MGT CAPITAL INVESTMENTS, INC. - Quarter Report: 2009 September (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2009.

OR

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

For the transition period from to

Commission file number: 0-26886

MGT CAPITAL INVESTMENTS, INC.

(Exact name of Registrant as specified in its charter)

Delaware		13-4148725
(State of Incorporation)		(I.R.S. Employer Identification No.)

Kensington Centre, 66 Hammersmith Road, London W14 8UD, UNITED KINGDOM

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: 011-44-20-7605-1151

Indicate by check whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities and 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes o No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer o		Accelerated filer o

Non-accelerated Filer o		Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of November 12, 2009 the registrant had outstanding 32,550,590 shares of common stock, $0.001 par value, (excludes 6,349,793 common shares held as treasury stock).

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NOTE REGARDING FORWARD LOOKING STATEMENTS

This Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of MGT Capital Investments, Inc and its consolidated subsidiaries (the “Company”) to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of revenue, gross profit, expenses, earnings or losses from operations, synergies or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the rate of market development and acceptance of medical imaging technology; the execution of restructuring plans; any statement concerning developments, performance or industry rankings relating to products or services; any statements regarding future economic conditions or performance; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include the performance of contracts by suppliers, customers and partners; employee management issues; the difficulty of aligning expense levels with revenue changes; and other risks that are described herein, including but not limited to the specific risks areas discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of this report, and that are otherwise described from time to time in the Company’s Securities and Exchange Commission reports filed after this report. The Company assumes no obligation and does not intend to update these forward-looking statements.

The Company’s main operating currency is UK Sterling (£).

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INDEX

PART I — FINANCIAL INFORMATION

Item 1	Condensed Consolidated Balance Sheets — September 30, 2009 (unaudited) and December 31, 2008	4

	Condensed Consolidated Statements of Operations — for the three months ended September 30, 2009 (unaudited) and 2008 (unaudited)	5

	Condensed Consolidated Statements of Operations — for the nine months ended September 30, 2009 (unaudited) and 2008 (unaudited)	6

	Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Loss — September 30, 2009 (unaudited)	7

	Condensed Consolidated Statements of Cash Flows — for the nine months ended September 30, 2009 (unaudited) and 2008 (unaudited)	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3	Quantitative and Qualitative Disclosure About Market Risk	31

Item 4T	Controls & Procedures	31

PART II — OTHER INFORMATION

Item 1	Legal Proceedings	32

Item 1A	Risk Factors	32

Item 2	Unregistered Sale of Equity Securities and Use of Proceeds	34

Item 3	Defaults Upon Senior Securities	34

Item 4	Submission of Matters to a Vote of Security Holders	34

Item 5	Other Information	35

Item 6	Exhibits	36

SIGNATURES		37

All financial amounts are in thousands except share and per share data.

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MGT CAPITAL INVESTMENTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	September 30, 2009			December 31, 2008
	(unaudited)			Revised note 3
Assets
Current assets:
Cash and cash equivalents	$	26,913		$	38,294
Marketable securities	—			1,884
Accounts receivable	57			134
Other receivables – related party	66			49
Prepaid expenses and other current assets	835			851
Convertible note	2,100			—
Total current assets	29,971			41,212

Property and equipment, at cost, net	498			706
Intangible assets, net of accumulated amortization of $200 (2008: $100)	199			299
Investments, at cost	594			776
Security deposits	313			301
Goodwill	—			12,157
Total assets	$	31,575		$	55,451

Liabilities
Current liabilities:
Accounts payable	$	1,821		$	2,877
Accrued expenses	1,750			1,386
Deferred revenue	74			77
Total current liabilities	3,645			4,340

Commitments and contingencies

Stockholders’ equity
Common stock, $0.001 par value: 75,000,000 shares authorized; 38,900,383 shares issued and 32,550,590 shares outstanding	39			39
Additional paid in capital	299,510			298,376
Accumulated other comprehensive loss	(4,453		)	(4,959		)
Accumulated deficit	(261,220		)	(239,450		)
	33,876			54,006
Treasury stock, at cost, 6,349,793 shares of common stock	(18,912		)	(18,912		)
Total stockholders’ equity	14,964			35,094
Non-controlling interest	12,966			16,017
Total equity	27,930			51,111

Total stockholders’ equity, liabilities and minority interest	$	31,575		$	55,451

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

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MGT CAPITAL INVESTMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

	Three months ended September 30,
	2009			2008
				Revised note 3
Revenues	$	62		$	120
Cost of revenue	(1		)	(86		)
Gross profit	61			34

Operating expenses
Selling, general and administrative expenses	3,991			4,831
Research and development cost	340			1,558
	4,331			6,389

Operating loss	(4,270		)	(6,355		)

Interest and other income	556			4,465

Net loss before non-controlling interest	(3,714		)	(1,890		)

Net loss attributable to non-controlling interest	1,119			590

Net loss attributable to MGT Capital Investments, Inc.	$	(2,595	)	$	(1,300	)

Per share data:

Basic and diluted loss per share	$	(0.08	)	$	(0.04	)

Weighted average number of common shares outstanding	32,550,590			32,550,742

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

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MGT CAPITAL INVESTMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

	Nine months ended September 30,
	2009			2008
				Revised note 3
Revenues	$	183		$	257
Cost of revenue	(3		)	(116		)
Gross profit	180			141

Operating expenses
Selling, general and administrative expenses	12,053			18,301
Research and development cost	1,670			2,785
Impairment of goodwill	12,157			—
	25,880			21,086

Operating loss	(25,700		)	(20,945		)

Interest and other (expense) / income	(437		)	5,610

Net loss before non-controlling interest	(26,137		)	(15,335		)

Net loss attributable to non-controlling interest	4,367			5,120

Net loss attributable to MGT Capital Investments, Inc.	$	(21,770	)	$	(10,215	)

Per share data:

Basic and diluted loss per share	$	(0.67	)	$	(0.28	)

Weighted average number of common shares outstanding	32,550,590			36,712,780

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

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MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS

Revised note 3

(in thousands)

	Common stock			Additional paid-in		Accumulated comprehensive			Accumulated			Treasury			Total stockholders’			Non- controlling			Total
	Shares	Amount		capital		income/(loss)			deficit			stock			equity			interest			equity

BALANCE, DECEMBER 31, 2008	38,900	$	39	$	298,376	$	(4,959	)	$	(239,450	)	$	(18,912	)	$	35,094		$	16,017		$	51,111

Stock-based compensation	—	—		1,134		—			—			—			1,134			393			1,527
COMPREHENSIVE INCOME/(LOSS)

Net loss for the period	—	—		—		—			(21,770		)	—			(21,770		)	(4,367		)	(26,137		)

Translation adjustment	—	—		—		506			—			—			506			923			1,429

Total comprehensive loss															(21,264		)	(3,444		)	(24,708		)

BALANCE, SEPTEMBER 30, 2009	38,900	$	39	$	299,510	$	(4,453	)	$	(261,220	)	$	(18,912	)	$	14,964		$	12,966		$	27,930

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

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MGT CAPITAL INVESTMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share and per share amounts)

(unaudited)

	Nine months ended September 30,
	2009			2008

Cash flows from operating activities
Net loss before non-controlling interest	$	(26,137	)	$	(15,335	)

Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	1,527			2,622
Depreciation	263			363
Amortization	100			72
Loss on impairment of goodwill	12,157			—
Loss on impairment of marketable securities	738			—
Loss on impairment of investments at cost	406			—
(Increase)/decrease in assets
Accounts receivable	87			(31		)
Accounts receivable – related party	(13		)	6
Prepaid expenses and other current assets	(43		)	(769		)
Increase/(decrease) in liabilities
Accounts payable	(1,232		)	(1,323		)
Accrued expenses	278			868
Deferred revenue	(10		)	22
Net cash used in operating activities	(11,879		)	(13,505		)

Cash flows from investing activities:
Sale of marketable securities	946			1,555
Purchase of marketable securities	—			(3,688		)
Purchase of cash short-term deposits	—			(1,000		)
Redemption of cash short-term deposits	—			1,000
Purchase of fixed assets	(23		)	(424		)
Purchase of investments	—			(960		)
Acquisition of Maydeal.com	—			(220		)
Investment in convertible notes	(2,000		)	—
Net cash used in investing activities	(1,077		)	(3,737		)

Cash flows from financing activities:
Purchase of treasury stock (net of commissions)	—			(18,912		)
Purchase of subsidiary company stock	—			(1,251		)
Net cash used in financing activities	—			(20,163		)

Effects of exchange rates on cash and cash equivalents	1,575			(4,150		)
Net change in cash and cash equivalents	(11,381		)	(41,555		)
Cash and cash equivalents, beginning of period	38,294			92,373
Cash and cash equivalents, end of period	$	26,913		$	50,818

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

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MGT CAPITAL INVESTMENTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(unaudited)

1. Organization, basis of presentation and liquidity

The accompanying unaudited condensed consolidated financial statements of MGT Capital Investments, Inc. have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 8-03 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. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, have been included. Operating results for the nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for any subsequent quarter or for the year ending December 31, 2009. These 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 year ended December 31, 2008. The condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany accounts and transactions have been eliminated.

MGT Capital Investments, Inc. (“MGT”, “the Company”, “the Group”, “we”, “us”) is a holding company. We currently have controlling interests in our two main operating subsidiaries: Medicsight plc (“Medicsight”) and Medicexchange Limited (“Medicexchange”). We also have wholly owned subsidiaries MGT Capital Investments (UK) Limited, MGT Investments (Gibraltar) Limited, Medicexchange Inc. and Medicsight Nominees Limited.

· Medicsight and its wholly owned subsidiaries is a medical imaging software development company listed on the AIM Market of the London Stock Exchange (ticker symbol MDST) that develops and commercializes enterprise-wide Computer-Aided Detection (“CAD”) applications which analyze Computer Tomography (“CT”) scans for the early detection and measurement of colorectal polyps and lung lesions. The Company holds 86 million shares (55%) of the 155 million shares issued capital of Medicsight.

· Medicexchange and its majority owned subsidiaries provide medical imaging professionals with a global web portal containing an online sales channel for diagnostic, treatment and surgery planning solutions. This combined with a variety of relevant clinical papers, training materials and content gives these professionals access to information and products that they otherwise would have difficulty accessing. The Company holds 22.5 million shares (73%) of the 30.8 million issued share capital of Medicexchange. Medicexchange’s shares are not publicly traded.

The Company has incurred significant operating losses since inception and has recently commenced generating revenue from operations. As a result, the Company has generated negative cash flows from operations and has an accumulated deficit of $261,220 at September 30, 2009. The Company is operating in a developing industry based on new technology and its primary source of funds to date has been through the issuance of securities. While the Company is optimistic and believes appropriate actions are being taken, there can be no assurance that management’s efforts will be successful or that the products the Company develops and markets will be accepted by consumers.

