UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10–Q10-Q

For the quarterly period ended March 31, 20212022

For the transition period from ______________ to ______________

Commission file number: 001–32698001-32698

MGT CAPITAL INVESTMENTS, INC.

(Exact name of registrant as specified in its charter)

150 Fayetteville Street, Suite 1110

Raleigh, NC27601

(Address of principal executive offices)

(914) 630–7430630-7430

(Registrant’s telephone number, including area code)

Shares registered pursuant to section 12(b) of the Act: None.

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.

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 ☒

Yes [  ] No [X]

As of May 24, 2021,13, 2022, there were 536,649,910 650,970,903 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 MARCH 31, 20212022

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per-share amounts)

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

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per-share amounts)

(Unaudited)

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

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

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

FOR THE THREE MONTHS ENDED MARCH 31, 20212022 AND 20202021

(Dollars in thousands, except per-share amounts)

(Unaudited)

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

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per-share amounts)

(Unaudited)

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

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”) wasis a Delaware corporation 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 in Raleigh, North Carolina.

Cryptocurrency mining

Current Operations

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

As of March 31, 2022 and May 13, 2022, the Company owned approximately 649430 S17 Antminer Pro (“S17 miners”) and 37 Antminer S19 Pro Bitcoin miners at its Company-owned and managed facility located in LaFayette, GA as of May 24, 2021.miners. All miners were purchased from Bitmaintech Pte. Ltd., a Singapore limited company (“Bitmain”), and are collectively ratedlocated at approximately 30 Ph/sour Georgia facility. Over three-quarters of the S17 miners require various repairs to be productive. We are in computing power. Bitmain has acknowledged manufacturing defects, combined with inadequate repair facilities, rendering approximately one halfthe process of selling our remaining S17 miners, in need of repair or replacement. The Company has begun using a third party repair facility to repair its non-workingas well as loose hash boards, power supplies, controller boards, and expectsother parts.

In addition to its self-mining operations, the processCompany leases its owned space to be complete inother Bitcoin miners and also provides hosting services for owners of mining equipment. These measures improve utilization of the third calendar quarterelectrical infrastructure and better insulate us against the volatility of this year. While initial batches of repaired hash boards have shown a very high success rate, there can be no guaranty that all future repairs will be as successful. The Company’sBitcoin mining.

MGT’s miners are housed in threea modified shipping containers. A utility substation, adjacent tocontainer on the several acreCompany’s owned property has access to over 20 megawatts (MW) of low-cost power. The Company’s current electrical load is estimated at slightly under 1.0 MW.in Georgia. The entire facility, including the land twoand improvements, five 2500 KVA 3-phase transformers, thethree mining containers, and miners, are owned by MGT. As the Company is presently using only a portion of the built-out available electrical load, it is exploringWe continue to explore ways to grow and maintain itsour current operations including but not limited to further potential equipment sales leasing space to other Bitcoin miners, and raising capital to acquire the newest generation miners. The Company is also investigating other sites to develop into Bitcoin mining facilities in addition to expansion at its current property.

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 108 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, 2020,2021, as filed with the Securities and Exchange Commission (“SEC”) on April 15, 2021.March 31, 2022. Operating results for the three months ended March 31, 20212022 and 20202021 are not necessarily indicative of the results that may be expected for any subsequent quarters or for the year ending December 31, 2021.2022.

COVID-19 Pandemic

The COVID-19 pandemic represents a fluid situation that presents a wide rangehas disrupted and may continue to disrupt our operations and those of potential impacts of varying durations for different global geographies, including locations where we have offices, employees, customers,our vendors, suppliers and other suppliersthird parties on which we rely, and business partners.

Like most US-based businesses, the COVID-19 pandemicwe may not be able to obtain new miners or replacement parts for our existing miners in a timely or cost-effective manner, which could materially and efforts to mitigate the same began to have impacts onadversely affect our business in March 2020. By that time, muchand results of our first fiscal quarter was completed.operations.

In light of broader macro-economic risks and already knownThe extent to which COVID-19 impacts on certain industries, we have taken, and continue to take targeted steps to lower our operating expenses because of the COVID-19 pandemic. We continue to monitor the impacts of COVID-19 on our operations closely and this situation could change based on a significant number of factors that are not entirely within our control and are discussed in this and other sections of this Quarterly Report on Form 10-Q.

