Notes Payable

12 Months Ended

Dec. 31, 2021

Debt Disclosure [Abstract]

Notes Payable

Note 7. Notes Payable

June 2018 Note

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 was to be made in nine equal monthly installments beginning August 1, 2018, with an initial maturity date of April 1, 2019, with no prepayment penalty. Upon an event of default, the outstanding balance of the promissory note would immediately increase by 120% and become immediately due and payable. Prior to 2020, this note was amended several times bringing the total outstanding principal balance to $929 as of December 31, 2019.

During the year ended December 31, 2020, the Company issued 93,078,492 shares of its common stock upon the conversion of $929 in outstanding principal, reducing the outstanding principal balance to $0 as of December 31, 2020.

December 2020 Note

On December 8, 2020, the Company entered into a securities purchase agreement pursuant to which it issued a convertible promissory note in the principal amount of $230 which is convertible, at the option of the holder, into shares of common stock at a conversion price equal to 70% of the lowest price for a share of common stock during the ten trading days immediately preceding the applicable conversion. The Company received consideration of $200 for the convertible promissory note. The note bears interest at a rate of 8% per annum and matures in twelve months.

The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a beneficial conversion feature and a derivative liability which is accounted for separately. The Company measured the beneficial conversion feature’s intrinsic value on December 8, 2020 and determined that the beneficial conversion feature was valued at $200 which was recorded as a debt discount, and together with the original issue discount of $30, in the aggregate of $230, is being amortized over the life of the loan. The Company measured the derivative liability’s fair value on December 8, 2020 and determined that the derivative liability was valued at $555 which exceeded the intrinsic value of the beneficial conversion feature by $355 and resulted in the Company recording non-cash interest expense of $355. As of December 31, 2020, the fair value of the derivative liability was $246 and for the year ended December 31, 2020 the Company recorded a gain of $309 from the change in fair value of derivative liability as non-operating income in the consolidated statements of operations. The Company valued the derivative liability using the Black-Scholes option pricing model using the following assumptions as of December 8, 2020 and December 31, 2020, respectively: 1) stock prices of $0.027 and $0.04, 2) conversion prices of $0.009 and $0.025, 3) remaining lives of 1 year and 0.94 years, 4) dividend yields of 0%, 5) risk free rates of 0.10%, and 6) volatility of 158.55% and 167.36%.

On June 15, 2021, the holder converted $120 of principal into 4,761,905 shares of common stock valued at $238. As a result of the conversion, $172 of derivative liability and $86 unamortized debt discount was settled and $32 was recorded as loss on settlement of debt. The derivative value was calculated using a share fair value of $0.0252, a discount rate of 0.05% and volatility of 238.79%.

On July 27, 2021, the holder converted the remaining $110 of principal and $11 of accrued interest into 6,673,384 shares of common stock valued at $280. As a result of this conversion, $153 of derivative liability and $66 unamortized debt discount was settled and $72 was recorded as loss on settlement of debt. The derivative value was calculated using a share fair value of $0.0182, a discount rate of 0.05% and volatility of 127.04%. As of December 31, 2021, this note had no outstanding balance.

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per–share amounts)

March 2021 Note

On March 5, 2021, the Company entered into a securities purchase agreement with Bucktown Capital, LLC (the “Investor”), pursuant to which the Company issued a convertible promissory note in the original principal amount of $13,210 (the “March 2021 Note”). The March 2021 Note was convertible, at the option of the Investor, into shares of common stock of the Company at a conversion price equal to 70% of the lowest price for a share of common stock during the ten trading days immediately preceding the applicable conversion (the “Conversion Price”); provided, however, in no event was the Conversion Price to be less than $0.04 per share. The March 2021 Note bore interest at a rate of 8% per annum and will mature in twelve months.

The March 2021 Note was to be funded in tranches, with the initial tranche of $1,210 funded on March 5, 2021 for consideration of $1,000. Six subsequent tranches (five tranches, each for $1,200 and one tranche for $6,000) were to be funded upon the notice of effectiveness of a Registration Statement on Form S-1 covering the common stock issuable in connection with the March 2021 Note. Further, the final tranche required the mutual agreement of the Company and Investor. Until such time as Investor funded the subsequent tranches, the Company would hold a series of Investor Notes that offset any unfunded portion of the March 2021 Note.

The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a beneficial conversion feature. The Company measured the beneficial conversion feature’s intrinsic value on March 5, 2021 and determined that the beneficial conversion feature was valued at $1,000 which was recorded as a debt discount, and together with the original issue discount of $210, in the aggregate of $1,210, is being amortized over the life of the loan.