2. Summary of significant accounting policies

Principles of consolidation

The financial statements include the accounts of our Company and our wholly and majority owned subsidiaries. Our main operating subsidiaries are Medicsight and Medicexchange. The functional currencies of our subsidiaries are their local currencies. All intercompany transactions and balances have been eliminated. All foreign currency translation gains and losses arising on consolidation were recorded in stockholders’ equity as a component of accumulated other comprehensive income (loss). Non-controlling interest represents the minority equity investment in any of the MGT Capital Investments, Inc. group of companies, plus the minorities’ share of the net operating result and other components of equity relating to the non-controlling interest.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the USA requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

The Company considers investments with original maturities of three months or less to be cash equivalents.

Marketable securities

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The Company invests some of its cash balances in short-term, highly liquid, available for sale marketable securities, which are carried in our balance sheet at fair value, with unrealized gains and losses reported in stockholders’ equity as a component of accumulated other comprehensive income (loss), unless the Company concludes that unrealized losses represent an other-than-temporary impairment. In that circumstance, such losses would be reflected in the consolidated statements of operations. Realized gains and losses are included in other income/(expense). Fair value is based upon quoted market prices for these or similar instruments.

Investments

Investments consists of equity ownership in various corporations where our investment is less than 20% of issued share capital. The Company records these investments at historical cost, subject to any provision for impairment.

Property and equipment

Property and equipment are stated at cost. Depreciation is calculated using the straight line method on the various asset classes over their estimated useful lives, which range from two to five years. Leasehold improvements are depreciated over the term of the lease.

Goodwill

Goodwill with an indefinite life is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. We compare the book value to the market value (market capitalization plus a control premium) for the reporting unit. If the market value exceeds the book value, goodwill is considered not impaired, and thus the second step of the impairment test is not necessary. If the book value exceeds the market value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of the goodwill with the book value of the goodwill. If the carrying value of the goodwill exceeds the implied fair value of the goodwill, an impairment loss would be recognized in an amount equal to the excess. Any loss recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill is its new accounting basis. Subsequent reversal of a previously recognized goodwill impairment loss is prohibited once the measurement of that loss is completed.

As of March 31, 2009 Medicsight’s share price had fallen to a level at which book value exceeded market value. As a consequence, we carried out an impairment review at the end of the first quarter of 2009 and concluded that the goodwill was fully impaired. See note 8.

Impairment of long-lived assets and long-lived assets to be disposed of

The Company evaluates the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s assessment for impairment of an asset involves estimating the undiscounted cash flows expected to result from use of the asset and its eventual disposition. An impairment loss recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Foreign currency translation

The accounts of the Company’s foreign subsidiaries are maintained using the local currency as the functional currency. For these subsidiaries, assets and liabilities are translated into US dollars at period-end exchange rates, and income and expense accounts are translated at average monthly exchange rates. Net gains and losses from foreign currency translation are excluded from operating results and are accumulated as a separate component of stockholders’ equity.

Gains and losses on foreign currency transactions are reflected in selling, general and administrative expenses in the income statement.

Revenue recognition

Medicsight

The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement, the product has been shipped or the services have been provided to the customer, the sales price is fixed or determinable, and collectability is probable.

License fee revenue is derived from the licensing of computer software. Maintenance revenue is derived from software maintenance. The Company’s software licenses are generally sold as part of an arrangement that includes maintenance and support.

The Company licenses software and sells maintenance through visualization solution partners and original equipment manufacturers. The Company receives regular sales reports detailing the number of licenses sold by original equipment manufacturers, value-added resellers and independent distributors (collectively, “Resellers”) to end users. The Company generally offers terms that require payment 30 days from invoicing.

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Provided the Reseller i) assumes all risk of the purchase, ii) has the ability and obligation to pay regardless of receiving payment from the end user, and all other revenue recognition criteria are met, license revenue from Resellers is recognized upon shipment of its product to vendors (“sell-in basis”).

Additionally:

Software — revenue from license fees is recognized when notification of shipment to the end user has occurred, there are no significant Company obligations with regard to implementation and the Company’s services are not considered essential to the functionality of other elements of the arrangement.

Services — revenue from maintenance and support arrangements is deferred and recognized ratably over the term of the maintenance and support arrangements.

Multiple-element arrangements — the Company enters into arrangements with resellers that include a combination of software products, maintenance and support. For such arrangements, the Company recognizes revenue using the residual method. The Company allocates the total arrangement fee among the various elements of the arrangement based on the fair value of each of the undelivered elements determined by vendor-specific objective evidence of fair value. The fair value of maintenance and support services is established based on renewal rates. In software arrangements for which the Company does not have vendor-specific objective evidence of fair value for all elements, revenue is deferred until the earlier of when vendor-specific objective evidence of fair value is determined for the undelivered elements (residual method) or when all elements for which the Company does not have vendor-specific objective evidence of fair value have been delivered.

As of September 30, 2009 we recorded $22 of deferred revenue relating to support and maintenance services and $52 relating to deferred license revenue, compared with $20 relating to support and maintenance revenue and $42 relating to deferred license revenue at December 31, 2008.

Medicexchange

We recognize revenue when the following revenue recognition criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured. Deferred revenue is recorded when payments are received in advance of performing our service obligations.

As of September 30, 2009 we recorded $nil deferred revenue relating to Medicexchange, compared with $15 at December 31, 2008.

Research and development

Technological feasibility is established upon completion of a detailed program design or, in its absence, completion of a working model. Thereafter, all software production costs can be capitalized and subsequently reported at the lower of un-amortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product. Amortization commences when the product is available for general release to customers.

The Company concluded that no such expenditures needed to be capitalized because the Company did not incur any material software production costs and all such costs incurred represent research and development costs. The Company’s research and development costs are comprised of staff cost, consultancy costs and research and development software costs for the Medicsight CAD system.

For the nine months ended September 30, 2009 and 2008 the Company expended $1,670 and $2,785 respectively, for research and development expenses for Medicsight CAD and its products.

Fair value of financial instruments

On January 1, 2008 the Company adopted certain provisions of FASB ASC 820 “Fair Value Measurements and Disclosures” for financial assets and financial liabilities and on January 1, 2009 for non-financial assets and non-financial liabilities. This establishes a framework for measuring fair value and expands disclosure about fair value measurements.

Income taxes

Effective January 1, 2007 the Company adopted elements of FASB ASC 740-10 “Income Taxes — Overall” regarding accounting for uncertainty in income taxes. This clarifies the accounting for uncertainty in income taxes recognized in financial statements and requires the impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority. At the adoption date of January 1, 2007 and also as of September 30, 2009, the Company did not have any unrecognized tax

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benefits. We do not expect that the amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months. The Company’s policy is to recognize interest and penalties related to tax matters in the income tax provision in the Consolidated Statements of Operations. There was no interest and penalties for the nine months ended September 30, 2009 and 2008. Tax years beginning in 2004 are generally subject to examination by taxing authorities, although net operating losses from all years are subject to examinations and adjustments for at least three years following the year in which the attributes are used.

Deferred taxes are computed based on the tax liability or benefit in future years of the reversal of temporary differences in the recognition of income or deduction of expenses between financial and tax reporting purposes. The net difference, if any, between the provision for taxes and taxes currently payable is reflected in the balance sheet as deferred taxes. Deferred tax assets and/or liabilities, if any, are classified as current and non-current based on the classification of the related asset or liability for financial reporting purposes, or based on the expected reversal date for deferred taxes that are not related to an asset or liability. Valuation allowances are recorded to reduce deferred tax assets to that amount which is more likely than not to be realized.

Loss per share

Basic loss per share is calculated by dividing net loss attributable to the ordinary 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 the ordinary shareholders by the sum of the weighted average number of common shares outstanding and the diluted potential ordinary shares.

The computation of diluted loss per share excludes all options because they are anti-dilutive. For the nine months ended September 30, 2009 there were 12,397,084 options excluded with a weighted average exercise price of $0.87 per share. For the nine months ended September 30, 2008 there were 14,570,000 options excluded with a weighted average exercise price of $1.74 per share.

Comprehensive income (loss)

Comprehensive income (loss) as includes net income (loss) and items defined as other comprehensive income (loss). Items defined as other comprehensive income (loss), such as foreign currency translation adjustments and unrealized gains and losses on certain marketable securities, are separately classified in the financial statements. Such items are reported in the consolidated statements of stockholders’ equity as comprehensive (loss).

Segment reporting

The Company reports the results of it operating segments. We designate the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company’s reportable segments. We also disclose information about products and services, geographic areas and major customers. We operate in two segments, Medicsight, a medical imaging company, and Medicexchange, a web portal for radiologists.

Stock options

We recognize compensation cost relating to share-based payment transactions as an expense in the financial statements, and measurement of the cost based on the estimated fair value of the equity or liability instrument issued. We also estimate and record forfeitures over the vesting period of the instrument.

Recent accounting pronouncements

In June 2009 the Financial Accounting Standards Board (“FASB”) approved the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative non-governmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission, will be superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative. The Codification does not change GAAP, but instead introduces a new structure that will combine all authoritative standards into a comprehensive, topically organized online database. The Codification is effective for interim or annual periods ending after September 15, 2009, and has impacted the Company’s financial statement disclosures beginning with the quarter ending September 30, 2009 as all references to authoritative accounting literature are referenced in accordance with the Codification. There are no changes to the content of our consolidated financial statements or disclosures as a result of implementing the Codification.

Effective January 1, 2008, the we adopted FASB ASC 820-10, “Fair Value Measurements and Disclosures — Overall” with respect to its financial assets and liabilities. In February 2008 the FASB issued updated guidance related to fair value measurements, which is included in the Codification in ASC 820-10-55, “Fair Value Measurements and Disclosures — Overall — Implementation Guidance and Illustrations”. The updated guidance provided a one year deferral of the effective date of ASC 820-10 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company adopted the provisions of ASC 820-10 for non-financial assets and non-financial liabilities effective January 1, 2009, and such adoption did not have a material impact on our consolidated financial statements.

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liabilities assumed, and any non-controlling interest in the acquiree. ASC 805 also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.

Effective April 1, 2009, the Company adopted FASB ASC 820-10-65, “Fair Value Measurements and Disclosures — Overall — Transition and Open Effective Date Information”. ASC 820-10-65 provides additional guidance for estimating fair value in accordance with ASC 820-10 when the volume and level of activity for an asset or liability have significantly decreased. ASC 820-10-65 also includes guidance on identifying circumstances that indicate a transaction is not orderly. The adoption of ASC 820-10-65 did not have a material impact on our consolidated financial statements.

Effective April 1, 2009, the Company adopted FASB ASC 855-10, “Subsequent Events — Overall”. ASC 855-10 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, ASC 855-10 sets forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855-10 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This Statement is effective for financial statements issued for interim and annual periods ending after June 15, 2009 and it has not had a material impact on our financial reporting.

