Overview

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

As of December 31, 2022 and March 31, 2023, the Company owned 175 and 0 Antminer S17 Pro Bitcoin miners ("S17 miners"), respectively, plus 35 Antminer S19 Pro miners as of March 31, 2023. Due to unfavorable mining economics and various required repairs, no S17 miners were operating at December 31, 2022, and we exchanged all remaining S17 miners, as well as loose hash boards, power supplies, and controller boards for the more efficient S19 miners on March 1, 2023.

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

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





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Critical accounting policies and estimates

Use of estimates and assumptions and critical accounting estimates and assumptions

The preparation of the 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 conversion features, and the valuation allowance for deferred tax assets . 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.





Property and Equipment

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





Revenue recognition



Revenue recognition



Cryptocurrency mining

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





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

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

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

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





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




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

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

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

Fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency at the time of receipt. In the event authoritative guidance is enacted by the Financial Accounting Standards Board ("FASB"), the Company may be required to change its policies, which could have an effect on the Company's financial position and results from operations.





Hosting Revenues

We receive revenues from third parties renting capacity at our facility and from hosting miners owned by others. The Company recognized $640 and $197 from these sources during the years ended December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, two customers accounted for 83% and 95%, respectively of hosting revenue.

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 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.





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.





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Fair Value Measurements 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:





  ? Level 1 Quoted prices in active markets for identical assets or liabilities.

  ? Level 2 Quoted prices for similar assets or liabilities in active markets,
    quoted prices for identical or similar assets or liabilities in markets that
    are not active, or other inputs that are observable, either directly or
    indirectly.

  ? Level 3 Significant unobservable inputs that cannot be corroborated by market
    data.

As of December 31, 2022 the Company had a Level 3 financial instrument related to the derivative liability related to the conversion feature of convertible debt and the issuance of warrants. As of December 31, 2021, the Company had a Level 3 financial instrument related to the derivative liability related to the issuance of warrants and investment - convertible debt securities.

Recent accounting pronouncements

Note 3 to our audited financial statements appearing elsewhere in this report includes Recent Accounting Pronouncements.





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Results of operations

Years ended December 31, 2022 and 2021





Revenues

Our revenues for the year ended December 31, 2022 decreased by $74, or 8%, to $809 as compared to $883 for the year ended December 31, 2021.

Our revenue is derived from cryptocurrency mining which totaled $169 during 2022. The decrease in revenues is a result of fewer Bitcoins mined due to a lower number of miners in operation and higher difficulty rate. We also receive revenues from third parties renting capacity at our facility and from hosting miners owned by others. The Company recognized $640 and $197 from these sources during the years ended December 31, 2022 and 2021, respectively.





Operating Expenses

Operating expenses for the year ended December 31, 2022 increased by $624, or 23%, to $3,294 as compared to $2,670 for the year ended December 31, 2021. The increase in operating expenses was comprised of an increase in cost of revenues of $650 and decrease in general and administrative expenses of $26.

The increase in cost of revenues of $650 or 72% to $1,556 as compared to $906 for the year ended December 31, 2021, was primarily due to an increases in electricity costs of $1,125, and mark to market revaluation of $4, partially offset by a decrease in depreciation of $479. The decrease in general and administrative expenses of $26 or 1% to $1,738 as compared to $1,764 for the year ended December 31, 2021, was primarily due to a decrease in repairs and maintenance partially offset by increases in consulting and legal expenses.





Other Income and Expense

For the year ended December 31, 2022, non-operating expense of $3,493 consisted of accretion of debt discount of $5,406, loss on settlement of derivative of $757, interest expense of $23, non-current asset impairment of $54, loss on early termination of land lease of $8, and loss on disposal of leasehold improvements of $4, offset by non-operating income of gain on the change in fair value of warrant derivative liabilities of $1,726, the change in fair value of derivative liability of $984 and other non-operating income of $49.

For the year ended December 31, 2021, non-operating income of $248 consisted of non-operating income of a gain on sale of property and equipment of $246, the change in fair value of warrant derivative liabilities of $955, gain on settlement of payables of $675 and other non-operating income of $86, offset by accretion of debt discount of $526, loss on settlement of debt of $541, loss on settlement of derivative of $228, interest expense of $340, loss on change in fair value of derivative liability of $79.

Liquidity and capital resources





Sources of Liquidity

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

We have incurred significant operating losses since inception and continue to generate losses from operations and as of December 31, 2022 have an accumulated deficit of $425,906. At December 31, 2022, our cash and cash equivalents were $538, and we had a working capital deficit of $4,835.

