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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-K**

 

**FORANNUAL AND TRANSITION REPORTS PURSUANT TO**

**SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 
| **x** | **ANNUAL REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

**For the fiscal year ended: December 31, 2009.**

 

**OR**

 
| **o** | **TRANSITION REPORT UNDER  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.** |
|-------|----------------------------------------------------------------------------------------------------|

 

**For the transition period from                  to                  **

 

**MGTCAPITAL INVESTMENTS, INC.**

(Exact Name ofRegistrant as Specified in its Charter)

(formerlyMedicsight Inc.)

 

| **Delaware**                                                     | ** ** | **0-26886**               | ** ** | **13-4148725**                        |
|------------------------------------------------------------------|------------|---------------------------|------------|---------------------------------------|
| (State or Other  Jurisdiction  of Incorporation or Organization) |       | (Commission  File Number) |       | (I.R.S. Employer  Identification No.) |

 

**KensingtonCentre, 66 Hammersmith Road, London W14 8UD, United Kingdom**

(Address ofprincipal executive offices, including zip code)

 

**011-44-207-605-1151**

(Registrant’s TelephoneNumber, Including Area Code)

 

Securities registeredunder section 12(b) of the Exchange Act:  **Commonstock, par value $0.001 per share**

 

Securities registeredunder section 12(g) of the Exchange Act:  **Notapplicable**

 

Name of each exchange onwhich registered: **NYSE AMEX**

 

Indicate by check mark ifthe Registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.  Yes o  No x

 

Indicate by check mark ifthe Registrant is not required to file reports pursuant to Section 13 or15(d) of the Act.  Yes o No x

 

Check whether the issuer:(1) filed all reports required to be filed by Section 13 or 15(d) ofthe Exchange Act during the past 12 months (or for such shorter period that theregistrant was required to file), and (2) has been subject to such filingrequirements for the past 90 days.  Yes x  No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted 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 registrantwas required to submit and post such files).  Yes o  No o

 

Indicate by check mark ifdisclosure of delinquent filers is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K.  x

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one):

 

| Large  Accelerated Filer  o        |   | Accelerated  filer  o         |
|----------------------------------------------|--------|-----------------------------------------|
|                                         |   |                                    |
| Non-accelerated  Filer  o          |   | Smaller  reporting company  x |
| (Do not check if  smaller reporting company) |   |                                    |

 

Indicate by check markwhether the Registrant is a shell Company (as defined in Rule 12b-2 of theAct).  Yes o  No x

 

As of June 30,2009, the last day of the registrant’s most recently completed second fiscalquarter, the aggregate market value of the registrant’s common stock held bynon-affiliates of the registrant was approximately $9,216,000.

 

The common stock is theregistrant’s only class of stock.

 

As of March 30, 2010the registrant had outstanding 32,550,590 shares of common stock, $0.001 parvalue (excludes 6,349,793 common shares held as treasury stock).

 

 

 

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MGT CapitalInvestments Inc.

Form 10-K

 

Table of Contents

 
|        |   | PART I                                                                                                         |
|-------------|--------|---------------------------------------------------------------------------------------------------------------------|
| Item 1      |   | Business                                                                                                            |
| Item 1A     |   | Risk Factors                                                                                                        |
| Item  1B    |   | Unresolved  Staff Comments                                                                                          |
| Item 2      |   | Properties                                                                                                          |
| Item 3      |   | Legal  Proceedings                                                                                                  |
| Item  4     |   | Submission  of Matters to a Vote of Security Holders                                                                |
|        |   |                                                                                                                |
|        |   | PART II                                                                                                        |
| Item 5      |   | Market for Registrant’s  Common Equity, Related Stockholder Matters and Issuer Purchases of Equity  Securities |
|        |   |                                                                                                                |
| Item 6      |   | Selected  Financial Data                                                                                            |
| Item 7      |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |
| Item 7A     |   | Quantitative  and Qualitative Disclosures About Market Risk                                                         |
| Item 8      |   | Financial  Statements and Supplementary Data                                                                        |
| Item 9      |   | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                               |
| Item 9A (T) |   | Controls and  Procedures                                                                                            |
| Item 9B     |   | Other Information                                                                                                   |
|        |   |                                                                                                                |
|        |   | PART III                                                                                                       |
| Item 10     |   | Directors,  Executive Officers and Corporate Governance                                                             |
| Item 11     |   | Executive  Compensation                                                                                             |
| Item 12     |   | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    |
|        |   |                                                                                                                |
| Item 13     |   | Certain  Relationships and Related Transactions, and Director Independence                                          |
|        |   |                                                                                                                |
|        |   | PART IV                                                                                                        |
| Item 14     |   | Principal  Accountant Fees and Services                                                                             |
| Item 15     |   | Exhibits  and Financial Statement Schedules                                                                         |
|        |   |                                                                                                                |
| Signatures  |   |                                                                                                                |