In October 2009 the FASB issued ASU 2009-14, “Certain Arrangements That Include Software Elements”, (amendments to FASB ASC Topic 985, “Software”) (ASU 2009-14). ASU 2009-14 removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU 2009-14 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. We do not expect adoption of ASU 2009-14 to have a material impact on our consolidated financial statements.

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3. Non-controlling interest

On January 1, 2009 we adopted certain provisions of FASB ASC 805-20 “Business Combinations — Identifiable Assets and Liabilities, and Any Noncontrolling Interest”. These establish accounting and reporting standards for the non-controlling interest (formerly known as minority interest) in a subsidiary (which may include variable interest entities) and for the deconsolidation of a subsidiary. Significant changes include: balance sheet and income statement presentation and expanded disclosures; accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation; and recognition and measurement of a gain or loss when a subsidiary is deconsolidated. For balance sheet presentation, non-controlling interests are now recorded within equity and so-called “mezzanine” display is not permitted. In income statements, the amount of income attributable to the non-controlling interest is not a deduction that impacts net income. As a result of these requirements, various financial statements ratios have been impacted. The statement requires prospective application except for the presentation and disclosure requirements, which must be applied retrospectively for all periods presented. Prior periods were reclassified to conform to the current period presentation.

4. Cash and cash equivalents

We invest our cash in short-term deposits with major banks. At September 30, 2009 we held $26,913 in cash and cash equivalents.

Cash and cash equivalents consist of cash and temporary investments with maturities of 90 days or less when purchased.

Concentrations

The Company maintains its cash and cash equivalents at major financial institutions in Europe. Cash held in foreign institutions is not insured by the Federal Deposit Insurance Corporation and amounted to $26,913 as of September 30, 2009 and $38,294 as of December 31, 2008. The Company periodically evaluates the relative credit standing of financial institutions considered in its cash investment strategy.

5. Convertible note

On May 14, 2009 we executed and delivered a Convertible Promissory Note (the “Note”) in the principal amount of $1,100 with XShares Group, Inc. (“XShares”). The principal amount included a fee of $100 payable to us. A copy of the Note was annexed as Exhibit 10.5 to our quarterly report on Form 10-Q for the three months ended March 31, 2009.

Simultaneously with executing the Note, we entered into a Securities Purchase Agreement (the “SPA”) with XShares, pursuant to which we agreed to purchase an aggregate of 73,943,662 Series B Shares at a purchase price of $0.0284 per share for a total of $2,100.

On August 5, 2009 we signed an Amendment to the SPA with XShares which, among other conditions, extended the date of the first closing to December 31, 2009. A copy of the Amendment is attached as Exhibit 10.6 to our quarterly report on Form 10-Q for the three months ended June 30, 2009.

On August 6, 2009 a Second Amendment to the SPA was signed. A copy of the Second Amendment was attached as Exhibit 10.7 to our quarterly report on Form 10-Q for the three months ended June 30, 2009. The result of these amendments allowed for the remaining $1,000 investment to be made in a Convertible Note with a maturity date of December 31, 2009. Interest is accrued at an annualized rate of 10% as provided for in the Note. The Convertible Note was attached as Exhibit 10.8 to our quarterly report on Form 10-Q for the three months ended June 30, 2009.

On the signing of the Second Amendment our CEO, Tim Paterson-Brown, was appointed the Series B Director of XShares. As of this date, therefore, XShares became a related party.

6. Marketable securities

At December 31, 2008 investments in marketable securities consisted of HipCricket Inc. (“HipCricket”) and a fund managed by Bank Sarasin & Company Limited.

In the nine months ended September 30, 2009 we liquidated our holdings in the fund managed by Sarasin and transferred the proceeds to cash. In the three months ended September 30, 2009 HipCricket was delisted from the AIM Market and we now account for it as an investment held at cost.

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7. Investments at cost

We account for investments in non-marketable securities under the cost method of accounting where we own less than a 20% interest in each of the companies and we do not have significant influence over the entity. We continually review each investment to assess for other-than-temporary decreases in value.

Eurindia Limited

In 2000 MGT invested in Eurindia Limited (“Eurindia”), a UK company that invested in IT start-up companies. MGT has a 6% holding in Eurindia and accounts for this investment on a cost basis.

We carried out an impairment review of our holdings in Eurindia as of December 31, 2008. Eurindia’s management had informed us that they intended to pay a liquidating dividend of between 30 cents and 50 cents per share in the first half of 2009. We assumed the dividend to be the lower of these two values and impaired our holding to the value of 30 cents per share.

Eurindia’s management informed us that it intended to liquidate the investment by means of an IPO. Due to the turbulence in financial markets, however, and specifically the weakness of the market for IPOs, we were not able to accurately ascertain the potential value of the investment on an IPO or the timescale in which it might be realized. As a consequence, in the three months ended June 30, 2009 we fully impaired our investment and recognized an impairment loss of $176 in net loss. We considered the amount of this impairment to be a Level 3 input under the fair value hierarchy, since it is based on significant unobservable inputs.

As of September 30, 2009 the investment had not been liquidated.

XShares Group

In 2007 the Company invested $960 in Series C preferred shares of XShares Group, Inc. (“XShares”), an investment advisor that creates, issues and supports exchange traded funds with a particular healthcare specialty. In the year ended December 31, 2008 the Company invested an additional $2,040 in shares of XShares bringing the total invested to $3,000. We account for these investments on a cost basis as our total holdings are less than 20%. In Fiscal 2008 we reviewed the carrying value of our investment in XShares. XShares was in the process of attempting to raise funds to drive the business forward. As of December 31, 2008 we impaired this investment to $600. As of June 30, 2009 the fund-raising was partially complete and, after reviewing our holding, we impaired the investment to $370, which we believe approximates fair value. As of September 30, 2009 the fund-raising was continuing and, on review, we have kept XShares’ book value at $370.

We estimated these impairments based on management’s review and discussion of the strategy and business plan of XShares and review of draft Fiscal 2008 financial accounts prepared by an independent accountant. These inputs are subject to management’s judgment and we have therefore deemed them to be Level 3 inputs in the fair value hierarchy. The value of our investment has been reduced as previously invested cash has been used to fund business operations and as yet the business is not generating sufficient cash. However, we have reviewed XShares’ business plan and we have adjusted our investment to a level we believe reflects the future market valuation and with no active market we believe this is the most suitable method with which to determine the value of our investment.

In the three months ended June 30, 2009 we invested $1,000 in a convertible note with a principal of $1,100 and in the three months ended September 30, 2009 we invested a further $1,000 in a second convertible note in XShares.

As of August 6, 2009 our CEO, Tim Paterson-Brown, was appointed the Series B Director of XShares and, as a consequence, XShares became a related party.

HipCricket Inc.

We hold shares in HipCricket Inc., a company engaged in mobile marketing. In the three months ended September 30, 2009 HipCricket was delisted from the AIM Market and we now account for it as an investment held at cost. Analyzing published financial and other information we reviewed the book value of the investment and decided that there was no need to impair its value.

The following table presents the changes in Level 3 instruments for the nine months ended September 30, 2009.

	January 1, 2009		Transfer from marketable securities	Purchases	Impairment losses included in earnings		September 30, 2009		Change in impairment losses relating to instruments still held at September 30, 2009

Eurindia Limited	$	176	—	—	(176	)	$	—	$	(176	)
XShares Group, Inc.	600		—	—	(230	)	370		(230		)
HipCricket Inc.	—		224	—	—		224		—
	$	776	224	—	(406	)	$	594	$	(406	)

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8. Goodwill

Balance at December 31, 2008	$	12,157
Impairment of goodwill	(12,157		)
Balance at September 30, 2009	$	—

At December 31, 2008 our goodwill totaled $12,157, which was entirely related to our shareholding in Medicsight plc. We assess the impairment of goodwill of our reporting units annually, or more often if events or changes in circumstances indicate that the carrying value may not be recoverable. This assessment is based upon an analysis of both the market value and discounted anticipated future cash flow of the reporting unit.

The shares of Medicsight plc are traded on the AIM Market of the London Stock Exchange. We consider this to be a Level 1 input in the fair value hierarchy as this is an unadjusted quoted price in an active market.

The estimate of future cash flow is based upon, among other things, certain assumptions about expected future operating performance and an appropriate discount rate determined by our management. Our estimates of discounted cash flows may differ from actual cash flows due to, among other things, timings of regulatory approvals, economic conditions in the healthcare IT market, changes to our business model or changes in operating performance.

In addition, estimates of discounted cash flows would involve assumptions on a business with limited revenue history and developing revenue models, which increase the risk of differences between the projected and actual performance. Significant differences between these estimates and actual cash flows could materially affect our future financial results. We consider these to be Level 3 inputs in the fair value hierarchy, as this is an unobservable input with little or no market activity that require significant management judgment.

We conducted our annual impairment test of goodwill as of December 31, 2008. As a result of this test we determined that no adjustment to the carrying value of goodwill was required.

In the three months ended March 31, 2009, the market value of Medicsight plc, as traded on the AIM Market of the London Stock Exchange, declined from $53,000 to $13,200. Following this decline in value we conducted an impairment test of goodwill as of March 31, 2009. Due to the uncertainties involved in using the unobservable inputs to estimate future cash flows, we used market price, Level 1 inputs, as the primary basis of our impairment review. As a result of this test we determined that the carrying amount of Medicsight plc exceeded its fair value and recorded an impairment loss of $12,157 during the quarter ended March 31, 2009.

9. Interest and other income / (expense)

We had the following interest and other income amounts:

	Three months ended September 30,				Nine months ended September 30,
	2009		2008		2009			2008

Impairment loss on Eurindia	$	—	$	—	$	(176	)	$	—
Impairment loss on HipCricket	38		—		(701		)	—
Impairment loss on XShares	—		—		(230		)	—
Loss on other marketable securities	—		—		(37		)	—
Interest income	117		646		306			1,791
Currency gain on short term investments	401		3,819		401			3,819
Total	$	556	$	4,465	$	(437	)	$	5,610

The gain / (loss) on marketable securities relates to losses considered other than temporary on our holdings in HipCricket and other marketable securities and realized losses on other marketable securities.

Interest income includes bank interest and interest from the XShares convertible notes. An unrealized gain of $401 (2008: $3,819) was made on currency movements due to foreign currency held in a subsidiary.

