MGT CAPITAL INVESTMENTS, INC. - Quarter Report: 2010 March (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 March 31, 2010.

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 May 14, 2010 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 — March 31, 2010 (unaudited) and December 31, 2009	4

	Condensed Consolidated Statements of Operations — for the three months ended March 31, 2010 (unaudited) and 2009 (unaudited)	5

	Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Loss — March 31, 2010 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows — for the three months ended March 31, 2010 (unaudited) and 2009 (unaudited)	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3	Quantitative and Qualitative Disclosure About Market Risk	25

Item 4T	Controls & Procedures	26

PART II — OTHER INFORMATION

Item 1	Legal Proceedings	27

Item 1A	Risk Factors	27

Item 2	Unregistered Sale of Equity Securities and Use of Proceeds	29

Item 3	Defaults Upon Senior Securities	30

Item 4	[Removed and Reserved]	30

Item 5	Other Information	30

Item 6	Exhibits	30

SIGNATURES		31

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)

	March 31, 2010			December 31, 2009
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	15,600		$	22,165
Accounts receivable	91			97
Other receivables — related party	155			105
Prepaid expenses and other current assets	742			620
Deferred consideration for sale of assets	1,136			—
Loans receivable — related party — current	791			398
Total current assets	18,515			23,385

Property and equipment, at cost, net	270			290
Investments, at cost	—			224
Security deposits	371			219
Loans receivable — related party — long term	267			159
Total assets	$	19,423		$	24,277

Liabilities
Current liabilities:
Accounts payable	$	574		$	916
Accrued expenses	839			1,214
Deferred revenue	101			114
Total current liabilities	1,514			2,244

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	300,231			299,878
Accumulated other comprehensive loss	(5,424		)	(4,549		)
Accumulated deficit	(267,962		)	(265,827		)
	26,884			29,541
Treasury stock, at cost, 6,349,793 shares of common stock	(18,912		)	(18,912		)
Total stockholders’ equity	7,972			10,629
Non-controlling interest	9,937			11,404
Total equity	17,909			22,033

Total stockholders’ equity, liabilities and minority interest	$	19,423		$	24,277

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 March 31,
	2010			2009

Revenues	$	62		$	61

Operating expenses
Selling, general and administrative expenses	2,827			3,413
Research and development cost	396			459
Impairment of goodwill	—			12,157
	3,223			16,029

Operating loss	(3,161		)	(15,968		)

Interest and other income / (expense), net	(7		)	(698		)

Net loss from continuing operations before income tax	(3,168		)	(16,666		)

Income tax benefit	170			—

Net loss from continuing operations before non-controlling interest	(2,998		)	(16,666		)

Discontinued operations
Net loss from operations of Medicexchange, net of income taxes	(234		)	(260		)
Gain on sale of Medicexchange, net of income taxes	149			—
	(85		)	(260		)

Net loss before non-controlling interest	(3,083		)	(16,926		)

Net loss attributable to non-controlling interest	948			1,596

Net loss attributable to MGT Capital Investments, Inc.	$	(2,135	)	$	(15,330	)

Per share data:

Basic and diluted loss per share from continuing operations	$	(0.06	)	$	(0.46	)
Basic and diluted loss per share from discontinued operations	(0.01		)	(0.01		)
	$	(0.07	)	$	(0.47	)

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

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

(in thousands)

(unaudited)

	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, 2009	38,900	$	39	$	299,878	$	(4,549	)	$	(265,827	)	$	(18,912	)	$	10,629		$	11,404		$	22,033

Stock-based compensation	—	—		353		—			—			—			353			96			449

Disposal of Medicexchange	—	—		—		—			—			—			—			(233		)	(233		)

COMPREHENSIVE INCOME/(LOSS)

Net loss / (income) for the period	—	—		—		—			(2,135		)	—			(2,135		)	(948		)	(3,083		)

Translation adjustment	—	—		—		(875		)	—			—			(875		)	(382		)	(1,257		)

Total comprehensive loss															(3,010		)	(1,330		)	(4,340		)

BALANCE, MARCH 31, 2010	38,900	$	39	$	300,231	$	(5,424	)	$	(267,962	)	$	(18,912	)	$	7,972		$	9,937		$	17,909

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)

	Three months ended March 31,
	2010			2009

Cash flows from operating activities
Net loss before non-controlling interest	$	(3,083	)	$	(16,926	)