 

All financialamounts are in thousands except share and per share data.

 

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NOTE REGARDINGFORWARD LOOKING STATEMENTS

 

This Annual Report on Form 10-K,including the section entitled “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” in Item 7, containsforward-looking statements that involve risks and uncertainties, as well asassumptions that, if they never materialize or prove incorrect, could cause theresults of MGT Capital Investments, Inc. and its consolidated subsidiaries(the “Company”) to differ materially from those expressed or implied by suchforward-looking statements. All statements other than statements of historicalfact are statements that could be deemed forward-looking statements, includingany projections of revenue, gross margin, expenses, earnings or losses fromoperations, synergies or other financial items; any statements of the plans,strategies and objectives of management for future operations, including therate of market development and acceptance of medical imaging technology; theexecution of restructuring plans; any statement concerning developments,performance or industry rankings relating to products or services; anystatements regarding future economic conditions or performance; any statementsof expectation or belief; and any statements of assumptions underlying any ofthe foregoing. The risks, uncertainties and assumptions referred to aboveinclude the performance of contracts by suppliers, customers and partners;employee management issues; the difficulty of aligning expense levels withrevenue changes; and other risks that are described herein, including but notlimited to the specific risks areas discussed in “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” in Item 7 ofthis report, and that are otherwise described from time to time in the Company’speriodic disclosure statements and for reports filed with the Securities andExchange Commission. The Company assumes no obligation and does not intend toupdate these forward-looking statements.

 

The Company’s mainoperating currency is UK sterling (£).

 

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**PART I**

 

**ITEM1**                                           **BUSINESS**

 

MGT Capital Investments,Inc (“MGT”, “we”, “us”, “the Group”, “the Company”) is a holding company. We currently have a controlling interest in our two main operatingsubsidiaries: 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 MedicsightNominees Limited.

 

·                               Medicsightand its wholly owned subsidiaries is a medical imaging software developmentcompany 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 assistradiologists in the early detection and measurement of colorectal polyps andlung lesions.  Medicsight currently has limited revenue and is awaitingregulatory approvals in key markets.  TheCompany holds 86 million shares (55%) of the 155 million issued share capitalof Medicsight.

 

·                               Medicexchangeand its majority owned subsidiaries provide medical imaging professionals witha global web portal containing an online sales channel for diagnostic,treatment and surgery planning solutions.  This combined with a variety ofrelevant clinical papers, training materials and content gives these medicalimaging professionals access to information and products that they otherwisewould 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.

 

·                               MGTand its subsidiaries also hold various other investments.  The Company has a 49% holding in MoneygateGroup Limited, a UK based firm of Independent Financial Advisors, and equityinvestments in XShares Group LLC, HipCricket Inc. and Eurindia Limited.

 

**Medicsight**

 

Medicsight plc is anindustry leader in the development of Computer-Aided Detection and imageanalysis software to assist radiologists in the early detection and diagnosisof disease.  The Company’s focuscontinues to be on developing CAD software applications and relatedtechnologies that help clinicians analyze medical images generated from CTscanners for the early detection of potential colonic polyps.