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10. Comprehensive income (loss)

Comprehensive income (loss) includes net income (loss) and items defined as other comprehensive income. Items defined as other comprehensive income, such as foreign currency translation adjustments and unrealized gains and losses on certain marketable securities are separately classified in the financial statements. Such items are reported in the consolidated statements of stockholders’ equity as comprehensive income as follows:

	Three months ended September 30,						Nine months ended September 30,
	2009			2008			2009			2008

Net loss as reported	$	(3,714	)	$	(1,890	)	$	(26,137	)	$	(15,335	)
Unrealized foreign exchange (loss) gain	(748		)	(4,077		)	1,429			(4,150		)
Unrealized gain (loss) on marketable securities	(38		)	178			—			77
Comprehensive loss	(4,500		)	(5,789		)	(24,708		)	(19,408		)
Comprehensive loss attributable to non-controlling interest	1,393			590			3,444			5,120
Comprehensive loss attributable to MGT Capital Investments, Inc.	$	(3,107	)	$	(5,199	)	$	(21,264	)	$	(14,288	)

The unrealized foreign exchange loss predominantly relates to the movement, in the three and nine month periods ended September 30, 2009, on the difference between Medicsight’s net assets translated at the period end rate and reserves translated at historical rates.

The total accumulated other comprehensive loss as of September 30, 2009 is the result of net foreign currency translation losses.

11. Segment reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision-making group is composed of the Chief Executive Officer and members of senior management. Our reportable operating segments are Medicsight and Medicexchange.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. We evaluate performance of our operating segments based on revenue and operating income (loss).

Medicsight listed on the AIM Market of the London Stock Exchange on June 21, 2007. AIM listing rules require Medicsight to publish results under International Financial Reporting Standards (“IFRS”) in sterling.

The following is a reconciliation between Medicsight’s published financial statements and the US GAAP consolidated results:

	Medicsight plc			Medicsight plc			Medicsight plc			Medicexchange			Corporate and Other			Total
	(IFRS)			GAAP Adj’ts			(US GAAP)			(US GAAP)			(US GAAP)			(US GAAP)

Nine months ended September 30, 2009
Net revenue to external customers	$	146		$	—		$	146		$	37		$	—		$	183
Operating loss	(10,183		)	143			(10,040		)	(843		)	(14,817		)	(25,700		)
Assets	$	21,350		$	—		$	21,350		$	2,383		$	7,842		$	31,575

Nine months ended September 30, 2008
Net revenue to external customers	$	113		$	—		$	113		$	144		$	—		$	257
Operating loss	(14,225		)	(263		)	(14,488		)	(2,970		)	(3,487		)	(20,945		)
Assets	$	39,946		$	—		$	39,946		$	3,017		$	29,027		$	71,990

The principal GAAP adjustments are the accounting for stock options and cumulative translation adjustments.

The main operations and fixed assets of Medicsight are in the United Kingdom while Medicexchange’s are in the USA and China.

12. Stock-based compensation

We have issued stock options from MGT and our principal subsidiary companies, Medicsight and Medicexchange.

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MGT stock option plan

On December 5, 2007 we approved the 2007 MGT stock option plan and granted options for 1,975,000 shares under this plan. At September 30, 2009 there were 1,975,000 options outstanding and 658,333 of the options issued were exercisable. Options issued under this plan vest in equal one-thirds after employees have been employed for 12, 24 and 36 months from the date of grant.

Medicsight stock option plans

We have eleven Stock Option Plans in Medicsight, whose shares were listed on the AIM Market of the London Stock Exchange on September 21, 2007.

Plan A - on February 26, 2003 we approved stock option plan “A” and in the three month period ended March 31, 2003 we granted options for 2,971,000 shares under this plan. At September 30, 2009 there were 62,500 options outstanding, all of which were exercisable.

Plan B - on August 15, 2005 we approved stock option plan “B” and between July 1, 2003 and March 31, 2005 we granted options for 3,420,500 shares under this plan. At September 30, 2009 there were 172,500 options outstanding, all of which were exercisable.

Plan C - on August 15, 2005 we approved stock option plan “C” and between April 1, 2005 and June 30, 2006 we granted options for 515,000 shares under this plan. Options issued under this plan vest in equal one-thirds after employees have been employed for 12, 24 and 36 months from date of grant. At September 30, 2009 there were 85,000 options outstanding, all of which were exercisable.

Plan D - On July 13, 2006 we approved stock option plan “D” and granted options for 1,375,000 shares under this plan. Options under this plan vest in equal one-thirds after employees have been employed for 12, 24 and 36 months from the date of grant. At September 30, 2009 there were 26,667 options outstanding, all of which were exercisable.

Plan E - on February 22, 2007 we approved and granted options for 5,900,000 shares under stock option plan “E”. Options under this plan vest in equal one-thirds after employees have been employed for 12, 24 and 36 months from the grant date. At September 30, 2009 there were 1,015,000 options outstanding and 751,670 of the options issued were exercisable.

Plan F - on May 16, 2007 we approved and subsequently granted options for 350,000 shares under stock option plan “F”. Options under this plan vest in equal one-thirds after employees have been employed for 12, 24 and 36 months from the grant date. At September 30, 2009 there were 50,000 options outstanding and 33,333 of the options issued were exercisable.

Plan G - on December 18, 2007 we approved and subsequently granted options for 3,025,000 shares under stock option plan “G”. Options under this plan vest in equal one-thirds after employees have been employed for 12, 24 and 36 months from the grant date. At September 30, 2009 there were 241,667 options outstanding and 141,667 of the options issued were exercisable.

Plan H - on June 2, 2008 we approved and subsequently granted options for 750,000 shares under stock option plan “H”. Options under this plan vest in equal one thirds after employees have been employed for 12, 24 and 36 months from the grant date. At September 30, 2009 there were no options outstanding.

Plan I - on December 16, 2008 we approved and subsequently granted options for 1,805,000 shares under stock option plan “I”. Options under this plan vest in equal one thirds after employees have been employed for 12, 24 and 36 months from the grant date. At September 30, 2009 125,000 options were outstanding, none of which were exercisable.

Plan J - on May 14, 2009 we approved and subsequently granted options for 7,848,750 shares under stock option plan “J”. Options under this plan vest in equal one sixths after employees have been employed for 6, 12, 18, 24, 30 and 36 months from the grant date. At September 30, 2009 there were 7,643,750 options were outstanding, none of which were exercisable.

Plan K - on May 20, 2009 we approved and subsequently granted options for 300,000 shares under stock option plan “K”. Options under this plan vest in equal one thirds on June 30, 2009, September 30, 2009 and December 31, 2009. At September 30, 2009 there were 300,000 options were outstanding and 200,000 of the options were exercisable.

Medicexchange stock option plans

We have two stock option plans in Medicexchange whose shares are not publicly traded.

Plan A - on July 20, 2006 we approved Medicexchange stock option plan “A” and granted options for 950,000 shares under this plan. Options issued under this plan vest in equal one-thirds after employees have been employed for 12, 24 and 36 months from the date of grant. At September 30, 2009 there were 550,000 options outstanding, all of which were exercisable.

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Plan B - on July 26, 2007 we approved Medicexchange stock option plan “B” and granted options for 300,000 shares under this plan. Options issued under this plan vest equal one-thirds after employees have been employed for 12, 24 and 36 months from the date of grant. At September 30, 2009 there were 150,000 options outstanding and 100,000 of the options issued were exercisable.

The assumptions used in the Black-Scholes option valuation model used in the calculation of grant date fair value for the above options are highly subjective and can materially affect the resulting valuation. These assumptions are based on multiple factors including United Kingdom treasury bonds for the risk-free rate at the time of grant, expected future exercising patterns (we cannot base the estimate on the historical exercise patterns as no options have been exercised) and the volatility of the MGT stock price.

The following assumptions were used to estimate fair value:

	Nine months ended September 30
	2009	2008

Dividend yield	0%	0%
Expected volatility	105%	39%
Risk-free rate	3.89%	5.00%
Expected life of options	6.75 years	3.00 years

The following table summarizes stock option activity for the nine months ended September 30, 2009:

	Outstanding						Exercisable
	Number of shares		Weighted- average exercise price				Number of shares	Weighted- average exercise price

Outstanding at December 31, 2008	16,137,500		£	0.91	$	1.31	5,679,166	£	0.98	$	1.42

Granted	8,148,750		0.09		0.13
Exercised	—		—		—
Forfeited	(11,889,166	)	0.68		1.08

Outstanding at September 30, 2009	12,397,084		£	0.55	$	0.87	2,781,670	£	0.99	$	1.58

The following is a summary of the status of the stock options outstanding at September 30, 2009:

	Outstanding options						Exercisable options
	Number	Remaining contractual life (years)	Average exercise price				Number	Average exercise price

MGT Capital Investments, Inc. 2007 Plan	1,975,000	8.2			$	3.69	658,333			$	3.69
Medicsight Plan A	62,500	3.8	£	0.75	$	1.19	62,500	£	0.75	$	1.19
Medicsight Plan B	172,500	5.0	£	0.75	$	1.19	172,500	£	0.75	$	1.19
Medicsight Plan C	85,000	5.8	£	0.75	$	1.19	85,000	£	0.75	$	1.19
Medicsight Plan D	26,667	6.8	£	0.83	$	1.32	26,667	£	0.83	$	1.32
Medicsight Plan E	1,015,000	7.4	£	0.50	$	0.80	751,670	£	0.50	$	0.80
Medicsight Plan F	50,000	7.7	£	0.75	$	1.19	33,333	£	0.75	$	1.19
Medicsight Plan G	241,667	8.2	£	1.10	$	1.75	141,667	$	1.10	$	1.75
Medicsight Plan H	—	8.7	£	0.69	$	1.10	—	—		—
Medicsight Plan I	125,000	9.3	£	0.24	$	0.38	—	—		—
Medicsight Plan J	7,643,750	9.6	£	0.09	$	0.14	—	—		—
Medicsight Plan K	300,000	9.6	£	0.10	$	0.16	200,000	£	0.10	$	0.16
Medicexchange Plan A	550,000	7.1	£	0.40	$	0.64	550,000	£	0.40	$	0.64
Medicexchange Plan B	150,000	7.9	£	1.00	$	1.59	100,000	£	1.00	$	1.59

On May 14, 2009 we approved Medicsight Plan J. Employees who were employed on May 14, 2009 were given the opportunity to forfeit all their existing options in Plans A through I and, in their place, receive in Plan J 50% of the number of forfeited options. We

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account for this as a modification of the existing options, specifically a cancel and reissue. Of the options issued in Plan J 3,032,500 were issued as new options and 4,816,250 were issued as replacements for options cancelled in existing plan.

The modification charge for the nine months ended September 30, 2009 was $9. In the nine months ended September 30, 2008 it was $391.

We recorded the following amounts related to stock-based expenses in the Statement of Operations for the following periods:

	Three months ended September 30,				Nine months ended September 30,
	2009		2008		2009		2008

Selling, general and administrative	$	484	$	700	$	1,449	$	2,492

Research and development	14		42		78		130

Total	$	498	$	742	$	1,527	$	2,622

Of the $1,527 stock-based expense in the nine months ended September 30, 2009, $393 was allocated to the non-controlling interest.

No compensation costs were capitalized.

The aggregate intrinsic value for options outstanding and exercisable at September 30, 2009 was approximately $3. The aggregate intrinsic value for all outstanding options is $281.