Adjustments to reconcile net loss to net cash used in operating activities:
Loss from discontinued operations	234			260
Stock-based compensation expense	438			485
Depreciation	37			75
Accrued interest receivable	(3		)	—
Loss on impairment of goodwill	—			12,157
Loss on impairment of marketable securities	—			764
Profit on disposal of Medicexchange and other investments	(201		)	—
(Increase)/decrease in assets
Accounts receivable	(4		)	114
Other receivables — related party	(56		)	(46		)
Prepaid expenses and other current assets	(323		)	134
Increase/(decrease) in liabilities
Accounts payable	(314		)	(1,999		)
Accrued expenses	(354		)	(95		)
Deferred revenue	11			2
Net cash used in operating activities	(3,618		)	(5,075		)

Cash flows from investing activities:
Moneygate loans receivable	(528		)	—
Cash in Medicexchange subsidiaries disposed of	(1,101		)	—
Purchase of property, plant and equipment	(33		)	(14		)
Net cash used in investing activities	(1,662		)	(14		)

Cashflows of discontinued operations
Net cash used in Medicexchange operating activities	(226		)	(334		)

Effects of exchange rates on cash and cash equivalents	(1,059		)	(265		)
Net change in cash and cash equivalents	(6,565		)	(5,688		)
Cash and cash equivalents, beginning of period	22,165			38,294
Cash and cash equivalents, end of period	$	15,600		$	32,606

Non cash items

In the three months to March 31, 2010 the Company disposed of Medicexchange and other investments. The consideration for this was $1,136 which has been deferred and is payable in installments through March 31, 2011. When received it will be recorded in investing activities.

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 three months ended March 31, 2010 are not necessarily indicative of the results that may be expected for any subsequent quarter or for the year ending December 31, 2010. 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, 2009. 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 a controlling interest in our operating subsidiary, Medicsight plc (“Medicsight”) and a 49% holding in Moneygate Group Limited (“Moneygate”). On March 31, 2010 we disposed of our controlling interest in Medicexchange Limited (“Medicexchange”) and various other investments. We also have wholly owned subsidiaries MGT Capital Investments (UK) Limited, MGT Investments (Gibraltar) Limited, 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 to assist radiologists in the early detection and measurement of colorectal polyps and lung lesions. Medicsight currently has limited revenue and is awaiting regulatory approvals in key markets. The Company holds 86 million shares (55%) of the 155 million issued share capital of Medicsight.

· The Company has a 49% holding in Moneygate Group Limited, a UK based firm of Independent Financial Advisors.

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 $267,962 at March 31, 2010. 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

We believe the critical accounting policies listed below reflect significant judgments, estimates and assumptions used in the preparation of our consolidated financial statements.

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.

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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.

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 — 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.

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.

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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.

Financial instruments

The Company holds financial instruments. Short term trade receivables and payables are held at cost at amounts that approximate their fair value due to their short term nature. The Company also has receivables due from Moneygate (see note 5) that represent a concentration of credit risk.

Investments

Investments in various corporations where our investment is less than 20% of issued share capital are accounted for under the cost method. Investments where we hold between 20% and 50% of issued share capital and we have significant influence over the investee are accounted for under the equity method. Moneygate is accounted for under the equity method.

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.

Recent accounting pronouncements

In October 2009 the Financial Accounting Standards Board (“FASB”) FASB issued an update to Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition, with regards to multiple-deliverable arrangements. The update is effective for revenue arrangements entered into on or after June 15, 2010. We do not expect the adoption of this update to have a material impact on our financial position or results of operations.

In October 2009 the Financial Accounting Standards Board (“FASB”) FASB issued an update to Accounting Standards Codification (“ASC”) Topic 985, Software, with regards to certain revenue arrangements that include software elements. The update is effective for revenue arrangements entered into on or after June 15, 2010. We do not expect the adoption of this update to have a material impact on our financial position or results of operations.

In December 2009 the FASB issued an updated to ASC Topic 810, Consolidations, with regards to improvements to financial reporting by enterprises involved with variable interest entities. The adoption of this update has not had a material impact on our financial position or results of operations.

3. Divestment of investments and discontinued activities

On March 31, 2010 the Company sold Medicexchange and various non-core investments to an unrelated third party in return for consideration of £750 ($1,136). This consideration is deferred and will be paid in installments through March 2011. As of May 14, 2010 £100 ($150) had been received.