 

**Productdevelopment**

 

*ColonCAD*

 

Medicsight’score technology is the proprietary ColonCADTM algorithm that is integrated(using application protocol interface (“API”) technology) into visualisationworkstations for radiologists to use when reviewing a patient’s colon CT scandata.

 

TheCAD algorithm assists the radiologist as they search for polyps in the CT scanimage data.  The radiologist uses thevisualisation software to review the patient’s CT scan images on the screen andsearch for polyps (potentially pre-cancerous lesions on the wall of thecolon).  After a full review the radiologistthen activates the Medicsight ColonCADTM software - which immediately displays “CADmarks” on the images, drawing the radiologist’s attention to potentialpolyps.  The radiologist then assesseseach marked region in order to make the final decision as to the presence orabsence of a polyp.

 

Clinicalstudies have demonstrated that radiologists assisted by Medicsight’s ColonCADTMtechnology have a significantly higher sensitivity for the detection ofpatients with polyps in CT colonography compared to unassisted reading (i.e.traditional reading without the use of ColonCADTM).

 

Medicsightcompleted work on ColonCAD 4.0 and formally launched this product at theEuropean Congress of Radiology in March 2009. This new releasesignificantly reduces the number of false-positive CAD marks presented to a radiologistreviewing a patient data set.  Thisshould lead to further improvements in reader performance when assisted by theColonCADTM software.  We believe that thisversion of ColonCADTM extends Medicsight’s position as a provider of one of theworld’s leading colon CAD software solutions.

 

Medicsight’sColonCADTM has been developed and validated using a large database of CT scansfrom hospitals around the world and has been assessed in many clinical studies,the results of which have been published in peer-reviewed publications andpresented at leading radiology conferences.

 

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*MedicRead*

 

The MedicRead product isMedicsight’s advanced visualisation software application for CTcolonography.  The latest version of thisproduct (version 3.0) was launched in June 2009 and featured improvedworkflow flexibility, enhanced 3D visualisation options, as well as providingstate-of-the-art CAD functionality though its integration with the new ColonCAD4.0 product.

 

MedicRead is a flexibleoption for hospitals and clinics unable to invest large capital sums in newimage analysis infrastructure.  MedicReadcan be deployed either on a standalone basis or integrated into an existingclinical IT infrastructure (e.g. a PACS environment).

 

*MedicCO**2**LON*

 

In addition to thecomputer aided detection software applications, Medicsight have developed anautomated carbon dioxide (CO2) insufflationdevice called MedicCO2LON.

 

Each patient that has aCT colon scan requires their colon to be insufflated (distended) with either CO2gas or room air administered prior to the acquisitionof their CT colonography images.  MedicCO2LON is designed to provide good quality insufflation,which is essential for the acquisition of high quality images from the CTcolonography examination.

 

*Longerterm projects*

 

Some longer term colonrelated opportunities that we continue to research include:

 

·                  Flat lesions (which are non-protrudinglesions in the Colon) have recently received much clinical interest.  The Medicsight team are researching CADtechnology for the detection of these flat lesions to compliment the existingColonCAD application.

 

·                  Optical endoscopy - working with leadingLondon academic and clinical centres, Medicsight is researching the use of CADand other image analysis technologies in the field of optical endoscopy, with aview to these technologies combining information in real time (i.e. as aclinician examines a patient) from sources of patient data.

 

*Intellectual Property*

 

Medicsight continues todevelop its intellectual property portfolio to protect the core technology inits CAD and other products.  During 2009patents were granted in the UK and US covering aspects of Medicsight CADalgorithms (for both Colon and Lung) as well as image processing methodsrelated to the identification of the boundary of lesions.

 

**Regulatoryapprovals and submissions**

 

*US Food and Drug Administration clearance*

 

In November 2008 Medicsight submitted the ColonCADTM510(k) application to the Food and Drug Administration (“FDA”) forclearance in the USA.

 

In December 2008 wereceived an Additional Information (“AI”) letter from the FDA and submitted ourresponse to the FDA’s enquires in March 2009.