A summary of non-vested options at September 30, 2009 and the change during the nine months ended September 30, 2009 is presented below:

	Number of Options		Weighted Average Grant Date Fair Value

Non-vested at January 1, 2009	10,458,334		£	0.35	$	0.51
Granted	8,148,750		£	0.24	$	0.38
Vested	(2,308,315	)	£	0.24	$	0.38
Forfeited	(6,683,355	)	£	0.29	$	0.46
Non-vested at September 30, 2009	9,615,414		£	0.35	$	0.56

At September 30, 2009 there was $4,351 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the option plans.

Non-vested awards are expected to be recognized over a weighted average period of 2.5 years.

13. Non-controlling interest

The Company has non-controlling investors in both Medicsight and Medicexchange as follows:

	Medicsight			Medicexchange			Total

Non-controlling interest at January 1, 2009	$	15,036		$	981		$	16,017
Non-controlling share of operating losses	(4,280		)	(87		)	(4,367		)
Non-controlling share of stock-based expense	387			6			393
Non-controlling share of other comprehensive income (loss)	927			(4		)	923
Non-controlling interest at September 30, 2009	$	12,070		$	896		$	12,966

14. Related Party Transactions

Tim Paterson-Brown, our Chief Executive Officer, is a non-executive director of Accsys Technologies plc, which has a subsidiary company Titan Wood Limited. Titan Wood Limited rents space in 66 Hammersmith Road. In the nine month period ended September 30, 2009 and 2008 respectively, $194 and $79 of office related costs were recharged to Titan Wood Limited. At September 30, 2009 there was a balance receivable from Titan Wood Limited of $66 of which $12 remains unpaid as of November 5, 2009. This is payable within 30 days under the terms of the invoice.

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On August 6, 2009 we signed the Second Amendment to the Securities Purchase Agreement with XShares Group Inc (“XShares”) and on the same date our CEO, Tim Paterson-Brown, was appointed the Series B Director of XShares (see Note 5). As of this date, therefore, XShares became a related party. In the nine months ended September 30, 2009 we have accrued $157 interest relating to the investment we have made in the XShares convertible Notes.

15. Commitments

Lease Commitments and Security Deposit

On August 25, 2006 we executed a 10-year agreement with Pirbright Holdings Limited, to lease 8,787 square feet of office space at the Kensington Centre, 66 Hammersmith Road, London W14 8UD, United Kingdom. Under this lease agreement our UK property rent, services and related costs are be approximately £330 ($525) per annum, paid quarterly in advance. We have the right to terminate this agreement on the expiry of the fifth year of the lease. Our annual rent is subject to upward only review on August 24, 2011.

We have two 10-month rent-free periods: the first commencing August 25, 2006; the second commencing August 25, 2011. We have accounted for this lease as an operating lease and have accounted for the lease rental expenses on a straight-line basis over the period of the lease.

The following is a schedule of the future minimum rental payments required under operating leases that have initial or remaining non-cancellable terms in excess of one year:

Year ending December 31,
2009 (remaining three months)	$	168
2010	671
2011	260
2012	5
2013	2
Later years	—
Total minimum	$	1,106

Other commitments

In July 2008 we entered into an agreement with a partner to develop interfaces for our software. We have committed to pay Euros 1,445 ($2,109) over an expected thirty-six month period. As at September 30, 2009 we have paid Euros 995 ($1,451). These payments will be recovered against future royalty payments, should the products be successfully commercialized. These payments have been expensed to the income statement and classified as research and development.

16. Subsequent events

We evaluated subsequent events and their potential impact on our results of operations, financial position and disclosures, from the balance sheet date through November 12, 2009.

On October 8, 2009 MGT Capital Investments Limited, a company incorporated in England and Wales (“MGT UK”), and a wholly owned subsidiary of MGT Capital Investments, Inc., entered into an agreement (the “Subscription Agreement”, attached hereto as Exhibit 10.9) with Moneygate Group Limited, a company incorporated in England and Wales (“Moneygate”), pursuant to which MGT UK acquired 9,607,843 ordinary shares of Moneygate, representing 49% of Moneygate’s issued and outstanding share capital, for the sum of £96.08 ($155). (The consideration stated here is not in ‘000s). Concurrent with the acquisition, MGT UK entered into two loan facilities with Moneygate. The first facility provides for a twelve-month no interest working capital loan from MGT UK to Moneygate in the amount of £250 ($402) (figures are stated in ‘000s) (attached hereto as Exhibit 10.10). The default rate of interest is 7% per year. The second facility provides for a secured term loan facility of £2,000 ($3,208) (figures are stated in ‘000s) (attached hereto as Exhibit 10.11) from MGT UK to Moneygate to be used by Moneygate for acquisitions of financial advisory companies. Such acquisitions must be approved by MGT UK in writing and such approval may not be unreasonably withheld or delayed. The term of the second facility is the earlier of (i) three years from the effective date of October 8, 2009, or (ii) the date upon which MGT UK ceases to be a shareholder of Moneygate. Interest accrues at the rate of 5% per year on any money drawn from the Acquisition Facility. The default rate of interest is 7% per year.

There are no material relationships between the MGT Capital Investments, Inc. and Moneygate, or each of its respective affiliates, and any of the parties to the Transaction Documents, other than in respect of the Transaction Documents.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The terms “MGT”, “the Company”, “we”, “our” and “us” refer to MGT Capital Investments, Inc. and its subsidiaries, as a consolidated entity, unless the context suggests otherwise.

This quarterly report on Form 10-Q contains forward-looking statements made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by the use of words such as “anticipate”, “estimates”, “should”, “expect”, “guidance”, “project”, “intend”, “plan”, “believe” and other words and terms of similar meaning, in connection with any discussion of our financial statements, business, results of operations, liquidity and future operating or financial performance. Please also refer to our “Note Regarding Forward Looking Statements” at the front of this Form.

Executive summary

The Company achieved the following results in the nine months ended September 30, 2009:

· Revenue from license and other sales decreased 29% to $183 compared to $257 in 2008.

· Gross profit increased 28% to $180 compared to $141 in 2008.

· Other operating expenses, excluding the goodwill impairment, decreased 35 % to $13,723 compared to $21,086 in 2008.

· $12,157 of goodwill relating to Medicsight was fully impaired in the first quarter of 2009.

· Net loss increased 113 % to $21,770 and resulted in a loss per share of $0.67 compared to a net loss of $10,215 and net loss per share of $0.28 in 2008.

Revenue has fallen due to the decrease in revenue in Medicexchange following the slowdown of medical equipment sales in China. Medicsight’s revenue has increased slightly and, due to its higher gross profit compared to Medicexchange, has pushed up gross profit overall. With regards to regulatory approvals for Medicsight’s products, we continue to work closely with our FDA advisers and await further feedback on the 510(k) application made for ColonCAD. We also await a further update from the Ministry of Health, Labour and Welfare (MHLW) regulatory authorities in Japan.

Operating costs, excluding the goodwill impairment, have decreased by $7,363 due to a focus on reducing costs, a reduction in headcount in Medicsight and foreign exchange movements in the nine months ended September 30, 2009. A fall in the value of sterling from $1.95:£1.00 to $1.54:£1.00 has reduced reportable costs by approximately $3,200 using the average exchange rate for the nine months ended September 30, 2008 as the majority of our costs are incurred in sterling in Medicsight.

The significant increase in net loss was due to the impairment of $12,157 of goodwill relating to Medicsight.

Our balance sheet remains strong with cash and cash equivalents and marketable securities of $26,913 compared to $40,178 as of December 31, 2008. The movement is mainly attributable to cash used in operating activities ($11,879).

Goodwill impairment

The shares of Medicsight plc are traded on the AIM Market of the London Stock Exchange. We consider this to be a Level 1 input in the fair value hierarchy, as this is an unadjusted quoted price in an active market.

We conducted our annual impairment test of goodwill as of December 31, 2008. As a result of this test we determined that no adjustment to the carrying value of goodwill was required.

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In the period between December 31, 2008 and March 31, 2009, the market value of Medicsight plc, as traded on the AIM Market of the London Stock Exchange, declined from $53,000 to $13,200. Following this decline in value we conducted an impairment test of goodwill as of March 31, 2009. Due to the uncertainties involved in using the unobservable inputs to estimate future cash flows, we used market price inputs as the basis of our impairment review. As a result of this test we determined that the carrying amount of Medicsight plc exceeded its fair value and recorded an impairment loss of $12,157 during the quarter ended March 31, 2009.

Critical accounting policies and estimates

The accompanying discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements and the related disclosures, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts in our condensed consolidated financial statements and accompanying notes. These estimates form the basis for making judgments about the carrying values of assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from these estimates.

We believe the following policies to be the most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain.

Revenue recognition

Medicsight

We recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable and earned when we have persuasive evidence of an arrangement, the product has been shipped or the services have been provided to the customer, the sales price is fixed or determinable and collectability is probable.

License fee revenue is derived from the licensing of computer software. Maintenance revenue is derived from software maintenance. Our software licenses are generally sold as part of an arrangement that includes maintenance and support.

We license software and sell maintenance through visualization solution partners and original equipment manufacturers. We receive regular sales reporting detailing the number of licenses sold by original equipment manufacturers, value-added resellers and independent distributors (collectively, “Resellers”) to end users. We generally offer terms that require payment 30 days from invoicing.

Additionally:

Software — Revenue from license fees is recognized when notification of shipment to the end user has occurred, there are no significant Company obligations with regard to implementation and the Company’s services are not considered essential to the functionality of other elements of the arrangement.

Services — Revenue from maintenance and support arrangements is deferred and recognized ratably over the term of the maintenance and support arrangements.

Multiple-element arrangements — we enter into arrangements with Resellers that include a combination of software products, maintenance and support. For such arrangements, we recognize revenue using the residual method. We allocate the total arrangement fee among the various elements of the arrangement based on the fair value of each of the undelivered elements determined by vendor-specific objective evidence. The fair value of maintenance and support services is evidence of fair value for all elements, revenue is deferred until the earlier of when vendor-specific objective evidence is determined for the undelivered elements (residual method) or when all elements for which we do not have vendor-specific objective evidence of fair value have been delivered.

Medicexchange

We recognize revenue when the following revenue recognition criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the selling price is fixed or determinable and collectability is reasonable assured. Deferred revenue is recorded when payments are received in advance of performing our service obligations.

Goodwill

Goodwill and intangible assets with indefinite lives are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. We compare the book value to the market value

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(market capitalization plus a control premium) for the reporting unit. If the market value exceeds the book value, goodwill is considered not impaired, and thus the second step of the impairment test is not necessary. If our book value exceeds the market value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of the goodwill with the book value of the goodwill. If the carrying value of the goodwill exceeds the implied fair value of the goodwill, an impairment loss would be recognized in an amount equal to the excess. Any loss recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill is its new accounting basis. Subsequent reversal of a previously recognized goodwill impairment loss is prohibited once the measurement of that loss is completed.

