,000                      
Equity Purchase Agreement [Member] | December 2018 Note [Member]                          
Notes payable       $ 354       $ 354          
Purchase Agreement [Member] | Common Stock [Member]                          
Stock issued during period shares     17,500,000                    
Stock issued during period, value     $ 525                    
Preferred stock, voting rights     Each holder shall also be entitled to vote on all matters submitted to stockholders of the Company and shall be entitled to 55,000 votes for each Series B Preferred Share owned at the record date for the determination of stockholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is taken.                    
Purchase Agreement [Member] | Preferred Stock [Member]                          
Stock issued during period shares     150                    
Initial Warrant Agreements [Member]                          
Warrant outstanding                     4,000,000    
Warrant exercise price                     $ 0.50    
Initial Warrant Agreements [Member] | Maximum [Member]                          
Warrant exercise price                     2.00    
Modification Agreement [Member]                          
Warrant exercise price                     $ 0.03    
Exercise of warrant                     $ 4,000,000    
Modification Agreement [Member] | Minimum [Member]                          
Deemed dividend                     $ 101    
Warrant exercise price                     $ 120    
Oasis Capital [Member] | Equity Purchase Agreement [Member]                          
Equity purchase agreement description             The equity purchase agreement was entered on August 30, 2018 and was amended on November 30, 2018, whereby the Company could issue and sell to Oasis Capital from time to time up to $50,000 of the Company's common stock that was registered with the SEC under a registration statement on Form S-3. Subject to the terms of the equity purchase agreement, the Company provided notice (a "Put Notice") requiring Oasis Capital to purchase a number of shares (the "Put Shares") of the common stock equal to the lesser of $500 and 200% of the average trading volume of the common stock in the ten trading days immediately preceding the date of such Put Notice. The terms also provided the purchase price for such Put Shares to be the lowest traded price on a principal market for any trading day during the five trading days either following or beginning on the date on which Oasis Capital receives delivery of the Put Shares, multiplied by 95.0%            
Number of shares available for issuance, value                         50,000
Oasis Capital [Member] | Equity Purchase Agreement [Member] | Put Shares [Member] | Maximum [Member]                          
Number of shares available for issuance, value   500         500            
Oasis Capital [Member] | Equity Purchase Agreement Under Form S-1 [Member]                          
Equity purchase agreement description On June 3, 2019, the Company entered into an equity purchase agreement with Oasis Capital, whereby the Company shall have the right, but not the obligation, to direct Oasis Capital to purchase shares of the Company's common stock (the "New Put Shares") in an amount in each instance up to the lesser of $1,000 or 250% of the average daily trading volume by delivering a notice to Oasis Capital (the "New Put Notice"). The purchase price (the "Purchase Price") for the New Put Shares shall equal 95% of the one lowest daily volume weighted average price on a principal market during the five trading days immediately following the date Oasis receives the New Put Shares via DWAC associated with the applicable New Put Notice (the "Valuation Period"). The closing of a New Put Notice shall occur within one trading day following the end of the respective Valuation Period, whereby (i) Oasis shall deliver the Investment Amount (as defined below) to the Company by wire transfer of immediately available funds and (ii) Oasis shall return surplus New Put Shares if the value of the New Put Shares delivered to Oasis causes the Company to exceed the maximum commitment amount. The Company shall not deliver another New Put Notice to Oasis within ten trading days of a prior New Put Notice. The "Investment Amount" means the aggregate Purchase Price for the New Put Shares purchased by Oasis, minus clearing costs payable to Oasis's broker or to the Company's transfer agent for the issuance of the New Put Shares. The shares issuable under the equity purchase agreement are registered with the SEC under a registration statement on Form S-1 that was declared effective on June 25, 2019 and are subject to a maximum beneficial ownership by Oasis Capital of 9.99%.                        