 

During the summer of 2009we had a number of informal meetings and discussions with the FDA as theyperformed their review of our 510(k) submission.

 

On January 5, 2010we received our second Additional Information (“AI”) letter from the FDA, inwhich the FDA has requested further technical details regarding the clinicaltrials and data analyses undertaken in our 510(k) submission - which theCompany will respond to before the deadline of June 21, 2010.

 

In February 2010 wereceived European CE approval for our MedicCO2LONinsufflator product.

 

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*Japanese Ministry of Health, Labour and Welfare*

 

In November 2007 wesubmitted our MedicRead Colon application to the Ministry of Health, Labour andWelfare (“MHLW”) regulatory authorities in Japan.

 

During 2008 and 2009 weattended a number of meetings with ministry officials, demonstrated theproduct, answered specific questions regarding the product application andformally responded to questions from the MHLW.

 

*Other regulatory territories*

 

In 2009 version 4.0 of the Medicsight ColonCAD API andMedicRead 3.0 (our visualization workstation which includes version 4.0 of theMedicsight ColonCAD API) received European (CE) approval, Australian approvaland Canadian approval.

 

In November 2009 wesubmitted MedicRead 3.0 to the Chinese State Food and Drug Administration (“SFDA”)for approval.

 

**ClinicalActivity**

 

Medicsight’s ClinicalDevelopment team continued their work supported by a network of global medicalluminaries.

 

European Medical AdvisoryBoard meetings were held in January and June 2009 to take advice fromclinical experts regarding the continuing development of Medicsight’s productroadmap and clinical research program.

 

Close collaborationcontinued with leading Virtual Colonoscopy radiologists - including ProfessorPerry Pickhardt and Dr. David Kim from the University of Wisconsin MedicalSchool who completed a large research study to evaluate the performance ofColonCADTM 4.0.

 

In this study, theperformance of Medicsight’s version 4.0 ColonCAD was compared to thesensitivity of experienced radiologists for the ability to detect colorectalpolyps on CT colonography image datasets. The study assessed the CAD’s performance across more than 3,000 patientswho had undergone CTC screening for colorectal cancer.

 

The Medicsight CADcorrectly identified (a) 94% of patients who had a polyp that was 6mm orlarger; and (b) 96.5% of patients who had a polyp 10mm or larger insize.  (The CAD’s performance at the 10mmor larger threshold is particularly important as polyps in this size range areconsidered to be significant findings that require further investigation byoptical colonoscopy).

 

In the study, 96% of allindividual polyps 10 mm or larger were detected by the Medicsight CAD system.Significantly, the Medicsight CAD detected 15 polyps 6mm or larger that weremissed by the experienced radiologists in their unassisted review of the patientdata — four of which were clinically significant at larger than 10mm in size.

 

This study provides clearevidence-based outcomes - demonstrating the added value of Medicsight’sColonCAD application to the clinician.

 

The results of this CADstudy, the largest of its kind to date, were presented at the 10thInternational Symposium on Virtual Colonoscopy in Reston, Virginia in October 2009.  A scientific paper on the study is currentlyundergoing peer-review with a leading journal with publication expected in2010.

 

Scientific presentationsof Medicsight’s CAD research were also made at the annual European Congress ofRadiology (held in Vienna during March 2009), at the 20th Annual Meetingof the European Society of Gastrointestinal and Abdominal Radiology “ESGAR”(Valencia, Spain, June 2009) and the annual Radiological Society of NorthAmerica “RSNA” conference (Chicago, USA, December 2009).

 

CAD research focused oninvestigating the impact of CAD on radiologist readers when interpreting CTcolonography images.

 

In addition to theUniversity of Wisconsin study, the results of research undertaken at UniversityCollege Hospital, London and the Japanese National Cancer Centre in Tokyodemonstrated the positive benefit of ColonCAD in improving reader performance.