As a result of the Company failing to meet certain registration requirements under the March 2021 Note, the outstanding balance of the March 2021 Note was automatically increased by 5% on each of July 5, 2021 and August 5, 2021, September 5, 2021 and as part of the exchange agreement an additional 5% on September 30, 2021, prior to the exchange. An additional $270 was recorded as outstanding principal, bringing the outstanding balance prior to the exchange to $1,481.

On September 30, 2021, the Company entered into an exchange agreement with the March 2021 Note holder under which the outstanding principal balance of $1,481 and $60 of accrued interest were exchanged for 53,500,000 warrants to purchase common stock (See Note 7), which were treated as a warrant derivative liability. Upon the exchange, the Company settled $1,481 of outstanding principal, $60 of accrued interest, $758 of debt discount, recorded a warrant liability in the amount of $1,221 resulting in a loss on settlement of debt of $438. The derivative was calculated using a share fair value of $0.025 per share, a discount rate of 0.98%, remaining lives of 4.43 years and volatility of 176.1%. As of December 31, 2021, this note had no outstanding balance.

During the years ended December 31, 2021 and 2020, the Company recorded accretion of debt discount of $526 and $882, respectively.

Derivative Liabilities

The Company’s activity in its derivative liabilities was as follows for the year ended December 31, 2021:

Balance of derivative liability at January 1, 2020	$	-
Transfer in due to issuance of convertible notes with embedded conversion provisions		555
Change in fair value of derivative liability		(309	)
Balance of derivative liability at December 31, 2020		246
Transfer in due to issuance of warrants with embedded conversion features		2,492
Transfer out upon conversion of convertible notes and warrants with embedded conversion provisions		(732	)
Change in fair value of warrant liability		(955	)
Change in fair value of derivative liability		79
Balance of derivative liabilities at December 31, 2021	$	1,130

On July 21, 2021, as part of a corporate fundraising, the Company issued 35,385,703 shares of common stock and 35,385,703 warrants to purchase common stock. As a result of this issuance, the Company recognized a derivative liability in the amount of $1,271. The derivative was calculated using the fair value per share of $0.038, volatility factor of 176.1%, remaining lives of 5 year and discount rate of 0.74%.

As of December 31, 2021, the fair value of the warrant derivative liability was $1,130 and for the year ended December 31, 2021 the Company recorded a gain of $955 from the change in fair value of derivative warrant liability as non-operating income in the consolidated statements of operations. The Company valued the warrant derivative liability using the Black-Scholes option pricing model using the following assumptions as of December 31, 2021: 1) stock prices of $0.017, 2) exercise prices of $0.05, 3) remaining lives of 4.2 – 4.6 years, 4) dividend yields of 0%, 5) risk free rates of 1.26%, and 6) volatility of 175.5%.

Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. As the stock price increases for each of the related derivative instruments, the value to the holder of the instrument generally increases, therefore increasing the liability on the Company’s balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the Company’s expected volatility. Increases in expected volatility would generally result in higher fair value measurement. A 10% change in pricing inputs and changes in volatilities and correlation factors would not result in a material change in our Level 3 fair value.

	December 31, 2021
	Level 1		Level 2		Level 3		Fair Value
Liabilities
Warrant derivative liability	$	-	$	-	$	1,130	$	1,130

	December 31, 2020
	Level 1		Level 2		Level 3		Fair Value
Liabilities
Derivative liability	$	-	$	-	$	246	$	246

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per–share amounts)

The PPP Loan

On April 16, 2020, the Company entered into a promissory note with Aquesta Bank for $111 in connection with the Paycheck Protection Program offered by the U.S. Small Business Administration (the “PPP Loan”). The PPP Loan bears interest at 1% per annum, with monthly installments of $6 commencing on November 1, 2021 for 18 months through its maturity on April 1, 2023. The principal amount of the PPP Loan will be forgiven if the PPP Loan proceeds are used to pay for payroll costs, rent and utilities costs over the 24-week period after the PPP Loan is made. Not more than 40% of the forgiven amount may be used for non-payroll costs. The amount of the PPP Loan forgiveness may be reduced if the Company reduces its full-time head count. On April 1, 2021, the Company received notice of forgiveness in the amount of $108 in relation to the PPP Loan. The Company used all proceeds from the PPP Loan to maintain payroll and other allowable expenses. As a result, management believes that the Company has met the PPP eligibility criteria for forgiveness for the remaining payable of $3 to the SBA and has concluded that the PPP Loan represents, in substance, a government grant that is expected to be forgiven in its entirety. As such, in accordance with International Accounting Standards (“IAS”) 20, “Accounting for Government Grants and Disclosure of Government Assistance,” the Company has recognized the entire loan amount of $111 as grant income, which is included in other non-operating income (expense) in the consolidated statement of operations for the year ended December 31, 2020.