Questions For The Management Of MGT Capital Invesments

Questions For The Management Of MGT Capital Invesments

The author of this article is short shares of MGT Capital Management

MGT Capital Investments (ticker: MGTI) will be presenting at the LD Micro conference later this week.  Here are a few questions we would ask since we believe their stock is massively overvalued:

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  • Is MGT Capital Invesments’ stock undervalued and if so, based on what metrics? (the company has a market cap of ~ $45 million and last quarter generated only $53k of revenue and lost money.  This valuation equates to a staggering 200x annualized last quarter’s revenue.  Furthermore, this valuation does not include the dilutive D-Vasive acquisition which is pending).
  • Why did MGTI recently agree to a note exchange whereby it issued $1.5 million of 8% debt convertible at $1 per share (below the then and current market price) and gave away 300k free shares in exchange for $1.5 million 12% non-convertible debt and deeply out of the money warrants. Financially, this transactions makes no sense to us, and issuing a below market convert (and giving away free shares) should raise red flags for anyone looking at the company.
  • What is the justification for acquiring D-Vasive, which generated only $10k of revenue for the FYE March 2016? And, how can MGTI justify the purchase price which includes paying 43 million shares and $300k cash? How will of this purchase price will be going to John Mcafee, his wife and other related entities?
  • MGT Capital Invesments is burning cash. Does it need to raise more capital and if so, how will it do so? (As of Sept. 30, 2016 MGTI had approximately $2.1 million of cash and $2.3 million of debt, excluding the discount).
  • Should investors be concerned that in the latest 10Q the auditors included the following sentence: “These matters raise substantial doubt about the Company’s ability to continue as a going concern.”
  • If MGTI is such a great company, why have so few institutional investors chosen to invest in the stock?
  • Why was the company recently delisted from the NYSE? (The company seems to disagree with the explanation the NYSE provided so could it be, as we suspect, that the NYSE doesn’t want to be associated with John Mcafee given his past?)
  • What has management done to justify their compensation packages:
    1. Ladd: 2 million free shares plus annual compensation of $240k cash plus bonus
    2. Mcafee: 6 million options (many of which have strike prices well below $1) plus annual bonus.
  • Was McAfee’s wife arrested, and if so, what were the circumstances surrounding the arrest.  (Normally we don’t ask such personal questions but this is important because it speaks to John Mcafee’s judgement as well as that of his wife, whom we believe will become a sizeable MGT Capital Invesments shareholder).

We remain short the stock.

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