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per–share amounts)

To date, travel restrictions and border closures have not materially impactedor our ability to operate. However, if such restrictions become more severe, they could negatively impact those activities in a way that would harm our business overobtain financing will depend on future developments which are uncertain and cannot be predicted, including new information which may emerge concerning the long term. Travel restrictions impacting people can restrain our ability to operate, but at present we do not expect these restrictions on personal travel to be material to our business operations or financial results.

Like most companies, we have taken a range of actions with respect to how we operate to assure we comply with government restrictions and guidelines as well as best practices to protect the health and well-being of our employees. However, the impactsseverity of COVID-19 and effortsthe actions taken by governments and private businesses to mitigatecontain COVID-19 to treat its impact, among others. If the same have remained unpredictable and it remains possible that challengesdisruptions posed by COVID-19 continue for an extended period of time, financial markets may arisenot be available to the Company for raising capital in order to fund future growth. Should the Company not be able to obtain financing in the future.amounts necessary or under terms which are economically feasible, we may be required to reduce planned future growth and/or the scope of our operations.

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 March 31, 2021,2022, the Company had incurred significant operating losses since inception and continues to generate losses from operations. As of March 31, 2021,2022, the Company had an accumulated deficit of $418,970.$421,446. As of March 31, 20212022 MGT’s cash and cash equivalents were $1,188.$633.

The Company will require additional funding to grow its operations. Further, depending upon operational profitability, the Company may also need to raise additional funding for ongoing working capital purposes. There can be no assurance however that the Company will be able to raise additional capital when needed, or at terms deemed acceptable, if at all. The Company’s ability to raise additional capital is impacted by the volatility of Bitcoin mining economics and the SEC’s ongoing enforcement action against our Chief Executive Officer, both of which are highly uncertain, cannot be predicted, and could have an adverse effect on the Company’s business and financial condition.

Since January 2021, the Company has secured working capital through the issuance of a convertible note, the sale of equity and warrants, and the sale of assets.

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. 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, stock compensation, determining the potential impairment of long-lived assets, the fair value of conversion features, fair value of warrants issued, 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.

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSCash and cash equivalents

(Dollars in thousands, except per–share amounts)

Revenue recognition

The Company considers all highly liquid instruments with an original maturity of three months or less when acquired to be cash equivalents. The Company’s primary revenue stream is relatedcombined accounts were $633 and $1,230 as of March 31, 2022 and December 31, 2021, respectively. Accounts are insured by the FDIC up to the mining of digital currencies.$250 per financial institution. The Company derives its revenue by solving “blocks” to be added to the blockchainhas not experienced any losses in such accounts with these financial institutions. As of March 31, 2022, and providing transaction verification services within the digital currency network of Bitcoin, commonly termed “cryptocurrency mining.” In consideration for these services,December 31, 2021, the Company receives digital currency (“Coins”).had $133 and $980, respectively, in excess of the FDIC insurance limit.

Accounts Receivable

Accounts receivable are generally unsecured. The Coins are recorded as revenue, using the average spot price of BitcoinCompany establishes an allowance for doubtful accounts receivable based on the dateage of receipt. The Coinsoutstanding invoices and management’s evaluation of collectability. Accounts are recorded onwritten off after all reasonable collection efforts have been exhausted and management concludes that likelihood of collection is remote. Any future recoveries are applied against the balance sheet as an intangible digital asset valued at the lowerallowance for doubtful accounts. As of cost or net realizable value. Net realizable value adjustments,March 31, 2022 and December 31, 2021, we did not believe we needed to adjust the value of Coins to market value,reserve for any doubtful accounts, respectively.

Cryptocurrencies

Cryptocurrencies, (including bitcoin and bitcoin cash) are included in current assets in the accompanying balance sheets. Any cryptocurrencies purchased are recorded at cost of revenue onand cryptocurrencies awarded to the Company through its mining activities are accounted for in connection with the Company’s consolidated statement of operations. Further, any gainrevenue recognition policy disclosed in this note.

Cryptocurrencies held are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or loss on the sale of Coins would be recorded to costs of revenue. Costs of revenue include electricity costs, equipment and infrastructure depreciation, and net realizable value adjustments.

The Company also recognizes a royalty participation upon the sale of certain containers manufactured by Bit5ive LLC of Miami, Florida (the “Pod5ive Containers”) under the terms of a five-year collaboration agreement enteredmore frequently, when events or changes in August 2018.

Property and Equipment

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

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 itemscircumstances occur indicating 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 portionthe indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured.

In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.