Oasis Capital [Member] | Equity Purchase Agreement Under Form S-1 [Member] | New Put Shares [Member] | Maximum [Member]                          
Number of shares available for issuance, value 1,000                        
XML 44 R34.htm IDEA: XBRL DOCUMENT v3.19.2
Common Stock, Preferred Stock and Warrants - Summary of Warrant Outstanding (Details) - Warrants [Member]
6 Months Ended
Jun. 30, 2019
USD ($)
$ / shares
shares
Warrant shares outstanding, beginning | shares 5,477,975
Warrant shares outstanding, Issued | shares
Warrant shares outstanding, Exercised | shares (4,000,000)
Warrant shares outstanding, Expired or cancelled | shares (27,975)
Warrant shares outstanding, ending | shares 1,450,000
Warrant shares exercisable, ending | shares 1,450,000
Weighted average exercise price, beginning | $ / shares $ 1.01
Weighted average exercise price, Issued | $ / shares
Weighted average exercise price, Exercised | $ / shares 1.12
Weighted average exercise price, Expired or cancelled | $ / shares 0.79
Weighted average exercise price, ending | $ / shares 0.72
Weighted average exercise price Exercisable, ending | $ / shares $ 0.72
Weighted average remaining life, Outstanding 9 months 25 days
Weighted average remaining life, Exercisable 9 months 25 days
Intrinsic value outstanding, ending | $
Intrinsic value exercisable, ending | $
XML 45 R35.htm IDEA: XBRL DOCUMENT v3.19.2
Stock-Based Compensation (Details Narrative) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Stock based compensation     $ 1,679 $ 3,908
Unrecognized compensation costs related to non-vested stock options    
Restricted Stock [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Unamortized stock-based compensation costs     $ 843  
Share based compensation of weighted average period term     8 months 19 days  
Employee and Director [Member] | Selling General and Administrative Expenses [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Stock based compensation $ 730 $ 1,247 $ 1,624 $ 2,334
XML 46 R36.htm IDEA: XBRL DOCUMENT v3.19.2
Stock-Based Compensation - Schedule of Restricted Common Stock Activity (Details)
6 Months Ended
Jun. 30, 2019
$ / shares
shares
Share-based Payment Arrangement [Abstract]  
Number of shares Non-vested, Beginning Balance | shares 3,355,000
Number of shares, Vested | shares (2,254,999)
Number of shares Non-vested, Ending Balance | shares 1,100,001
Weighted average grant date fair value Non-vested, Beginning Balance | $ / shares $ 1.46
Weighted average grant date fair value, Vested | $ / shares 1.39
Weighted average grant date fair value Non-vested, Ending Balance | $ / shares $ 1.59
XML 47 R37.htm IDEA: XBRL DOCUMENT v3.19.2
Stock-Based Compensation - Schedule of Stock Options Activity (Details) - Stock Option [Member]
6 Months Ended
Jun. 30, 2019
USD ($)
$ / shares
shares
Options Outstanding, Beginning Balance | shares 6,000,000
Options Outstanding, Granted | shares
Options Outstanding, Exercised | shares
Options Outstanding, Forfeited/Cancelled | shares
Options Outstanding, Ending Balance | shares 6,000,000
Options Exercisable, Ending Balance | shares 6,000,000
Weighted Average Exercise Price Outstanding, Beginning Balance $ 0.71
Weighted Average Exercise Price Outstanding, Granted
Weighted Average Exercise Price Outstanding, Exercised
Weighted Average Exercise Price Outstanding, Forfeited/Cancelled
Weighted Average Exercise Price Outstanding, Ending Balance 0.71
Weighted Average Exercise Price Exercisable, Ending Balance 0.71
Weighted Average Grant Date Fair Value Outstanding, Beginning Balance 1.29
Weighted Average Grant Date Fair Value Outstanding, Ending Balance 1.29
Weighted Average Grant Date Fair Value Exercisable, Ending Balance $ 1.29
Weighted Average Remaining Life Outstanding, Ending Balance 7 months 2 days
Weighted Average Remaining Life Exercisable, Ending Balance 7 months 2 days
Intrinsic Value Outstanding, Ending Balance | $
Intrinsic Value Exercisable, Ending Balance | $
XML 48 R38.htm IDEA: XBRL DOCUMENT v3.19.2
Commitments and Contingencies (Details Narrative) - USD ($)
$ in Thousands
May 20, 2019
May 10, 2019
May 01, 2019
Oct. 23, 2018
Mr. Robert Ladd [Member]        
Operating Leases Commitments And Security Deposit [Line Items]        
Retirement settlement amount   $ 100    
Retirement settlement, number of shares vested       350,000
Bitcoin Mining Agreements [Member]        
Operating Leases Commitments And Security Deposit [Line Items]        
Accounts payable upon successful achievement of defined milestones $ 400      
Expenses related to milestone achievement $ 200      
Revenue related to hosting agreement       $ 47
Agreement period, description 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.