The investments disposed of and the related consideration is as follows:

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Asset	Consideration
Medicexchange Limited	$	927
Medicexchange Inc.	1
Hipcricket, Inc.	205
Eurindia Limited	1
XShares equity	1
XShares convertible notes	1
Total	$	1,136

Eurindia and the XShares convertible notes and equity investment had been fully impaired so the consideration received represents the profit on disposal recorded in the Consolidated Statement of Operations. HipCricket was recorded in the financial statements at $224 meaning a loss on disposal of $19 was recorded.

Before their disposal, Medicexchange Limited and Medicexchange Inc. were consolidated into the MGT Consolidated Financial Statements. Consideration of $928 was allocated to Medicexchange and MGT recorded a profit on disposal of $149. This profit on disposal has been recognized in discontinued operations.

4. Cash and cash equivalents

We invest our cash in short-term deposits with major banks. At March 31, 2010 we held $15,600 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 $15,600 as of March 31, 2010 and $22,165 as of December 31, 2009. The Company periodically evaluates the relative credit standing of financial institutions considered in its cash investment strategy.

5. Loans receivable — related party

In Fiscal 2009 we purchased 49% of Moneygate and provided loan facilities of £250 ($377) for working capital and £2,000 ($3,015) for acquisitions. In the three months ended March 31, 2010 we increased the working capital facility as acquisitions have been delayed and Moneygate still requires cash to fund its operations.

As of March 31, 2010 £525 ($791) had been advanced for working capital and £175 ($267) for acquisitions. The funds advanced for the acquisition facility have been used in legal fees, due diligence fees and signing on payments to support organic growth of numbers of advisors.

The acquisition facility is classified as non-current as it is repayable in October 2012 and the working capital facility is classified as a current asset as it is repayable in October 2010. The acquisition facility pays interest at a rate of 5% per annum. Interest of $3 has been accrued for in the three months ended March 31, 2010. The working capital facility is a non-interest bearing loan.

Moneygate is classified as a related party because MGT has representation on its board of directors (see note 12).

6. 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

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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 had a 6% holding in Eurindia and accounted for this investment on a cost basis. As at December 31, 2009 this investment had been fully impaired. On March 31, 2010 we disposed of all of our holding in Eurindia for $1 leading to a profit on sale of $1 (see note 3).

XShares Group

In 2007 and 2008 we invested $3,000 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, 2009 the Company also issued $2,000 in XShares convertible notes with a principal of $2,100. As at December 31, 2009 the equity investment and the convertible notes had been fully impaired. On March 31, 2010 we disposed of all of our equity holdings in XShares for $1 and the convertible notes for $1, leading to a profit on sale of $2 (see note 3).

HipCricket Inc.

In Fiscal 2007 we invested $2,000 in HipCricket Inc., a company engaged in mobile marketing. In the year ended December 31, 2009 HipCricket Inc. was delisted from the AIM Market and we accounted for it as an investment held at cost. As at December 31, 2009 the investment was held at a book value of $224. On March 31, 2010 we disposed of all of our holding in HipCricket for $205 resulting in a loss on sale of $19 (see note 3).

The following table presents the changes in Level 3 instruments for the three months ended March 31, 2010.

	January 1, 2010		Sales		Profit / (loss) on sale included in earnings		March 31, 2010		Change in impairment losses relating to instruments still held at March 31, 2010

Eurindia Limited	$	—	(1	)	1		$	—	$	—
XShares Group, Inc.	—		(1	)	1		—		—
HipCricket Inc.	224		(205	)	(19	)	—		—
	$	224	(207	)	(17	)	$	—	$	—

7. Interest and other income / (expense)

We had the following interest and other income amounts from continuing operations:

	Three months ended March 31,
	2010			2009

Loss on sale of HipCricket	$	(19	)	$	—
Gain on sale of XShares convertible notes	1			—
Gain on sale of XShares equity	1			—
Gain on sale of Eurindia	1			—
Interest income	9			66
Impairment loss on marketable securities	—			(764		)
Total	$	(7	)	$	(698	)

8. 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:

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	Three months ended March 31,
	2010			2009

Net loss before noncontrolling interest	$	(3,083	)	$	(16,926	)
Unrealized foreign exchange (loss) gain	(1,257		)	(1,411		)
Comprehensive loss	(4,340		)	(18,337		)
Comprehensive loss attributable to non-controlling interest	1,330			1,826
Comprehensive loss attributable to MGT Capital Investments, Inc.	$	(3,010	)	$	(16,511	)

The total accumulated other comprehensive loss as of March 31, 2010 is the result of net foreign currency translation losses.