 

Medicsight continued tosupport of a number of international CT colonography training workshops,including those delivered by leading US proponents of CT colonography,Professor Perry Pickhardt (University of Wisconsin Medical School) and JudyYee, MD 

 

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(Associate Professor and Vice Chair of Radiology atthe University of California, San Francisco). Medicsight again supported the bi-annual ESGAR CTC training workshops;held in Harrogate (UK) and Stresa (Italy) during 2009.  These workshops train radiologists tointerpret CTC images using the latest visualization and CAD technology and arefundamental to the increasing acceptance and implementation of CT colonographyand CAD as a routine imaging examination for investigation of the colon.

 

**Commercial progress**

 

Medicsight’s primaryroute to market is via partnerships with global advance visualizationcompanies, PACS suppliers and other OEM’s.

 

In June 2009,Medicsight signed a global partnership agreement with Alma IT Systems of Spainfor the integration of Medicsight ColonCADTM API within Alma Colon, Alma’slatest 3D visualization colon workstation.

 

This partnershipagreement is in addition to our existing agreements with Vital Images Inc.,TeraRecon Inc., Viatronix Inc. and Toshiba Medical Visualization Systems(previously Barco NV), Infinitt, Ziosoft Inc., and Intrasense SAS.

 

In January 2010 wesigned a global distribution agreement for MedicCO2LON with MEDRAD Inc.  The product was CE marked in February 2010and is to be launched in Europe in 2010. Approval for additional territories will commence in 2010.

 

**Revenue and Growth Strategy**

 

Revenues remain limited and have fallen as a result ofreduced foreign exchange rates — Medicsight recorded $180 in 2009 compared to$191 in 2008. Medicsight ended 2009 with net assets of $16,608 including$17,058 of cash and short term deposits.  At various points during theyear we have invested our surplus cash in highly liquid, blue chip marketablesecurities and foreign currencies.  At December 31, 2009 all of ourliquid assets were held as short term cash balances, mainly in sterling. Postyear end, we continue to hold our surplus cash on short term deposit.

 

In early 2009 and again at the end of the year the boardcompleted a review of the product development roadmap, the status of regulatoryapprovals and partner integration activities, and initiated cost restructuringprograms to drive cashflow savings without jeopardizing longer term plans.

 

In addition we expect revenue to be higher this year asEuropean license sales increase and we start the commercialization of ourMedicCO2LON insufflation device. We awaitfurther news on our US and Japanese regulatory approvals and timescales forthem to contribute to revenues.

 

**Competition**

 

The Company’s competitorscan be divided into two categories: (a) multidetector computed tomographyscanner manufacturers such as GE, Hitachi, Philips, Siemens and Toshiba; and (b) independentCAD software providers.

 

A number of MDCTmanufacturers offer CAD solutions that are available in European markets,however currently the only FDA approved CAD is Siemens Lung CAD.

 

In the CAD vendor market,there are a number of small, independent software providers, which include:

 

·                          im3D(Italy) — have developed a Colon CAD product that is CE certified but not FDAcleared;

 

·                          MedianTechnologies (France) — have developed a Colon CAD product and a Lung CAD(CAD-lung) — both have CE approval but not FDA clearance;

 

·                          MevisMedical Solutions AG (Germany) — have a Lung CAD product that is FDA approved;and

 

·                          iCADInc. (USA) — have developed a Colon CAD product which is CE approved and havesubmitted to the FDA for approval.

 

·                          CadensImaging (Canada) — have also developed a Colon CAD product which is CE approvedand has been submitted to the FDA for approval.

 

**Patents and Trademarks**

 

Protection of ourproprietary technology and our rights over that technology, from copy orunchallenged and improper use, is 

 

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essential to our future success. Any challenges to, ordisputes concerning, our core technology may result in great expense to us,delays in bringing products to market and disruption of our focus on our coreactivities. They may also result in loss of rights over our technology or theright to operate in particular markets due to adverse legal decisions againstus.