Any purchases of cryptocurrencies by the Company are included within investing activities in the accompanying statements of cash flows, while cryptocurrencies awarded to the Company through its mining activities are included within operating activities on the accompanying statements of cash flows. The sales of cryptocurrencies are included within investing activities in the accompanying statements of cash flows and any realized gains or losses from such sales are included in other income (expense) in the statements of operations. The Company accounts for its gains or losses in accordance with the first in first out (FIFO) method of accounting.

Halving – The Bitcoin blockchain and the cryptocurrency reward for solving a block is subject to periodic incremental halving. Halving is a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work consensus algorithm. At a predetermined block, the mining reward is cut in half, hence the term “Halving.” A Halving for bitcoin occurred on May 12, 2020, with a revised reward payout of 6.25 Bitcoin per block. Many factors influence the price of Bitcoin and potential increases or decreases in prices in advance of or following a future halving is unknown.

The following table presents the activities of digital currencies for the periods ended March 31, 2022 and December 31, 2021:

Schedule of Digital Currencies

Investment

Available-for-sale securities are carried at fair value. Realized and unrealized gains and losses, if any, are calculated on the specific identification method and are included in other income in the statements of operations.

Revenue recognition

Cryptocurrency mining

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

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

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

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

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

The Company has entered into digital asset mining pools by agreeing to terms and conditions, as amended from time to time, with the mining pool operators to provide computing power to the interpretationmining pool. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of the tax lawsfixed cryptocurrency award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which are recorded as a component of cost of revenues), for successfully adding a block to the Blockchain. The terms of the agreement provide that might be challenged uponneither party can dispute settlement terms after thirty-five days following settlement. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.

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

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

Hosting Revenues

We receive revenues from third parties renting capacity at our facility and from hosting miners owned by others. The Company recognized $192 and $0 from these sources during the three months ended March 31, 2022 and 2021, respectively. During the three months ended March 31, 2022, two customers accounted for 68% and 23% respectively of hosting revenue.

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, convertible preferred stock, 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.

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per–share amounts)

Accordingly, the computation of diluted loss per share for the three months ended March 31, 20212022 excludes 34,285,714 63,416,941 shares issuable upon conversionthe exercise of convertible debt.outstanding warrants. The computation of diluted loss per share for the three months ended March 31, 20202021 excludes 266,667 unvested restricted shares, 68,904,286 shares issuable upon conversion of convertible debt, and 126,373,626 34,285,714 shares issuable under preferred stock.convertible debt.

Stock–based compensation

The Company applies ASC 718-10, “Share- Based Payment,” which requires the measurement and recognition of compensation expenses for all share based payment awards made to employees and directors including employee stock options under the Company’s stock plans and equity awards issued to non-employees based on estimated fair values.

ASC 718-10 requires companies to estimate the fair value of equity-based option awards on the date of grant using an option-pricing model. The fair value of the award is recognized as an expense on a straight-line basis over the requisite service periods in the Company’s consolidated statements of comprehensive loss.

Restricted stock awards are granted at the discretion of the compensation committee of the board of directors of the Company (the “Board of Directors”). 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 require 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.

Fair Value Measure and Disclosures

ASC 820 “Fair Value Measurements and Disclosures” provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

Fair value is defined as an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

As of March 31, 2021,2022 and December 31, 2020,2021, the Company had a Level 3 financial instrument related to the derivative liability related to the issuance of convertible notes.warrants.

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 12 – 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 financial statements.

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Gain (Loss) on Modification/Extinguishment of Debt

In accordance with ASC 470, a modification or an exchange of debt instruments that adds or eliminates a conversion option that was substantive at the date of the modification or exchange is considered a substantive change and is 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 toCertain prior period balances have been accomplished with debt instruments that are substantially different ifreclassified to conform to current year presentation. These reclassifications had no effect on the present valuereported results 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.operations.

Cash and cash equivalents

The Company considers all highly liquid instruments with an original maturity of three months or less when acquired to be cash equivalents. The Company’s combined accounts were $1,188 and $236 as of March 31, 2021 and December 31, 2020, respectively. Accounts are insured by the FDIC up to $250,000 per financial institution. The Company has not experienced any losses in such accounts with these financial institutions. As of March 31, 2021, and December 31, 2020, the Company had $938 and $0, respectively, in excess over the FDIC insurance limit.

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 consolidated financial statements, other than those disclosed below.

In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2020-06 will have on its financial statements.