9. Reconciliation of Medicsight’s results and US GAAP consolidated results

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			Discontinued operations		Corporate and Other			Total
	(IFRS)			GAAP Adj’ts			(US GAAP)			(US GAAP)		(US GAAP)			(US GAAP)

Three months ended March 31, 2010
Net revenue to external customers	$	62		$	—		$	62		$	—	$	—		$	62
Operating loss	(2,004		)	(238		)	(2,242		)	—		(919		)	(3,161		)
Assets	$	14,773		$	—		$	14,773		$	—	$	4,650		$	19,423
										—
Three months ended March 31, 2009
Net revenue to external customers	$	61		$	—		$	61		$	—	$	—		$	61
Operating loss	(3,504		)	(30		)	(3,534		)	—		(12,434		)	(15,968		)
Assets	$	24,329		$	—		$	24,329		$	2,621	$	9,515		$	36,465

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.

10 . Stock-based compensation

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

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 March 31, 2010 there were 1,975,000 options outstanding and 1,316,673 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 twelve Stock Option Plans in Medicsight, whose shares were listed on the AIM Market of the London Stock Exchange on September 21, 2007.

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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 March 31, 2010 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 March 31, 2010 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 March 31, 2010 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 March 31, 2010 there were no options outstanding.

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 March 31, 2010 there were 941,667 options outstanding, all of which 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 March 31, 2010 there were 50,000 options outstanding, 33,333 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 March 31, 2010 there were 241,667 options outstanding, 191,666 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 March 31, 2010 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 March 31, 2010 108,333 options were outstanding, 41,667 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 March 31, 2010 there were 7,041,065 options outstanding, 1,269,421 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, March 31, 2010 and December 31, 2009. At March 31, 2010 there were 300,000 options outstanding, all of which were exercisable.

Plan L - on January 26, 2010 we approved and subsequently granted options for 100,000 shares under stock option plan “K”. 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 March 31, 2010 there were 100,000 options outstanding, none of which were exercisable.

Medicexchange stock option plans

Until March 31, 2010 we had two stock option plans in Medicexchange. As Medicexchange was divested at this date these plans are no longer within the MGT Group.

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

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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:

	Three months ended March 31
	2010	2009

Dividend yield	0%	—
Expected volatility	88%	—
Risk-free rate	3.96%	—
Expected life of options	5.9 years	—

The following table summarizes stock option activity for the three months ended March 31, 2010:

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

Outstanding at December 31, 2009	11,503,359		£	0.58	$	(0.92	)	4,605,890	£	0.94	$	(1.50	)

Granted	100,000		£	0.09	$	(0.12	)
Exercised	—		—
Forfeited	(125,627	)	£	0.61	$	(0.92	)
Transferred with sale of Medicexchange	(400,000	)	£	0.63	$	(0.96	)

Outstanding at March 31, 2010	11,077,732		£	0.58	$	(0.90	)	4,414,427	£	0.97	$	(1.50	)

The following is a summary of the status of the stock options outstanding at March 31, 2010:

	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	7.7			$	3.69	1,316,673			$	3.69
Medicsight Plan A	62,500	2.8	£	0.75	$	1.13	62,500	£	0.75	$	1.13
Medicsight Plan B	172,500	4.5	£	0.75	$	1.13	172,500	£	0.75	$	1.13
Medicsight Plan C	85,000	5.8	£	0.75	$	1.13	85,000	£	0.75	$	1.13
Medicsight Plan D	—	6.3	£	0.83	$	1.25	—	£	0.83	$	1.25
Medicsight Plan E	941,667	6.9	£	0.50	$	0.75	941,667	£	0.50	$	0.75
Medicsight Plan F	50,000	7.2	£	0.75	$	1.13	33,333	£	0.75	$	1.13
Medicsight Plan G	241,667	7.7	£	1.10	$	1.66	191,666	£	1.10	$	1.66
Medicsight Plan H	—	8.2	£	0.69	$	1.04	—	£	0.69	$	1.04
Medicsight Plan I	108,333	8.8	£	0.24	$	0.35	41,667	£	0.24	$	0.35
Medicsight Plan J	7,041,065	9.1	£	0.09	$	0.13	1,269,421	£	0.09	$	0.13
Medicsight Plan K	300,000	9.1	£	0.10	$	0.15	300,000	£	0.10	$	0.15
Medicsight Plan L	100,000	9.8	£	0.09	$	0.13	—	£	0.09	$	0.13

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 accounted 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 three months ended March 31, 2010 was $2. In the three months ended March 31, 2009 it was $37.