The Company will need to raise additional capital to fund operating losses and grow its operations. There can be no assurance however that the Company will be able to raise additional capital when needed, or at terms deemed acceptable, if at all. The Company's ability to raise additional capital will also be impacted by the volatility of Bitcoin and the ongoing SEC enforcement action against our Chief Executive Officer, both of which are highly uncertain, cannot be predicted and could have an adverse effect on the Company's business and financial condition. The issuance of any additional shares of Common Stock, preferred stock or convertible securities could be substantially dilutive to our shareholders. Such factors raise substantial doubt about the Company's ability to sustain operations for at least one year from the issuance of these audited financial statements. The accompanying audited 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.





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The price of Bitcoin is volatile, and fluctuations are expected. Declines in the price of Bitcoin have had a negative impact in our operating results and liquidity and could harm the price of our common stock. 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 revenues partly 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 year ending December 31, 2022, as reported by Blockchain.info, were approximately $48 and $16 respectively.





COVID-19 pandemic:

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

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





Preferred Stock

All Preferred Shares were converted into common stock during the period from issuance through February 2021.





Sale of Common Stock

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.

On August 5, 2022, the Company issued 22,800,000 shares of common stock and 22,800,000 warrants to purchase common stock for consideration of $228.





Debt Financing



December 2020 Note

On December 8, 2020, we entered into a securities purchase agreement pursuant to which we issued a convertible promissory note in the principal amount of $230 which was 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. This entirety of the principal amount of this note was converted into 11,435,289 shares of common stock during 2021, and this note was extinguished as of December 31, 2022.

March 2021 Note

On March 5, 2021, we entered into a securities purchase agreement (the "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 would the Conversion Price be less than $0.04 per share. The March 2021 Note bore interest at a rate of 8% per annum and was to mature in twelve months.





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The Note was to be funded in tranches, with the initial tranche of $1,210 funded by the Investor on March 5, 2021 for consideration of $1,000.

On September 30, 2021, the March 2021 Note was extinguished by exchanging the March 2021 Note for a warrant to purchase 53,500,000 shares of common stock (the "2021 Warrant"). Subject to the terms and adjustments in the 2021 Warrant, the 2021 Warrant is exercisable at an initial price of $0.05 per share, for five years from March 5, 2021. The Investor has the option to exercise all or any part of the 2021 Warrant on a cashless or cash basis. Following this exchange, the outstanding balance on the March 2021 Note is $0.





Cash Flows



                                                            Year ended
                                                           December 31,
                                                         2022         2021
Cash provided by / (used in)
Operating activities                                   $ (2,149 )   $ (1,160 )
Investing activities                                        (68 )        164
Financing activities                                      1,525        1,990

Net increase (decrease) in cash and cash equivalents $ (692 ) $ 994






Operating activities

Net cash used in operating activities was $2,149 for the year ended December 31, 2022 as compared to $1,160 for the year ended December 31, 2021. The amount in 2022 primarily consisted of a net loss of $5,978 offset by non-cash charges of $3,715 (including: depreciation expense of $196, non-current asset impairment expense of $54, loss on disposal of leasehold improvements of $4, loss on early termination of land lease of $8, loss on settlement of derivative of $757, amortization of note discount $5,406, partially offset by gain on loss on settlement of derivative of $1,726 and gain on the change in fair value of derivative liability $984), and increased by a change in working capital excluding cash of $114. The amount in 2021 primarily consisted of a net loss of $1,539 offset by non-cash charges of $749 (including: depreciation expense of $675, change in fair value of derivative liability $79, loss on settlement of derivative of $228, loss on settlement of payables of $541, amortization of note discount $526, non-cash interest expense of $270, and non-operating expense of $306, partially offset by gain on disposal of assets of $246, gain on settlement of payables of $675 and the change in fair value of warrant liability of $955), and reduced by a change in working capital excluding cash of $370.





Investing activities

Net cash used by investing activities was $68 for the year ended December 31, 2022 as compared to net cash provided by investing activities of $164 for the year ended December 31, 2021. The amount in 2022 consisted of purchases of property and equipment of $68.





Financing activities

During the year ended December 31, 2022, cash provided by financing activities totaled $1,525 which includes $1,335 in net proceeds from the issuance of convertible notes payable, $228 from the sale of common stock and $33 from proceeds from loans payable offset by repayment of loan payable of $71.

During the year ended December 31, 2021, cash provided by financing activities totaled $1,990 which includes $1,000 in net proceeds from the issuance of convertible notes payable and $990 from the sale of common stock.

Off-balance sheet arrangements

As of December 31, 2022, we had no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

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