Derivative Instruments

Derivative financial instruments are recordedIn May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), (“ASU 2021-04”). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the accompanying consolidated balance sheets at fair value in accordance with ASC 815. When the Company enters intoscope of another Topic. It specifically addresses: (1) how an entity should treat a financial instrument such as a debt or equity agreement (the “host contract”), the Company assesses whether the economic characteristics of any embedded features are clearly and closely related to the primary economic characteristicsmodification of the remainderterms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU is effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the host contract. When itamendments. Early adoption is determined that (i)permitted, including adoption in an embedded feature possesses economic characteristics that are not clearly and closely related to the primary economic characteristicsinterim period. The adoption of the host contract, and (ii) a separate, stand-alone instrument with the same terms would meet the definition of a financial derivative instrument, then the embedded feature is bifurcated from the host contract and accounted for as a derivative instrument. The estimated fair value of the derivative feature is recorded in the accompanying consolidated balance sheets separately from the carrying value of the host contract. Subsequent changes in the estimated fair value of derivatives are recorded as a gain or loss in the Company’s consolidated statements of operations.

Impairment of long-lived assets

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

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per–share amounts)

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 CompanyASU 2021-04 on January 1, 2022 did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the unaudited condensed consolidated financial statements.

Digital Currencies

Digital currencies are included in current assets in the condensed consolidated balance sheets. Digital currencies are recorded at the lower of cost or net realizable value.

Net realizable value adjustments, to adjust the value of Coins to market value, are included in cost of revenuea material impact on the Company’s consolidated statementcondensed financial statements or disclosures.

Note 4. Accounts receivable

Accounts receivable balances of operations. Further, any gain or loss on the sale$306and $180as of Coins would be recorded to costs of revenue. Costs of revenue include hosting fees, equipment and infrastructure depreciation, net realizable value adjustments, and electricity costs.

Halving – The Bitcoin blockchain and the cryptocurrency reward for solving a block is subject to periodic incremental halving. Halving is a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work consensus algorithm. At a predetermined block, the mining reward is cut in half, hence the term “Halving.” A Halving for bitcoin occurred on May 12, 2020. Many factors influence the price of Bitcoin and potential increases or decreases in prices in advance of or following a future halving is unknown.

The following table presents the activities of digital currencies for the three months ended March 31, 2021:2022 and December 31, 2021, respectively, from customers using the Company’s miner hosting and facility rental services. One customer makes up 96% of this balance.

Note 4. 5. Property, Plant, and Equipment and Other Assets

Property and equipment consisted of the following:

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARYSchedule of Property and Equipment

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per–share amounts)

The Company recorded depreciation expense of $189$48 and $342$189 for the three months ended March 31, 20212022 and 2020,2021, respectively. For the three months ended March 31, 2022 and 2021, and 2020,respectively, gains on sale of property and equipment of $1$0 and $30,$1, respectively, were recorded as other non-operating expenses relating toincome. For the sale and dispositionthree months ended March 31, 2022 we disposed of Antminera total of 50 S17 Pro and S9 Bitcoin miners and a container.which were fully depreciated.

Other Assets consisted of the following:

Schedule of Other Assets

The Company has paid $120 in security deposits related to its electrical contract, see Note 9, and $3$3 related to its office lease in Raleigh, NC.

Note 5. Notes Payable6. Investment

June 2018 Note

On June 1, 2018,In December 2021, the Company entered intoinvested $50 in the form of a convertible promissory note. The note purchase agreementbears annual interest of 8% and matures on December 31, 2024. The note contains certain anti-dilution features with an accredited investor, pursuant to whichas-converted ownership of 5%. As of March 31, 2022, 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,determined that book value represented fair value 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 5 times.adjustment necessary.

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARYNote 7. Notes Payable

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per–share amounts)

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 (the “December 2020 Note”) in the principal amount of $230$230 which is convertible, at the option of the holder, into shares of common stock at a conversion price equal to 70%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$200 for the convertible promissory note. The note bears interest at a rate of 8%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$200 which was recorded as a debt discount, and together with the original issue discount of $30,$30, in the aggregate of $230,$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$555 which exceeded the intrinsic value of the beneficial conversion feature by $355$355 and resulted in the Company recording non-cash interest expense of $355.$355.

As of March 31,On June 15, 2021, the fair value holder converted $120 of theprincipal into 4,761,905 shares of common stock valued at $238. As a result of this conversion, $172 of derivative liability was $313settled, $86 unamortized debt discount was settled and for the three months ended March 31,$32was recorded as loss on settlement of debt.