 

Medicsight has filedpatent applications in the United Kingdom, the United States, the EuropeanPatent Office, Japan, South Korea, Australia, Canada, and under the InternationalPatent Cooperation Treaty (which currently has 128 member countries) coveringour core technologies and their applications.  We have recently filed newpatent applications covering technology of both Medicsight CAD and intend tocontinue filing new applications in the future.  Two patents have beengranted in the US covering aspects of Medicsight CAD technology.  Althoughprior art searches have been carried out, we cannot provide assurance that anyor all of the pending patents will be granted or that they will not bechallenged, or that rights granted to us will actually provide us withadvantage over our competitors. Medicsight actively reviews third party patentsand is not currently aware of any that our products will infringe.

 

“Medicsight” ® , “Medicsight Colon Screen” ® , “Medicsight Lung Screen” ® , “Medicsight Colon CAR” ® , “Medicsight Lung CAR” ® , “Medicsight Computer Assisted Reader” ® , “Medicsight See More, Save More” ®  and “Lung CAR” ®  have been registered as trademarksin the United Kingdom.  “Medicsight” ®   has also been registered in the United States,the European Union, Australia, China and a number of other countries.  “MedicRead”®  hasbeen registered as a trademark in the European Union.  These trademarksare important to the corporate identity in connection with Medicsight CAD.

 

Failure to registerappropriate patents, copyrights or trademarks in any jurisdiction may impedeour ability to create brand awareness in our products, result in expenses inpursuing our rights with respect to our intellectual property, or result inlost revenues due to intellectual property disputes. Where we may be requiredto purchase licenses from sellers with prior rights in any country, we cannotassure you that we will be able to do so at a commercially acceptable cost.

 

**Medicsight’s admission to the AIMMarket of the London Stock Exchange**

 

On June 21, 2007,Medicsight completed its initial public offering on the AIM Market of theLondon Stock Exchange.  29 million new shares were issued to institutionaland other investors at a price of £1.10 ($2.20) per share raising £32,000 ($64,115) gross new money.  Medicsight incurred fees of £1,550($3,096), including fees of $298 with Asia IT Capital Investments Ltd (arelated party).  £5,500 ($11,100) of the net proceeds were used to repaydebt (between Medicsight and the Company).

 

Immediately prior to theMedicsight IPO the Company sold down, by private placement, 11.7 million of itsMedicsight plc shares.  The shares were priced at £1.10 ($2.20) — the sameprice as the Medicsight IPO.  Gross proceeds on the private placement were£12,845 ($25,736).  We incurred fees with Asia IT Capital Investments Ltd(a related party) of £578 ($1,167).  These proceeds were received on July 27,2007.

 

After the Company’sprivate placement and the Medicsight IPO, the Company held 85 million of the155 million issued share capital of Medicsight.  Since the IPO the Companybought back 1 million of Medicsight’s shares bringing our holding to 86 millionshares, which is 55% of the outstanding share capital of Medicsight.

 

**Medicexchange Limited**

 

Medicexchangeis a global imaging portal focusing on the medical vision sector through itswebsite Medicexchange.com.  In the year,Medicexchange disposed of its Chinese website business.  Medicexchange has endeavored to build trafficand registered users, predominantly from North America.

 

Whilstuser numbers have been increasing, revenue generation has not been forthcomingdue to tightening of corporate advertising budgets and the general globaleconomic conditions.

 

Weare currently reviewing options for the Medicexchange business.

 

**Otherinvestments**

 

Wehold other investments.  In Fiscal 2009we invested in Moneygate Group Limited (“Moneygate”), a UK based IndependentFinancial Advisor, acquiring 49% of the business.  We account for our investment in Moneygate asan equity method investment.  We havealso advanced a working capital facility as well as a longer term loan to allowthe business to grow through acquisition.

 

Aswell as holding equity in XShares LLC we have also, in Fiscal 2009, have issuedconvertible loan notes to XShares.  Wealso have holdings in Hipcricket Inc. and Eurindia Limited.

 

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Duringthe Fiscal 2009 we reviewed the value of our holdings in Eurindia Limited andXShares LLC and decided to fully impair the investments and convertible loannotes.