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

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	Three months ended March 31,
	2010		2009

Selling, general and administrative	$	421	$	457

Research and development	17		28

Discontinued operations	11		(4		)

Total	$	449	$	481

Of the $449 stock-based expense in the three months ended March 31, 2010, $96 was allocated to the non-controlling interest.

No compensation costs were capitalized.

The aggregate intrinsic value for options outstanding and exercisable at March 31, 2010 was $nil.

A summary of non-vested options at March 31, 2010 and the change during the three months ended March 31, 2010 is presented below:

	Number of Options		Weighted Average Grant Date Fair Value

Non-vested at January 1, 2010	6,897,469		£	0.31	$	0.48
Granted	100,000		£	0.04	$	0.07
Vested	(263,331	)	£	0.26	$	0.39
Forfeited	(70,833	)	£	0.41	$	0.63
Non-vested at March 31, 2010	6,663,305		£	0.19	$	0.30

At March 31, 2010 there was $2,779 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 2.2 years.

11. Non-controlling interest

The Company has non-controlling investors in Medicsight and, prior to its disposal, in Medicexchange as follows:

	Medicsight			Discontinued operations of Medicexchange			Total

Non-controlling interest at January 1, 2010	$	11,150		$	254		$	11,404
Non-controlling share of (losses)	(934		)	(14		)	(948		)
Non-controlling share of stock-based expense	93			3			96
Non-controlling share of other comprehensive (loss)	(372		)	(10		)	(382		)
Disposal of Medicexchange	—			(233		)	(233		)
Non-controlling interest at March 31, 2010	$	9,937		$	—		$	9,937

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12. Related Party Transactions

Tim Paterson-Brown, our Chief Executive Officer, was a non-executive director of Accsys Technologies plc, but resigned from this position on April 6, 2010. Accsys Technologies plc has a subsidiary company Titan Wood Limited, which rents space in 66 Hammersmith Road. In the three month period ended March 31, 2010 and 2009 respectively, $61 and $88 of office related costs were recharged to Titan Wood Limited. At March 31, 2010 there was a balance receivable from Titan Wood Limited of $68 of which $68 remains unpaid as of May 14, 2010. This is payable within 30 days under the terms of the invoice.

In Fiscal 2009 we purchased 49% of the share capital of Moneygate Group Limited (“Moneygate”). Moneygate is a related party as we have significant influence over it and have representation on the board of directors. On acquisition we provided loan facilities of £250 ($377) for working capital and £2,000 ($3,150) for acquisitions. In the three months ended March 31, 2010 we increased the working capital facility as acquisitions have been delayed and Moneygate still requires cash to fund its operations.

We charged Moneygate a $41 management fee for services provided in the three months to March 31, 2010 and $87 including sales tax, was outstanding as of March 31, 2010 relating to this and previous services charges. As of May 14, 2010 $87 remained unpaid.

13. 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 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.

We also have a satellite office in Tokyo, Japan, with a two-year rental agreement that began in March 2010.

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,
2010 (remaining nine months)	$	345
2011	302
2012	23
2013	2
2014	—
Later years	—
Total minimum	$	672

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 ($1,943) over an expected thirty-six month period. As at March 31, 2010 we have paid Euros 845 ($1,136). 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.

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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

As of March 31, 2010, following a detailed strategic review we have reduced our ongoing operating cost base and have disposed of our investments in Medicexchange, XShares, Hipcricket and Eurindia. We are focusing our cash and resources on our investment holdings in Medicsight plc and Moneygate Group Limited. Medicexchange’s results have been classified as discontinued operations.

The Company achieved the following results in the three months ended March 31, 2010:

· Revenue and gross profit from license and other sales was $62 compared to $61 in 2009.

· Other operating expenses, excluding the 2009 impairment of goodwill, decreased 17% to $3,223 compared to $3,872 in 2009.