Equity-based compensation

We recognize compensation expense for all equity-based payments. Under fair value recognition provisions, we recognize equity-based compensation net of an estimated forfeiture rate and recognize compensation cost only for those shares expected to vest over the requisite service period of the award.

The fair value of each 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 input into the model. These assumptions are the expected stock volatility, the risk-free interest rate, the option’s expected life and the dividend yield on the underlying stock. Expected volatility is calculated based on the historical volatility of our common stock over the expected option life and other appropriate factors. Risk-free interest rates are calculated based on continuously compounded risk-free rates for the appropriate term. The dividend yield is assumed to be zero as we have never paid or declared any cash dividends on our common stock and do not intend to pay dividends on our common stock in the foreseeable future. The expected forfeiture rate is estimated based on historical experience.

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 judgment. As a result, if factors change and we use different assumptions, our equity-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the equity-based compensation expense could be significantly different from what we have recorded in the current period.

Research and development

We incur costs incurred in connection with the development of software products that are intended for sale. Costs incurred prior to technological feasibility being established for the product are expensed as incurred. Technological feasibility is established upon completion of a detail program design or, in its absence, completion of a working model. Thereafter, all software production costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product. Amortization commences when the product is available for general release to customers.

We concluded that capitalizing such expenditures on completion of a working model was inappropriate because we did not incur any material software production costs and therefore have decided to expense all research and development costs. Our research and development costs are comprised of staff, consultancy and other costs expensed on the Medicsight products.

Fair value of financial instruments

On January 1, 2008 the Company adopted certain provisions of FASB ASC 820, “Fair Value Measurements and Disclosures” for financial assets and financial liabilities and on January 1, 2009 for non-financial assets and non-financial liabilities. This establishes a framework for measuring fair value and expands disclosure about fair value measurements. Applying fair value measurements to our financial instruments requires management’s judgment, especially when using Level 2 and Level 3 inputs.

Impairment of long-lived assets and long-lived assets to be disposed of

We evaluate the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Our assessment for impairment of an asset involves estimating the undiscounted cash flows expected to result from use of the asset and its eventual disposition. An impairment loss recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Calculating the estimated fair value of an asset involves significant judgments and a variety of assumptions. Judgments that we make concerning the value of its intangible assets include assessing time and cost involved for development, time to market, and risks of regulatory failure or obsolescence (due to market, environmental or technological advances for example). For calculating fair value based on discounted cash flows, we forecast future operating results and future cash flows, which include long-term forecasts of revenue growth, gross profits and capital expenditures.

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Results of operations

Revenue and gross profit

We have generated revenues of $183 and gross profit of $180 for the nine months ended September 30, 2009, compared to $257 and $141 for the nine months ended September 30, 2008. Medicsight increased revenues in the period and Medicexchange’s decreased.

Medicsight has sold licenses in Europe where it has regulatory approvals.

Medicexchange generated revenue from advertising sales in China and the USA.

Operating expenses

Our research and development expense for the nine months ended September 30, 2009 was $1,670 compared to $2,785 for the nine months ended September 30, 2008. Our research and development costs were comprised of staff, staff related consultancy, stock options and product development software costs expensed on the research and development of Medicsight’s products. The fall is due to the reduction in headcount incurred in the nine months ended September 30, 2009 as well the fall in the value of sterling against the dollar.

Our selling, general and administrative expenses for the nine months ended September 30, 2009 were $12,053 compared to $18,301 for nine months ended September 30, 2008, with the significant items being:

· People related costs have decreased by $2,146 (30%) due to a reduced head count in both Medicexchange and Medicsight, a lower provision for bonus costs, reduced recruitment costs and the effect of the fall in the value of sterling against the dollar;

· Stock option charges have decreased by $1,096 (42%) in the nine months to September 30, 2009 due to the effect of modifications made to plans in the first half of 2008, pushing up the cost in that period, and the fall in the value of sterling against the dollar; and

· A strengthening of the dollar against sterling has reduced all elements of selling, general and administrative expenses by approximately $3,200 in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008.

At the end of the quarter ended March 31, 2009 we implemented a redundancy program in Medicsight to reduce costs. As a consequence, we expect people related costs to continue to decrease.

Following an impairment review in the three months ended March 31 2009, we fully impaired $12,157 of goodwill relating to Medicsight. There was no impairment charge in the nine months ended September 30, 2008. As explained in the executive summary, we based our fair value measurements on the market price of Medicsight shares listed on the AIM Market of the London Stock Exchange as of March 31, 2009.

Interest and other (expense) income was an expense of $437 in the nine months ended September 30, 2009 compared to revenue of $5,610 in the same period in the prior year. The expense was made up of impairment losses in Eurindia ($176), HipCricket ($701) and XShares ($230) incurred in the nine months ended September 30, 2009. There were also realized losses on other investments of ($37). Interest income was $306, which included interest and arrangement fees from the XShares convertible notes. A further gain of $401 was made on currency movements due to the rising value of the dollar compared to sterling.

Interest in the nine months ended September 30, 2008 was an income figure as opposed to an expense in the nine months ended September 30, 2009 due to the higher levels of cash held, higher interest rates, investment gains rather than impairments and the timing of foreign exchange gains in a subsidiary company.

Income tax

Our effective tax rate for the nine months ended September 30, 2009 is 0%. The difference in our effective tax rate from the federal statutory rate is primarily due to a 100% valuation allowance provided for all deferred tax assets.

Net loss and net loss per share

Net loss attributable to equity holders of MGT Capital Investments, Inc. was $2,595 for the three months ended September 30, 2009 compared to a net loss of $1,300 for the three months ended September 30, 2008. Net loss per share for the three months ended September 30, 2009 was $0.08 (based on weighted average shares outstanding of 32,550,590), compared to $0.04 for the three months ended September 30, 2008 (based on weighted average shares outstanding of 32,550,742).

Net loss attributable to equity holders of MGT Capital Investments, Inc. was $21,770 for the nine months ended September 30, 2009 compared to a net loss of $10,215 for the nine months ended September 30, 2008. Net loss per share for the nine months ended September

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30, 2009 was $0.67 (based on weighted average shares outstanding of 32,550,590), compared to $0.28 for the nine months ended September 30, 2008 (based on weighted average shares outstanding of 36,712,780).

The increase in net loss between the nine months ended September 30, 2008 and the nine months ended September 30, 2009 was predominantly due to the goodwill impairment in the three months ended March 31, 2009.

The increase in net loss between the three months ended September 30, 2008 and three months ended September 30, 2009 was due to the $3,819 foreign exchange gain made in 2008.

Operational currency

Our main operating currency is UK sterling. Our results of operations are affected by changes in the $:£ rates used to translate the operational result. For nine months ended September 30, 2009 the average rate was $1.54: £1.00 and for nine months ended September 30, 2008 the rate was $1.95:£1.00, a decrease of 21%.

Operating results by business segment

We consider MGT’s business segments to be those of its two operating subsidiaries, Medicsight and Medicexchange.

Medicsight

	Three months ended September 30,
	2009			2008

Revenue	$	45		$	25
Selling, general and administration costs	2,566			3,366
Research and development	340			1,558
Operating expense	(2,906		)	(4,924		)
Stock-based compensation (included in operating expenses)	(254		)	(476		)
Operating loss	(2,861		)	(4,899		)
Interest and other income	412			4,299

	Nine months ended September 30,
	2009			2008

Revenue	$	146		$	113
Selling, general and administration costs	8,516			11,816
Research and development	1,670			2,785
Operating expense	(10,186		)	(14,601		)
Stock-based compensation (included in operating expenses)	(865		)	(1,677		)
Operating loss	(10,040		)	(14,488		)
Interest and other income	466			5,035

	September 30, 2009		December 31, 2008

Cash	$	19,638	$	26,624
Net assets	18,667		25,302

In the three months ended September 30, 2009 sales of our CAD products rose compared to the same period in the prior year. While we continue to integrate our ColonCAD 4.0 product with partners’ visualization technologies, existing CAD products continue to gain recognition in the market. We expect our MedicRead 3.0 stand-alone visualization and CAD software to contribute to revenue in the future.

With regards to regulatory approvals for Medicsight’s products, we continue to work closely with our FDA advisers and await further feedback on the 510(k) application made for ColonCAD. We also await a further update from the Ministry of Health, Labour and Welfare (MHLW) regulatory authorities in Japan.

At the end of the first quarter of 2009 we streamlined Medicsight’s operations and reduced staff numbers to forty-five in order to reduce our operating costs and cash flow. This, together with the fall in the value of sterling, has resulted in the reduction in operating expenses in the nine months ended September 30, 2009.

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Research and development is made up of staff, staff related consultancy, stock options and product development software costs expensed on the research and development of Medicsight’s products. This has decreased compared to the comparative periods in 2008 due to the timing of certain stages of MedicRead’s development and reduced headcount.

In local currency terms, bonus charges fell as we believe that, after the redundancy program in Medicsight, any potential year end performance related bonuses would, in total, be lower than in the previous year.

In the nine months ended September 30, 2009 the stock option charge fell as we made modifications to certain options in the nine months ended September 30, 2008 and the charge has not been repeated in the nine months ended September 30, 2009. Also, due to the reduction in headcount, fewer options will vest, reducing the charge further.

Interest and other income was generated by returns on the investment of the proceeds from the IPO in June 2007. Interest income has fallen in the first three quarters of 2009 compared to the same period in 2008 as the level of cash invested was lower, combined with lower investment returns due to significantly lower interest rates. Significantly, in the third quarter of 2008, cash held in dollars in Medicsight produced a foreign exchange gain of $3,819 compared to $401 in the three months ended September 30, 2009.

We believe that continuing low interest rates, combined with lower cash balances, will mean a lower level of interest and other income during Fiscal 2009 compared to Fiscal 2008.

Cash and net assets were lower at September 30, 2009 compared to December 31, 2008 because of Medicsight’s cash used in operating activities.

Medicexchange

	Three months ended September 30,
	2009			2008

Revenue from external customers	$	17		$	95
Cost of revenue	(1		)	(85		)
Gross profit	16			10
Operating expenses	(237		)	(879		)
Operating loss	(221		)	(869		)
Stock-based compensation (included in operating expenses)	14			6

	Nine months ended September 30,
	2009			2008

Revenue from external customers	$	37		$	144
Cost of revenue	(3		)	(116		)
Gross profit	34			28
Operating expenses	(877		)	(2,998		)
Operating loss	(843		)	(2,970		)
Stock-based compensation (included in operating expenses)	(22		)	(158		)

	September 30, 2009			December 31, 2008

Cash	$	1,202		$	1,322
Net (liabilities)	(2,513		)	(1,412		)

In the first nine months of 2008 Medicexchange’s revenue was derived from both online and offline sales; in the same period in 2009 we focused on online sales, leading to a lower level of sales but at a higher margin. The online sales were split between China and the USA 60%/40% respectively. We expect our focus to continue to be on online sales.