On July 27, 2021, the Company recordedholder converted the remaining $110 of principal and $11 of accrued interest into 6,673,384 shares of common stock valued at $280. As a lossresult of $67 from the change in fair value this conversion, $153 of derivative liability was settled, $66 unamortized debt discount was settled and $72 was recorded as non-operating expense in the consolidated statementsloss on settlement of operations.debt. As of December 31, 2020, the fair value of the derivative liability was $246. The Company valued the derivative liability using the Black-Scholes option pricing model using the following assumptions as of March 31, 2021, and December 31, 2020, respectively: 1) stock prices of $0.075 and $0.04, 2) conversion prices of $0.042 and $0.025, 3) remaining lives of .69 and 0.94 years, 4) dividend yields of 0%, 5) risk free rates of 0.05% and 0.10%, and 6) volatility of 237.34% and 167.36%.this note had no outstanding balance.

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$13,210 (the “March 2021 Note”). The March 2021 Note iswas convertible, at the option of the Investor, into shares of common stock of the Company at a conversion price equal to 70%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 shallwas the Conversion Price to be less than $0.04$0.04 per share. The March 2021 Note bearsbore interest at a rate of 8%8% per annum and will mature in twelve months.months.

The March 2021 Note willwas to be funded in tranches, with the initial tranche of $1,210$1,210 funded on March 5, 2021 for consideration of $1,000.$1,000. Six subsequent tranches (five tranches, each for $1,200$1,200 and one tranche for $6,000) will$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 requiresrequired the mutual agreement of the Company and Investor. Until such time as Investor has funded the subsequent tranches, the Company willwould hold a series of Investor Notes that offset any unfunded portion of the March 2021 Note.

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per–share amounts)

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$1,000 which was recorded as a debt discount, and together with the original issue discount of $210,$210, in the aggregate of $1,210,$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, August 5, 2021, and 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 0 outstanding balance.

Derivative Liabilities

The Company’s activity in its debt related derivative liability was as follows for the three months ended March 31, 2021:2022:

Schedule of Derivative Liability Activity

The Company did not have anyrecorded loss on settlement of derivative liability activity duringin the amount of $417 and $0 for the three months ended March 31, 2020.2022 and 2021, respectively.

As of March 31, 2022, the fair value of the warrant derivative liability was $1,366 and for the three months ended March 31, 2022 the Company recorded a loss of $407 from the change in fair value of derivative warrant liability as non-operating income in the statements of operations. The Company valued the warrant derivative liability using the Black-Scholes option pricing model using the following assumptions as of March 31, 2022: 1) stock price of $0.024, 2) exercise prices of $0.05, 3) remaining lives of 3.9 – 4.3 years, 4) dividend yields of 0%, 5) risk free rates of 2.42%, and 6) volatility of 174.5%.

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 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 price 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.

The following table summarizes the Company’s debt related derivative liability as of March 31, 2021:

The following table summarizes the Company’s derivative as of2022 and December 31, 2020:2021:

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARYSchedule of Derivative Liability Fair Value

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNote 8. Leases

(Dollars in thousands, except per–share amounts)

U.S. Small Business Administration-Paycheck Protection Plan

On April 16, 2020, we entered into a promissory note with Aquesta Bank for $108 (the “PPP Loan”) in connection with the Paycheck Protection Program (“PPP”) offered by the U.S. Small Business Administration (the “SBA”). The PPP Loan had terms including an interest rate of 1% per annum, with monthly installments of $6 commencing on November 1, 2021 through its maturity on April 1, 2023. The principal amount of the PPP Loan is forgiven if the loan proceeds are used to pay for payroll costs, rent and utilities costs over the 24-week period after the loan is made. Not more than 40% of the forgiven amount may be used for non-payroll costs. In addition, in July 2020, the Company received $3 from the SBA as a COVID-19 Economic Injury Disaster Loan Advance (the “EIDL Advance”)

On April 1, 2021, the Company received notice of forgiveness from the SBA in the amount of $108 in relation to the PPP Loan as the Company used all proceeds from the PPP Loan to maintain payroll and other allowable expenses. Further, pursuant to an SBA Procedural Notice in December 2020, the EIDL Advance was also forgiven. The Company has concluded that the PPP Loan and EIDL Advance represent, in substance, a government grant that is 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 PPP Loan and EIDL Advance 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.

Notes payable consisted of the following:

During the three months ended March 31, 2021 and 2020, the Company recorded accretion of debt discount of $62 and $0, respectively.