· Net loss attributable to MGT Capital Investments, Inc. decreased 86 % to $2,135 and resulted in a loss per share of $0.07 compared to a net loss of $15,330 and net loss per share of $0.47 in 2009.

Revenue remains limited as we await regulatory approvals in what we consider to be our key markets of the USA and Japan. With regards to regulatory approvals for Medicsight products, we received a second request for Additional Information (AI) from the FDA in January 2010. We, in conjunction with our FDA advisors, are currently preparing a response and will shortly submit this to the FDA. 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 that impacted the consolidated statement of operations in the first quarter of Fiscal 2009, have decreased by 17%. This was predominantly due to two headcount reductions that Medicsight took in Fiscal 2009, the impact of which is being fully felt in the first quarter of Fiscal 2010. Together with reduced staff costs, a focus on reducing other expenses has reduced our discretionary spend.

Our investment in Moneygate which is accounted for by the equity method has not yet contributed to the statement of operations as it is currently generating net losses.

Net loss from Medicexchange amounted to $234, which is accounted for in discontinued operations together with a profit on disposal of $149, will not occur in the future.

The significant reduction in net loss was due to the impairment of $12,157 of goodwill relating to Medicsight in the first quarter of Fiscal 2009.

We have cash and cash equivalents of $15,600 compared to $22,165 as of December 31, 2009. The fall is mainly attributable to cash used in operating activities ($3,618).

Critical accounting policies and estimates

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The notes to the consolidated financial statements contained in this Annual Report describe our significant accounting policies used in

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the preparation of the consolidated financial statements. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. We continually evaluate our critical accounting policies and estimates.

We believe the critical accounting policies listed below reflect significant judgments, estimates and assumptions used in the preparation of our consolidated financial statements.

Revenue Recognition

Medicsight

Additionally:

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

Equity-based compensation

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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

Fair value of financial instruments

Investments

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

Impairment analyses were performed at various points of the year ended December 31, 2009 and the Company decided to fully impair goodwill relating to Medicsight, its investment in XShares, both the equity and the convertible loan notes, and its holding in Eurindia.

Recent accounting pronouncements

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Results of operations

Revenue and gross profit

We have generated revenues and gross profit of $62 for the three months ended March 31, 2010, compared to $61 for the three months ended March 31, 2009. Medicsight’s revenue was similar to the prior year as we have not yet received regulatory approvals in what we consider to be our key markets of Japan and the USA, only selling licenses in Europe. There is currently no cost of sales associated with license revenue for Medicsight.

Medicexchange’s revenues, for both the three months ended March 31, 2010 and 2009 have been classified as discontinued operations.

Operating expenses

Our research and development expense for the three months ended March 31, 2010 was $396 compared to $459 for the three months ended March 31, 2009. 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 predominantly due to the reduction in headcount incurred in Fiscal 2009.

Our selling, general and administrative expenses for the three months ended March 31, 2010 were $2,827 compared to $3,413 for the three months ended March 31, 2009, with the significant items being:

· People related costs have decreased by $1,114 (50%) due to a reduced head count across the group. This includes lower provision for bonus costs and reduced recruitment costs as well as lower salary costs;

· Stock option charges were $421 in the three months ended March 31, 2010 compared to $457 in the comparative period.

· Legal and professional fees have increased by $305 in the three months ended March 31, 2010 compared to the comparative period.

· A weakening of the dollar against sterling has increased all elements of selling, general and administrative expenses by approximately $240 in the three months ended March 31, 2010 compared to the three months ended March 31, 2009.

Interest and other (expense) and discontinued activities

Interest and other (expense) was $7 in the three months ended March 31, 2010.

On March 31, 2010 Medicexchange and other investments were divested. Consideration for the investments was £750 ($1,136) and is due to be paid through March 31, 2011.

As Eurindia and the XShares equity and convertible notes had been fully impaired a profit on disposal of $3, representing the consideration receivable, was recorded in the statement of operations. HipCricket was recorded in MGT’s books at a value of $224 so a loss on disposal of $19 was recognized.

Before their disposal, Medicexchange Limited and Medicexchange Inc. were consolidated into the MGT Consolidated Financial Statements. Consideration of $928 was allocated to Medicexchange and MGT recorded a profit on disposal of $149. This is netted off against the $234 loss on Medicexchange operations giving a net loss of $85 for discontinued operations.

The $1,136 consideration is deferred and is scheduled to be received through March 31, 2011.