We have reduced our spending on operations. In September 2008 we made the decision to scale back our London cost base and increased our emphasis on our New York office as this is closer to our target market. We have also outsourced some of our website costs to external contracts to reduce our cost. Salary costs have fallen after a number of London and Beijing-based staff left the business. Also, all Medicexchange’s Beijing employees have now started to work for Medicsight and are no longer a cost to Medicexchange. Our China business is now focused solely on the Shanghai-based Maydeal website.

Stock-based compensation has fallen due to modifications to plans made in 2008 not being repeated in 2009 and the reduction in headcount meaning fewer options will vest.

We also use less office space and the lower number of staff has lead to a lower level of ancillary costs. We have also reduced our discretionary spending, demonstrated by the reduction in all other listed cost categories.

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Liquidity and capital resources

Working capital information

	September 30, 2009			December 31, 2008
Working capital summary
Cash, cash equivalents and marketable securities	$	26,913		$	40,178
Current assets	29,971			41,212
Current liabilities	(3,645		)	(4,340		)
Working capital surplus	$	26,326		$	36,872
Ratio of current assets to current liabilities	8.2			9.5

	Nine months ended September 30,
	2009			2008
Cash flow summary
Cash (used for) provided by
Operating activities	$	(11,879	)	$	(13,505	)
Investing activities	(1,077		)	(3,737		)
Financing activities	—			(20,163		)
Effects of exchange rates on cash and cash equivalents	1,575			(4,150		)
Net cash flow	$	(11,381	)	$	(41,555	)

Our cash, cash equivalents and marketable securities have decreased during 2009 predominantly because of the cash used in operating activities. Our net cash used in operating activities differs from net loss because of various non-cash adjustments such as the transfer to non-controlling interest, stock-based compensation and impaired investments and goodwill. Even though net loss was greater in the nine months ended September 30, 2009 compared to the same period in the prior year, cash used in operating activities was lower. This was due to lower levels of expenditure in the nine months ended September 30, 2009, and the fact that net loss included the $12,157 non-cash goodwill impairment charge relating to goodwill.

Our ratio of current assets to current liabilities remains strong at 8.2. This is a result of the $26,913 of cash held in the Company.

Valuation of investments held at fair value

At December 31, 2008 investments held at fair value consisted of HipCricket and a fund managed by Bank Sarasin & Company Limited. In the three months ended June 30, 2009 we liquidated our holdings in the fund managed by Sarasin and transferred the proceeds to cash. In the three months ended September 30, 2009 HipCricket was delisted from the AIM Market and we now account for it as an investment held at cost.

As of September 30, 2009 we therefore have no investments accounted for as marketable securities.

Impairment review of Eurindia Limited

We account for our investments in Eurindia Limited and XShares Group, Inc. at cost subject to impairment.

In 2000 MGT invested in Eurindia Limited (“Eurindia”), a UK company that invested in IT start-up companies. MGT has a 6% holding in Eurindia and accounts for this investment on a cost basis. During 2007 we received two dividends totaling $423 ($0.72 per share) which we recorded in Other Income.

We carried out an impairment review of our holdings in Eurindia as of December 31, 2008. Eurindia’s management had informed us that it intended to pay a liquidating dividend of between 30 cents and 50 cents per share in the first half of 2009. We assumed the dividend to be the lower of these two values and impaired our holding to the value of 30 cents per share.

Eurindia’s management informed us that it intends to liquidate the investment by means of an IPO. Due to the turbulence in financial markets, however, and specifically the weakness of the market for IPOs, we were not able to accurately ascertain the potential value of the investment on an IPO or the timescale in which it might be realized. As a consequence, in the three months ended June 30, 2009 we fully impaired our investment and recognized an impairment loss of $176 in net loss. We considered the amount of this impairment to be a Level 3 input, which is a significant unobservable input. As of September 30, 2009 Eurindia’s management had yet to liquidate the investment.

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Investment in XShares Group, Inc.

In 2007 we invested $960 in Series C preferred shares of XShares Group, Inc. (“XShares”), an investment advisor that creates, issues and supports exchange traded funds with a particular healthcare specialty. In the year ended December 31, 2008 we invested an additional $2,040 in shares of XShares bringing the total invested to $3,000. We account for these investments on a cost basis as our total holdings are less than 20%. In Fiscal 2008 we reviewed the carrying value of our investment in XShares. XShares was in the process of attempting to raise funds to drive the business forward. As of December 31, 2008 we impaired this investment to $600. As of June 30, 2009 the fund-raising was partially complete and, after reviewing our holding, we impaired the investment to $370, which we believe approximates fair value. As of September 30, 2009 the fund-raising was continuing and, on review, we have kept XShares’ book value at $370.

On May 14, 2009 we executed and delivered a Convertible Promissory Note (the “Note”) in the principal amount of $1,100 with XShares. The principal amount included a fee of $100 payable to us. A copy of the Note was annexed as Exhibit 10.5 to our quarterly report on Form 10-Q for the three months ended March 31, 2009.

On the signing of the Second Amendment our CEO, Tim Paterson-Brown, was appointed the Series B Director of XShares Group, Inc. As of this date, therefore, XShares Group, Inc. became a related party.

HipCricket Inc.

We hold shares in HipCricket Inc. (“HipCricket”), a company engaged in mobile marketing. In the three months ended September 30, 2009 HipCricket was delisted from the AIM Market and we now account for it as an investment held at cost. Analyzing published financial and other information we reviewed the book value of the investment and decided that there was no need to impair its value.

Investment in Medicsight

Our condensed consolidated financial statements include the results and financial condition of our subsidiary, Medicsight. Our holding in Medicsight is 86,000,000 shares out of Medicsight’s issued share capital of 155,524,504 shares.

As of September 30, 2009 Medicsight’s share price was £0.11 ($0.17) compared to £0.235 ($0.34), as of December 31, 2008. This valued Medicsight at £9,271 ($14,761), compared to £20,210 ($29,262) as of December 31, 2008.

As of November 5, 2009 Medicsight’s share price was £0.11 ($0.18) valuing the Company’s investment at £9,460 ($15,634), assuming a $:£ exchange rate of 1.6526.

Risks and uncertainties related to our future capital requirements

To date we have primarily financed our operations through private placements of equity securities. To the extent that additional capital is raised through the sale of equity or equity-related securities of the Company or its subsidiaries, the issuance of such securities could result in dilution to our stockholders.

No assurance can be given, however, that we will have access to the capital markets in the future, or that financing will be available on acceptable terms to satisfy our cash requirements to implement our business strategies.

If we are unable to access the capital markets or obtain acceptable financing, our results of operations and financial conditions could be materially and adversely affected. We may be required to raise substantial additional funds through other means.

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Our technology has not yet been regulated in all target territories and as a result commercial results have been limited and we have not generated significant revenues. We cannot assure our stockholders that our technology and products will be commercialized successfully, or that if so commercialized, that revenues will be sufficient to fund our operations.

If adequate funds are not available to us, we may be required to curtail operations significantly or to obtain funds through entering into arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies or products that we would not otherwise relinquish.

Commitments

Under this lease agreement our UK property rent, services and related costs will be approximately £330 ($525) per annum, paid quarterly in advance. We have the right to terminate this agreement on the expiration of the fifth year of the lease. Our annual rent is subject to upward only review on August 24, 2011. We have two 10-month rent-free periods: the first commencing August 25, 2006; the second commencing August 25, 2011.

We have satellite offices in Tokyo (Japan) and Beijing (China) — which are on three and two year rental agreements respectively.

The following table analyzes our contractual obligations.

	Payments due by period
Contractual obligations	Total		Less than 1 year		1-3 years		3-5 years
Operating lease obligations	$	1,105	$	671	$	432	$	2
Purchase obligations	657		657		—		—

Total	$	1,762	$	1,328	$	432	$	2

Recent accounting pronouncements

Effective January 1, 2008, the we adopted FASB ASC 820-10, “Fair Value Measurements and Disclosures — Overall” with respect to its financial assets and liabilities. In February 2008, the FASB issued updated guidance related to fair value measurements, which is included in the Codification in ASC 820-10-55, “Fair Value Measurements and Disclosures — Overall — Implementation Guidance and Illustrations”. The updated guidance provided a one year deferral of the effective date of ASC 820-10 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company adopted the provisions of ASC 820-10 for non-financial assets and non-financial liabilities effective January 1, 2009, and such adoption did not have a material impact on our consolidated financial statements.

Effective January 1, 2009, the Company adopted FASB ASC Topic 805, “Business Combinations”. ASC 805 establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. ASC 805 also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.

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In October 2009, the FASB issued ASU 2009-14, “Certain Arrangements That Include Software Elements”, (amendments to FASB ASC Topic 985, “Software”) (ASU 2009-14). ASU 2009-14 removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU 2009-14 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. We not expect adoption of ASU 2009-14 to have a material impact on our consolidated financial statements.

Item 3. Quantitative and qualitative disclosures about market risk

Interest rate risk

Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We place our investments in a mixture of cash deposits and available-for-sale market securities. A one percent movement in interest rate would result in approximately $269 change in interest income.

We do not have any debt and we do not use derivative financial instruments.

Foreign exchange risk

We are exposed to foreign currency exchange rate fluctuations related to the operation of our international subsidiaries. Our main operating currency is UK sterling. We also have subsidiary operations in Japan and China who operate in their local currencies.

Our operating costs in Fiscal 2008 were predominantly in UK sterling; we do not foresee any change in the fourth quarter of 2009 or Fiscal 2010. A ten percent increase or decline in the US dollar exchange rate against all foreign currencies would have created a decrease or increase in our operating costs in the nine months ended September 30, 2009 of approximately $1,145.

At the end of each reporting period, expenses of the subsidiaries are converted into US dollars using the average currency rate in effect for the period and assets and liabilities are converted into US dollars using the exchange rate in effect at the end of the period.

Additionally, we are exposed to foreign currency exchange rate fluctuations relating to payments we make to vendors and suppliers using foreign currencies.

We currently do not hedge against this foreign currency risk.

Fluctuations in exchange rates may impact our financial condition and results of operations.

Item 4T. Controls and procedures

Evaluation of disclosure controls and procedures

Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report for the information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended, to be recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in internal control over financial reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal proceedings

None.

Item 1A. Risk factors

Discussion of our business and operations included in this quarterly report on Form 10-Q should be read together with the risk factors set forth below. They describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties, together with other factors described elsewhere in this report, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. New risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect financial performance. Each of the risks described below could adversely impact the value of our securities. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.

We cannot assure you that the Company will be successful in commercializing any of the Company’s products and, in particular, the Medicsight products or the Medicexchange portal, or if any of the products or the portal are commercialized, that they will prove to be profitable for the Company.