Note 6. Leases

In December 2019, the Company entered an office lease in connection with the relocation of its executive office to Raleigh, North Carolina. The Company accounted for this lease as an operating lease under the guidance of Topic 842. Rent expense under the new lease is $3$3 per month, with annual increases of 3%3% during the three-year term. The Company used an incremental borrowing rate of 29.91%29.91% based on the weighted average effective interest rate of its outstanding debt. In December 2019, the Company recorded a Right of Use Asset of $79$79 and a corresponding Lease Liability of $79.$79. The Right to Use Asset is accounted for as an operating lease and has a balance, net of amortization, of $51$27 as of March 31, 2021.2022.

On November 1, 2021, the Company entered into a lease agreement to lease a contiguous portion of land to its existing property, as a planting area for trees intended to mitigate noise from the Company’s cryptocurrency mining operations. The agreement calls for yearly installments of $3 for the first five years, with an option to extend this lease for another five-year period at a rate not to exceed 105% of the current lease payment. On each anniversary date, the Company will pay $3 in advance, with payment for the first year paid upon execution of the lease. The Company used an incremental borrowing rate of 8.0% based on the interest rate of incorporated in the most recent promissory note. At lease inception, the Company recorded a Right of Use Asset of $22 and a corresponding Lease Liability of $22. The Right to Use Asset is accounted for as an operating lease and has a balance, net of amortization, of $21 as of March 31, 2022.

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

Schedule of Future Minimum Lease Payment

The Company recorded rent expense of $9$10 and $9$9 for the three months ended March 31, 2022 and 2021, and 2020, respectively.

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per–share amounts)

At March 31, 2021,2022 the weighted average interest rate for the operating lease was 20.46%. At March 31, 2022, the weighted average remaining lease term for operating lease was 1.74.6 years. The Company’s lease agreement does not contain any material residual value guarantees or material restrictive covenants.

Note 7. 9. Common Stock and Preferred Stock

Common stock

Other Common Stock Issuances

In connection with the conversion of 115 shares of Series C Preferred Stock during the three monthsyear ended MarchDecember 31, 2021 (see Preferred Stock below) the Company issued 29,870,130 shares of common stock.

During the year ended December 31, 2021, in connection with the conversions of $120 and $110, with accrued interest, of the December 2020 convertible note payable (see Note 7), the Company issued 4,761,905 and 6,673,384 shares of common stock, respectively.

On July 21, 2021, as part of a corporate fundraising of $990, net of issuance costs, the Company issued 35,385,703 shares of common stock and 35,385,703 warrants to purchase common stock (see Warrants below).

During the year ended December 31, 2021, 14,270,833 warrants with an embedded conversion feature were exercised on a cashless basis for the issuance of 23,500,000 shares of common stock (see below).

During the three months ended March 31, 2022, 11,197,930 warrants with an embedded conversion feature were exercised on a cashless basis for the issuance of 34,000,000 shares of common stock (see below).

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$0.001 and a Stated Value of $100$100 each (“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 the rate of 12%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 solicited. 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.stockholders. The Series B Preferred Shares are not convertible into shares of the Company’s common stock. No shares of Series B Preferred Shares have been issued or are outstanding.

On April 12, 2019, the Company’s Board of Directors approved the authorization of 200 Series C Preferred Shares with a par value of $0.001$0.001 (“Series C Preferred Shares”). The holders of the Series C Preferred Shares have no voting rights, receive no dividends, and are entitled to a liquidation preference equal to the stated value. At any time, the Company may redeem the Series C Preferred Shares at 1.2 times the stated value.value. Given the right of redemption is solely at the option of the Company, the Series C Preferred Shares are not considered mandatorily redeemable, and as such are classified in shareholders’ equity on the Company’s consolidated balance sheet.

Each Series C 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 dayten-day period preceding the conversion date. The holder may not convert any Series C 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.stock.

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per–share amounts)

The common shares issued upon conversion of the Series C Preferred Shares have been registered under the Company’s then-effective registration statement on Form S-3. On April 12, 2019, the Company sold 190 Series C Preferred Shares for $1,890,$1,890, net of issuance costs and on July 15, 2019 sold 10 Series C Preferred Shares for $100.$100. During the second and third quarters of 2019, holders converted 50 Series C Preferred Shares into 14,077,092 shares of common stock and 35 Series C Preferred Shares into 13,528,575 shares of common stock, respectively. The remaining 115 shares of Series C Preferred Stock were issued and outstanding asconverted into 29,870,130 shares of common stock during the year ended December 31, 2020.2021.