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Income tax

Our effective tax rate for the three months ended March 31, 2010 is (8.4)%. Medicsight received $170 as a tax credit for research and development costs incurred in Fiscal 2008. We have not provided for any research and development claims in the accounts until the claim is authorized and paid, due to the uncertainty on the claim being accepted. The remainder of 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 $2,135 for the three months ended March 31, 2010 compared to a net loss of $15,330 for the three months ended March 31, 2009. Net loss per share for the three months ended March 31, 2010 was $0.06 for continuing operations and $0.01 for discontinued operations (based on weighted average shares outstanding of 32,550,590), compared to $0.46 and $0.01 respectively for the three months ended March 31, 2009 (based on weighted average shares outstanding of 32,550,590).

The decrease in net loss between the three months ended March 31, 2010 and 2009 was predominantly due to the goodwill impairment in the three months ended March 31, 2009.

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 three months ended March 31, 2010 the average rate was $1.54: £1.00 and for three months ended March 31, 2009 the rate was $1.43:£1.00, an increase of 7%.

Medicsight operating results

	Three months ended March 31,
	2010			2009

Revenue	$	62		$	61
Selling, general and administration costs	(1,908		)	(3,136		)
Research and development	(396		)	(459		)
Operating expense	(2,304		)	(3,595		)
Stock-based compensation (included in operating expenses)	(209		)	(310		)
Operating loss	(2,242		)	(3,534		)
Interest and other income	16			39

	March 31, 2010		March 31, 2009

Cash	$	13,762	$	22,348
Net assets	13,934		21,597

In the three months ended March 31, 2010 sales of our CAD products were flat compared to the comparable period in the prior year. Licenses have been sold in Europe but we have yet to receive approvals in the USA and Japan, which we consider to be our key markets.

In the three months ended March 31, 2010 Medicsight launched MedicCO2lon, its insufflator product. It also signed an agreement with a global medical devices company to distribute MedicCO2lon and revenue is expected to begin in the second quarter of 2010.

With regards to regulatory approvals we received a second request for Additional Information (AI) from the FDA in January 2010. We, in conjunction with our FDA advisors, are currently preparing a response and will shortly submit this to the FDA. We also await a further update from the Ministry of Health, Labour and Welfare (MHLW) regulatory authorities in Japan.

Our operating expenses have reduced from $3,595 in 2009 to $2,304 in 2010. Due to the delays in receiving regulatory approvals in Japan and the USA Medicsight management made the decision in Fiscal 2009 to reduce headcount and streamline

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operations, but without jeopardising longer term research, product development or clinical activities. The effects of these decisions are now being reflected in the statement of operations with a significantly lower cost base.

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 2009 due to the reduction in headcount.

In the three months ended March 31, 2010 stock option accounting charges fell as Medicsight employed fewer people than in the same period in the prior year.

Interest and other income reduced as Medicsight’s cash balances were lower than in 2009 due to cash spent in operations.

Other investments

Moneygate

On October 8, 2009 we invested a nominal sum in Moneygate Group Limited (“Moneygate”), a UK based Independent Financial Advisor (“IFA”), and acquired 49% of its share capital. We also provided a £250 ($398) working capital facility and an acquisition facility of £2,000 ($3,186) facility for acquisitions. As at December 31, 2009 the working capital facility had been fully drawn down as had £100 ($159) of the acquisition facility in anticipation of a potential acquisition that eventually did not occur.

Moneygate’s business plan is predicated on acquisition-based growth in the fragmented UK IFA market and we are providing it with the capital to expand. Moneygate has not yet made any acquisitions but has organically increased the number of IFAs employed. Its management is currently reviewing a number of potential acquisitions and hopes to complete one by the end of the first half of 2010.

In the three months ended March 31, 2010 we extended the working capital facility as acquisitions have been delayed and Moneygate still requires cash to fund its operations. Following acquisitions we expect Moneygate to generate positive cash flows.

As Moneygate is accounted for by the equity method and is currently generating net losses, Moneygate’s results are not reflected in the Consolidated Statement of Operations or the Consolidated Balance Sheets.

Moneygate is classified as a related party because MGT has representation on its board of directors.

Eurindia Limited

XShares Group

HipCricket Inc.