The Company has only had a limited operating history and has just commenced generating revenue from operations upon which an evaluation of its prospects can be made. The Company’s prospects must be considered keeping in mind the risks, expenses and difficulties frequently encountered in the establishment of a new business in a constantly changing industry. There can be no assurance that the Company will be able to achieve profitable operations in the foreseeable future if at all.

The Company has identified a number of specific risk areas that may affect the Company’s operations and results in the future:

Company specific risks

We may be unable to develop our existing or future technology.

Our Medicsight CAD system may not deliver the levels of accuracy and reliability needed to make it a successful product in the market place. Additionally, the development of such accuracy and reliability may be indefinitely delayed or may never be achieved. Failure to develop this or other technology could have an adverse material effect on the Company’s business, financial condition, results of operations and future prospects.

The market for our technology may be slow to develop, if at all.

The market for the Medicsight CAD products and Medicexchange.com may be slower to develop or smaller than estimated or it may be more difficult to build the market than anticipated. The medical community may resist Medicsight CAD and the Medicexchange.com products or be slower to accept them than we anticipate. Revenues from Medicsight CAD and Medicexchange.com may be delayed or costs may be higher than anticipated which may result in the Company requiring additional funding. Medicsight’s principal route to market is via commercial distribution partners. These arrangements are generally non-exclusive and have no guaranteed sales volumes or commitments. The partners may be slower to sell our products than anticipated. Any financial, operational or regulatory risks that affect our partners could also affect the sales of our products. In the current economic environment, hospitals and clinical purchasing budgets that are reliant on external debt finance may result in purchasing decisions being delayed. If any of these situations were to occur this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

We may be slow to receive required regulatory approvals from respective government regulators, if we receive them at all.

The Medicsight CAD system is subject to regulatory requirements in the USA, Europe, Japan, China and our other targeted markets. Necessary regulatory approvals may not be obtained or may be delayed. We may incur substantial additional cost in obtaining regulatory approvals for our products in our targeted markets. Any delays in obtaining the necessary regulatory approvals increase the risk that our competitors’ products are approved before our own. The failure to obtain these approvals on a timely basis and/or the associated costs could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

The medical imaging market we operate in is highly competitive.

There are a number of groups and organizations, such as software companies in the medical imaging field, MDCT scanner manufacturers, screening companies and other healthcare providers that may develop a competitive offering to the Medicsight CAD products and Medicexchange.com. In addition, these competitors may have significantly greater resources than MGT. We cannot make any assurance that they will not attempt to develop such offerings, that they will not be successful in developing such offerings or that any offerings they may develop will not have a competitive edge over Medicsight CAD products and Medicexchange.com. With delayed

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regulatory approvals and/or disputed clinical claims we may not have a commercial or clinical advantage over competitors’ products. Should a superior offering market come to market, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

We are a developing company with limited revenues from operations.

We have incurred significant operating losses since inception and have only recently commenced generating revenues from operations. As a result, we have generated negative cash flows from operations and have an accumulated deficit as of September 30, 2009. We are operating in a developing industry based on new technology and our primary source of funds to date has been through the issuance of securities and borrowed funds. There can be no assurance that management’s efforts will be successful or that the products we develop and market will be accepted by consumers. If our products are ultimately unsuccessful in the market, this could have a material adverse effect on the our business, financial condition, results of operations and future prospects.

Our current corporate structure may place us in an unfavorable market position vis-à-vis our competitors.

MGT’s corporate structure may make it more difficult or costly to take certain actions. We conduct our business through: (a) Medicsight, a UK public company which is 55% owned by the MGT Capital Investments, Inc. and through Medicsight’s subsidiaries in the United Kingdom, the USA, Japan and Gibraltar; and (b) the Medicexchange subsidiaries, in which MGT’s holdings range between 75% and 100%. Although MGT, Medicsight and Medicexchange share some directors and management, they are required to comply with corporate governance and other laws and rules applicable to public companies in the United Kingdom and the USA. Should MGT propose to take any action, such as a transfer or allocation of assets or liabilities between MGT and its subsidiaries, MGT would have to take into consideration the potentially conflicting interests of MGT’s stockholders and the non-controlling stockholders. This may deter MGT from taking such actions that might otherwise be in the best interest of MGT or cause MGT to incur additional costs in taking such actions. The subsidiary companies would not be able to pay dividends or make other distributions of profits or assets to MGT without making pro-rata payments or distributions to the respective non-controlling stockholders. Although neither the subsidiary companies nor MGT has plans to pay dividends or make distributions to its shareholders, MGT’s corporate structure may deter its subsidiaries from doing so in the future. If at any point we are ultimately unable to resolve any of these conflicts, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

The protection of our intellectual property may be uncertain, and we may face possible claims of others.

Although we have received patents and have filed patent applications with respect to certain aspects of our technology, we generally do not rely on patent protection with respect to our products and technologies. Instead, we rely primarily on a combination of trade secret and copyright law, employee and third-party non-disclosure agreements and other protective measures to protect intellectual property rights pertaining to our products and technologies. Such measures may not provide meaningful protection of our trade secrets, know-how or other intellectual property in the event of any unauthorized use, misappropriation or disclosure. Others may independently develop similar technologies or duplicate our technologies. In addition, to the extent that we apply for any patents, such applications may not result in issued patents or, if issued, such patents may not be valid or of value. Third parties could, in the future, assert infringement or misappropriation claims against us with respect to our current or future products and technologies, or we may need to assert claims of infringement against third parties. Any infringement or misappropriation claim by us or against us could place significant strain on our financial resources, divert management’s attention from our business and harm our reputation. The costs of prosecuting or defending an intellectual property claim could be substantial and could adversely affect our business, even if we are ultimately successful in prosecuting or defending any such claims. If our products or technologies are found to infringe the rights of a third party, we could be required to pay significant damages or license fees or cease production, any of which could have a material adverse effect on our business. If a claim is brought against us, or we ultimately prove unsuccessful on the claims on our merits, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

We may fail to attract and retain qualified personnel.

We expect to rapidly expand our operations and grow our sales, research and development and administrative operations. This expansion is expected to place a significant strain on our management and will require hiring a significant number of qualified personnel. Accordingly, recruiting and retaining such personnel in the future will be critical to our success. There is intense competition from other companies, research and academic institutions, government entities and other organizations for qualified personnel in the areas of our activities. If we fail to identify, attract, retain and motivate these highly skilled personnel, we may be unable to continue our marketing and development activities, and this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

If we do not effectively manage changes in our business, these changes could place a significant strain on our management and operations.

Our ability to grow successfully requires an effective planning and management process. The expansion and growth of our business could place a significant strain on our management systems, infrastructure and other resources. To manage our growth successfully, we must continue to improve and expand our systems and infrastructure in a timely and efficient manner. Our controls, systems, procedures and resources may not be adequate to support a changing and growing company. If our management fails to respond effectively to changes and growth in our business, including acquisitions, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

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We face risks arising from foreign currency exchange.

As our main operating currency is UK sterling and its financial statements are reported in US dollars, MGT’s assets and liabilities and results of operations are affected by movements in the $:£ exchange rate. Should there be large or unexpected fluctuations in the $:£ exchange rate, this could have a material effect on the Company’s business, financial condition, results of operations and future prospects. The Company currently does not engage in hedging activities to minimize the effect of adverse movements in the exchange rate.

We may not be able to quickly realize our investments at the value at which we have recorded them.

We have a number of investments held at both at market value and at cost. There is a risk that we may not be able to swiftly realize these investments at the fair value or cost at which they are recorded in the financial statements. If we are unable to quickly realize these investments at prices we believe to be fair, this could have a material effect on the Company’s business, financial condition, results of operations and future prospects.

General market risks

We may not be able to access credit.

We face the risk that we may not be able to access credit, either from lenders or suppliers, or have facilities reduced or terminated. Failure to access credit from any of these sources could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

Recent global economic trends could adversely affect our business, liquidity and financial results.

Recent global economic conditions, including disruption of financial markets, could adversely affect us, primarily through limiting our access to capital and disrupting our clients’ businesses. In addition, continuation or worsening of general market conditions in economies important to our businesses may adversely affect our clients’ level of spending and ability to obtain financing, leading to us being unable to generate the levels of sales that we require. Current and continued disruption of financial markets could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

We may not be able to maintain effective internal controls.

If we fail to maintain the adequacy of our internal accounting controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Failure to achieve and maintain an effective internal control environment could cause us to face regulatory action and also cause investors to lose confidence in our reported financial information, either of which could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

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

In the three months ended September 30, 2009 no shares of common stock were issued.

Item 3. Defaults upon senior securities

None.

Item 4. Submission of matters to a vote of security holders

On August 4, 2009 we held our annual stockholders meeting. The Board proposed, and the shareholders approved, the election of each of our Directors for an additional term of one year to expire at our next Annual Meeting, tentatively scheduled for August 3, 2010, or until their successors are elected and qualified or until their earlier resignation or removal. The number of votes cast for and the number withheld, as to each Director, were as follows:

Director	Shares in Favor	Shares Withheld	TOTAL
Tim Paterson-Brown	15,463,555	1,693,854	17,157,409
Allan Rowley	16,177,040	980,369	17,157,409
Neal Wyman	15,462,814	1,694,595	17,157,409
Dr. L. Peter Fielding	16,176,541	980,868	17,157,409
Peter Venton	15,462,814	1,694,595	17,157,409
Sir Christopher Paine	16,177,040	980,369	17,157,409
Dr. Allan Miller	16,177,040	980,369	17,157,409

The Board also proposed, and the shareholders approved, the ratification of the Board’s selection of Amper, Politziner & Mattia LLP as our independent auditors for the fiscal year ending December 31, 2009. The number of votes cast for the ratification, the number cast against and the number abstained were as follows:

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		Shares For		Shares Against		Shares Abstaining		TOTAL
Ratification of Auditors		16,209,016		942,935		5,457		17,157,408

Item 5. Other information

On February 10, 2009 we were informed by NYSE Alternext US (the “Exchange”) that MGT Capital Investments, Inc. was not in compliance with Section 704 of the listing standards of the Exchange’s Company Guide because of the Company’s failure to hold an annual meeting of its stockholders during 2008. On October 5, 2009 we received notice from the Exchange that we had resolved this listing deficiency.

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Item 6. Exhibits

10.9	Subscription agreement between Moneygate Group Limited and MGT Capital Investments Limited
10.10	Working capital facility agreement between MGT Capital Investments Limited and Moneygate Group Limited
10.11	Facility agreement between MGT Capital Investments Limited and Moneygate Group Limited
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURE

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

	MGT Capital Investments, Inc.


	By:	/s/ TIM PATERSON-BROWN
		Tim Paterson-Brown
		Chief Executive Officer


	By:	/s/ ALLAN ROWLEY
		Allan Rowley
		Chief Financial Officer


November 12, 2009