Warrants

On January 28,July 21, 2021, as part of a corporate fundraising, the Company issued 35,385,703 shares of common stock and February 18,35,385,703 warrants to purchase common stock for net cash proceeds of $990 (see above). The warrants were valued at $1,271 which resulted in the recording of a warrant derivative liability in that amount. Non-operating expense of $306 was recorded in respect of the value warrant derivative liability of $1,271 in excess of the value of common shares issued of $990.

On September 30, 2021, the Company issued 2,597,403exchanged the outstanding principal of $1,481 and 27,272,727accrued interest of $60 of the March 2021 Note for 53,500,000 warrants to purchase common stock (see Note 7).

During the year ended December 31, 2021, 14,270,833 warrants were exercised on a cashless basis for the issuance of 23,500,000 shares of common stock. Upon cashless exercise, the Company’s common stock, respectively, in connection withCompany calculated the conversionfair value of 10 and 105derivative liability on warrants of $406, compared it to the fair value of 23,500,000 shares of $635 and recorded a loss on extinguishment of $228. The Company valued the Company’s Series C Convertible Preferred Stock. Following these conversions,warrant derivative liability using the Company has no Series C Preferred issued or outstanding.Black-Scholes option pricing model using the following assumptions on the date of each exercise: 1) stock prices of $0.017 - $0.043, 2) exercise prices of $0.05, 3) remaining lives of 4.2 – 4.3 years, 4) dividend yields of 0%, 5) risk free rates of 1.19% - 1.33%, and 6) volatility of 175.7% - 177.2%.

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 forDuring the three months ended March 31, 2021:2022, 11,197,930 warrants were exercised on a cashless basis for the issuance of 34,000,000 shares of common stock. Upon cashless exercise, the Company calculated the fair value of derivative liability on warrants of $171, compared it to the fair value of 34,000,000 shares of $588 and recorded a loss on extinguishment of $417. The Company valued the warrant derivative liability using the Black-Scholes option pricing model using the following assumptions on the date of each exercise: 1) stock prices of $0.013 - $0.019, 2) exercise prices of $0.05, 3) remaining lives of 4.0 – 4.2 years, 4) dividend yields of 0%, 5) risk free rates of 1.53% - 2.10%, and 6) volatility of 174.0% - 175.6%.

ForThe following table summarizes information about shares issuable under warrants outstanding during the three months ended March 31, 2021 and 2020, the Company has recorded $0 and $220, in employee and director stock–based compensation expense, which is a component2022:

Summary of general and administrative expenses in the consolidated statement of operations.Warrants Outstanding

As of March 31, 2021, there was no unamortized stock-based compensation costs related to restricted share arrangements.

Stock options

Under the terms of the stock option agreement, all options expired on January 31, 2020. As of March 31, 2021, there are no outstanding or exercisable stock options.

Note 9. 10. Commitments and Contingencies

Legal proceedings

The Company is subject, from timeFrom time-to-time, we may be involved in litigation relating to time,claims arising out of our operations in the normal course of business. During the period covered by this report, there were no material changes to variousthe description of legal proceedings that are incidental to the conduct of its business. The Company is not involved in any pending legal proceeding that it believes would reasonably be expected to have a material adverse effect on its financial condition or results of operations, except as previously disclosedset forth in our Annual Report on Form 10-K, as filed with the SEC on April 15, 2021.March 31, 2022.

Bitcoin Production Equipment and Operations

OnIn August 14, 2018, the Company entered a collaborative venture with Bit5ive, LLC to develop a fully contained crypto currency mining pod (the “POD5 Agreement”) for a term of five years. Pursuant to the POD5 Agreement, the Company assists with the design and development of the POD5 Containers. The Company retains naming rights to the pods and receives royalty payments from Bit5ive, LLC inIn exchange for an initial capital investment as well as engineering and design expertise.expertise, the Company receives royalty payments from Bit5ive, LLC. During the three months ended March 31, 20212022 and 20202021, the Company received royalties and recognized revenueas other income in the Statement of Operations under this agreement of $7 $0 and $3, respectively.$7, respectively pursuant to the POD5 Agreement.

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per–share amounts)

Electricity Contract

In June 2019, the Company entered into a two-year contract for electric powerMGT’s prior electricity agreement with the City of Lafayette, Georgia, a municipal corporation of the State of Georgia (“the City”). The Company makes monthly payments based upon electricity consumed, at a negotiated kilowatt per hour rate, inclusive of transmission charges and exclusive of state and local sales taxes. Over time, the Company is entitled to utilize a load of 10 megawatts. For each month, the Company estimates its expected electric load, and should the actual load drop below 90% of this estimate, the City reserves the right to impose a modest penalty to the hourly kilowatt rate for electricity consumed.