In Fiscal 2007 we invested $2,000 in HipCricket Inc., a company engaged in mobile marketing. In the year ended

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December 31, 2009 HipCricket Inc. was delisted from the AIM Market and we accounted for it as an investment held at cost. As at December 31, 2009 the investment was held at a book value of $224. On March 31, 2010 we disposed of all of our holding in HipCricket for $205.

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 March 31, 2010 Medicsight’s share price was £0.05 ($0.08) compared to £0.08 ($0.13), as of December 31, 2009. This valued Medicsight at £4,300 ($6,381), compared to £6,794 ($10,821) as of December 31, 2009.

As of May 13, 2010 Medicsight’s share price was £0.05 ($0.07 ) valuing the Company’s investment at £4,085 ($6,156), using a $:£ exchange rate of 1.4826.

Liquidity and capital resources

Working capital information

	March 31, 2010			December 31, 2009
Working capital summary
Cash and cash equivalents	$	15,600		$	22,165
Current assets	18,515			23,385
Current liabilities	(1,514		)	(2,244		)
Working capital surplus	$	17,001		$	21,141
Ratio of current assets to current liabilities	12.2			10.4

	Three months ended March 31,
	2009			2008
Cash flow summary
Cash (used for) provided by
Operating activities	$	(3,618	)	$	(5,075	)
Investing activities	(1,662		)	(14		)
Discontinued operations	(226		)	(334		)
Effects of exchange rates on cash and cash equivalents	(1,059		)	(265		)
Net cash flow	$	(6,565	)	$	(5,688	)

Our cash and cash equivalents have decreased during 2010 predominantly because of the $3,618 used in operating activities. Our net cash used in operating activities differs from net loss predominantly because of various non-cash adjustments such as stock-based compensation and movements in working capital.

Included in investing activities is a further $528 advanced to Moneygate, with $414 for the working capital facility and $114 for the acquisition facility. Medicexchange was sold during the three months ended March 31, 2010 and $1,101 of cash was disposed of as part of this transaction, also included within investing activities.

Our ratio of current assets to current liabilities remains strong at 12.2. This is a result of the $15,600 of cash held in the Company.

Moneygate acquisition facility

On the purchase of 49% of Moneygate we made available a £2,000 ($3,015) facility to Moneygate to make acquisitions. As of March 31, 2010 £175 ($267) had been drawn down and there is a further £1,825 ($2,748) available.

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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.

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 a satellite offices in Tokyo (Japan) with a two year rental agreement.

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	$	672	$	345	$	325	$	2
Purchase obligations	807		807		—		—

Total	$	1,479	$	1,152	$	325	$	2

Recent accounting pronouncements

There are no recent accounting pronouncements that have not yet been adopted that the Company believes may have a material impact on its 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 $156 change in interest income.

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

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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 a subsidiary operations in Japan that operates in Yen.

Our operating costs in Fiscal 2010 were predominantly in UK sterling; we do not foresee any change in the remainder of 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 three months ended March 31, 2010 of approximately $292.

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 March 31, 2010 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 our 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 or if any of the products 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 a material adverse 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 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 or be slower to accept it than we anticipate. Revenues from Medicsight CAD 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. 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

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develop will not have a competitive edge over Medicsight CAD products. With delayed regulatory approvals and/or disputed clinical claims we may not have a commercial or clinical advantage over competitors’ products. Should a superior offering 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 March 31, 2010. 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 our business, financial condition, results of operations and future prospects.

We face financial risks as we are a developing company

We have incurred significant operating losses since inception and have limited revenue from operations. As a result, we have generated negative cash flows from operations and our cash balances continue to reduce. While we are optimistic and believe appropriate actions are being taken to mitigate this, there can be no assurance that attempts to reduce cash outflows will be successful and this could have a material adverse effect on our business, financial condition, results of operations.

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 Medicsight, a UK public company which is 55% owned by the MGT Capital Investments, Inc. and through Medicsight’s subsidiaries in the United Kingdom and Japan. Although MGT and Medicsight 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

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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.

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. We currently do 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 and receivables at the value at which we have recorded them.

We have a number of investments and receivables held at both at market value and at cost. There is a risk that we may not be able to swiftly realize these investments and receivables at the fair value or cost at which they are recorded in the financial statements. If we are unable to quickly realize these investments and receivables 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 March 31, 2010 no shares of common stock were issued.

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Item 3. Defaults upon senior securities

None.

Item 4. [Removed and Reserved]

Item 5. Other information

None

Item 6. Exhibits

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


May 14, 2010