Bitcoin Mining Agreements [Member] | Minimum [Member]        
Operating Leases Commitments And Security Deposit [Line Items]        
Security deposit       $ 85
Bitcoin Mining Agreements [Member] | Maximum [Member]        
Operating Leases Commitments And Security Deposit [Line Items]        
Security deposit       204
Bitcoin Mining Agreements [Member] | Prepaid Expense [Member]        
Operating Leases Commitments And Security Deposit [Line Items]        
Accounts payable upon successful achievement of defined milestones $ 200      
Ohio Hosting Agreement [Member]        
Operating Leases Commitments And Security Deposit [Line Items]        
Security deposit       18
Revenue related to hosting agreement       $ 23
Agreement period, description       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.
Employment Agreements [Member]        
Operating Leases Commitments And Security Deposit [Line Items]        
Agreement period, description     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 $100, net of appropriate payroll withholding deductions, the immediate vesting of 350,000 shares of common stock previously granted to Mr. Schaeffer, and providing health insurance benefits as available under the Company's COBRA health insurance program.  
Management Agreements [Member]        
Operating Leases Commitments And Security Deposit [Line Items]        
Agreement period, description     On May 2, 2019, the Company entered into amended management agreements with two accredited investors, Deep South Mining LLC and BDLM, LLC (the "Users"). The Users' miners were reconnected and mining Bitcoin was resumed upon execution of these agreements. Due to wear and tear, the parties acknowledge the Users' Bitcoin Hardware consist of 1,800 Bitmain Antminer S9 mining computers, collectively.  
XML 49 R39.htm IDEA: XBRL DOCUMENT v3.19.2
Employee Benefit Plans (Details Narrative) - 401(k) Plan [Member] - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Employee contribution amount $ 9 $ 18
Maximum [Member]    
Employee contribution percentage 100.00%  
XML 50 R40.htm IDEA: XBRL DOCUMENT v3.19.2
Subsequent Events (Details Narrative) - USD ($)
$ in Thousands
1 Months Ended 3 Months Ended 6 Months Ended
Jul. 15, 2019
Jul. 12, 2019
Apr. 12, 2019
Aug. 14, 2019
Jul. 31, 2019
Jun. 30, 2019
Jun. 30, 2018
Mar. 31, 2018
Jun. 30, 2019
Number of common stock shares issued, shares                 43,100,000
Number of common stock shares issued                
Conversion of stock shares converted     200,000            
Preferred Stock [Member]                  
Number of common stock shares issued, shares     190        
Number of common stock shares issued     $ 1,890        
Conversion of stock shares converted           50      
Subsequent Event [Member]                  
Conversion of stock shares converted   6,725,854     11,537,510        
Subsequent Event [Member] | Preferred Stock [Member]                  
Conversion of stock shares converted   25              
Number of shares acquired 10 150              
Number of shares acquired, value $ 100                
Subsequent Event [Member] | June 2018 Note [Member]                  
Notes payable         $ 325        
Subsequent Event [Member] | Equity Purchase Agreement [Member]                  
Number of common stock shares issued, shares       30,500,000          
Number of common stock shares issued       $ 1,291          
Subsequent Event [Member] | Purchase Agreement for purchase 1,100 Antminer S17 Bitcoin Miners [Member] | Bitmaintech Pte. Ltd [Member]                  
Aggregate purchase price $ 2,770,000                
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