In connection with this agreement, the Company paid a $154 security deposit, which was reduced to $120 in June 2020. The new amount is classified as Other Assets in the Company’s consolidated balance sheet as March 31, 2021.

This agreement expiresLaFayette expired on September 30, 2021, and the Company has begun negotiations for an extension or new contract. There can be no assurance that that the2021. The Company and City will reach agreement with acceptable price and volume metrics, if at all.

Management Agreement Termination Liability

On August 31, 2019, the Company entered into two Settlement and Termination Agreements (the “Settlement Agreements”) to management agreements it entered in 2017 with two accredited investors (together the “Users”). Under the terms of the Settlement Agreements, the Company paid the Users a percentage of profits (“Settlement Distribution”) of Bitcoin mining as defined in the Settlement Agreements. The estimated present value of the Settlement Distributions of $337 was recorded as termination expense with an offsetting liability on August 31, 2019. Since two of the components of the Settlement Distribution, Bitcoin price and Difficulty Rate, as defined in the Settlement Agreements,LaFayette are based on market conditions, the liability was adjusted to fair valuecurrently operating on a quarterlymonth-to-month basis and any changes were recorded in the statement of operations. As such, the liability is consideredwithout a Level 3 financial instrument. During the three months ended March 31, 2020, the Company recognized a gain on the change in the fair value of $15 based on the change of Bitcoin price and Difficulty Rate, and along with the monthly Settlement Distributions valued at $43, the liability was reduced to $58 as of March 31, 2020. Based on the terms of the Settlement Agreements, Settlement Distributions terminated on September 30, 2020.contract.

Note 10. 11. 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%100% of employee contributions. During the three months ended March 31, 20212022 and 2020,2021, the Company made contributions to the 401(k) Plan of $3$3 and $4,$3, respectively.

Note 11. 12. Subsequent Events

On April 28, 2022 the Company issued 10,000,000 shares of common stock to satisfy a partial cashless exercise of 2,655,890 warrants issued on September 30, 2021, as detailed in Note 9. As a result of this exercise, the number of warrants outstanding was reduced to 60,761,051.

On April 1, 2021, the Company received notice from the SBA that the Company’s PPP Loan was forgiven in its entirety in the amount of $108.

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, 20202021 as filed with the Securities and Exchange Commission (“SEC”) on April 15, 2021,March 31, 2022, 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” or the “Company”) is a Delaware corporation that 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 in Raleigh, North Carolina.

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

Current Operations

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

As of March 31, 2022 and May 13, 2022, the Company owned approximately 649430 Antminer S17 Pro (the “S17 miners”) and 37 Antminer S19 Pro Bitcoin miners. All miners are located at our Georgia facility. Over three-quarters of the S17 miners require various repairs to be productive. We are in the process of selling our remaining S17 miners, as well as loose hash boards, power supplies, controller boards, and other parts.

In addition to its self-mining operations, the Company leases its owned space to other Bitcoin miners at its Company-owned and managed facility located in LaFayette, GA asalso provides hosting services for owners of May 24, 2021. All miners were purchased from Bitmaintech Pte. Ltd., a Singapore limited company (“Bitmain”),mining equipment. These measures improve utilization of the electrical infrastructure and are collectively rated at approximately 30 Ph/s in computing power. Bitmain has acknowledged manufacturing defects, combined with inadequate repair facilities, rendering approximately one halfbetter insulate us against the volatility of our miners in need of repair or replacement. The Company has begun using a third party repair facility to repair its non-working hash boards and expects the process to be complete in the third calendar quarter of this year. While initial batches of repaired hash boards have shown a very high success rate, there can be no guaranty that all future repairs will be as successful. The Company’sBitcoin mining.

MGT’s miners are housed in threea modified shipping containers. A utility substation, adjacent tocontainer on the several acreCompany’s owned property has access to over 20 megawatts (MW) of low-cost power. The Company’s current electrical load is estimated at slightly under 1.0 MW.in Georgia. The entire facility, including the land twoand improvements, five 2500 KVA 3-phase transformers, thethree mining containers, and miners, are owned by MGT. As the Company is presently using only a portion of the built-out available electrical load, it is exploringWe continue to explore ways to grow and maintain itsour current operations including but not limited to further potential equipment sales leasing space to other Bitcoin miners, and raising capital to acquire the newest generation miners. The Company is also investigating other sites to develop into Bitcoin mining facilities in addition to expansion at its current property.