 

**Employees strategy**

 

As of December 31,2009 the Company and its subsidiaries had 62 employees, all of whom werefull-time employees.  Our employees are not part of a union.

 

**Financial Information**

 

Note 19 to theConsolidated Financial Statements provides information on the Company’s segmentreporting.

 

**General**

 

MGT was originallyincorporated as a Utah corporation in 1977 and was re-incorporated in Delawarein 2000.  At December 31, 2009 the Company’s authorized share capitalwas 75,000,000 shares of common stock, par value of $0.001.

 

In January 2007 theCompany changed its name from Medicsight Inc. to MGT Capital Investments, Inc.

 

At March 26, 2009,38,900,383 shares of our common stock had been issued and 32,550,590 wereoutstanding.

 

Our principal executiveoffice is located at Kensington Centre, 66 Hammersmith Road, London W14 8UD,United Kingdom, telephone 011-44-207-605-1151, facsimile 011-44-207-605-1171.

 

Our web address iswww.mgtci.com. Information on our website is not included as a part of thisAnnual Report.

 

**Available information**

 

We will provide, uponrequest and free of charge, paper copies of our annual report on Form 10-K,quarterly reports on Form 10-Q and current reports on Form 8-K,including any amendments to the foregoing reports, as soon as is reasonably practicableafter such material is electronically filed with, or furnished to, theSecurities and Exchange Commission.  These materials along with our Codeof Business Conduct and Ethics are also available through our corporate websiteat www.mgtci.com.  A copy of this annual report on Form 10-K islocated at the Securities and Exchange Commission’s Public Reference Room at100 F Street, NE, Washington, D.C. 20549.  Information on the operation ofthe Public Reference Room can be obtained by calling the SEC at1-800-SEC-0330.  The public may also download these materials from theSecurities and Exchange Commission’s website at http://www.sec.gov.  Anyamendments to, and waivers of, our Code of Business Conduct and Ethics will beposted on our corporate website.

 

**ITEM1A.**                                       **RISK FACTORS**

 

Discussionof our business and operations included in this annual report on Form 10-Kshould be read together with the risk factors set forth below. They describevarious risks and uncertainties to which we are or may become subject. Theserisks and uncertainties, together with other factors described elsewhere inthis report, have the potential to affect our business, financial condition,results of operations, cash flows, strategies or prospects in a material andadverse manner.  New risks may emerge atany time, and we cannot predict those risks or estimate the extent to whichthey may affect our financial performance. Each of the risks described belowcould adversely impact the value of our securities.  These statements, like all statements in thisreport, speak only as of the date of this report (unless another date isindicated), and we undertake no obligation to update or revise the statementsin light of future developments.

 

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

 

The Company has only had a limited operating historyand has just commenced generating revenue from operations upon which anevaluation 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 newbusiness in a constantly changing industry. There can be no assurance that the Company will be able to achieveprofitable operations in the foreseeable future if at all.

 

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

 

**Company specific risks**

 

*We may be unable to develop our existing or futuretechnology.*

 

Our Medicsight CAD system may not deliver the levels of accuracy andreliability needed to make it a successful product in the market place. Additionally, the development of such accuracy and reliability may beindefinitely delayed or may never be achieved.  Failure to develop this orother technology could have an adverse material effect on the Company’sbusiness, 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 beslower to develop or smaller than estimated or it may be more difficult tobuild the market than anticipated.  Themedical community may resist Medicsight CAD and the Medicexchange.com productsor be slower to accept them than we anticipate. Revenues from Medicsight CAD and Medicexchange.com may be delayed orcosts may be higher than anticipated which may result in the Company requiringadditional funding.  Medicsight’s principal route to market is viacommercial distribution partners.  Thesearrangements are generally non-exclusive and have no guaranteed sales volumesor commitments.  The partners may beslower to sell our products than anticipated. Any financial, operational or regulatory risks that affect our partnerscould also affect the sales of our products. In the current economic environment, hospitals and clinical purchasingbudgets that are reliant on external debt finance may result in purchasingdecisions being delayed.  If any of thesesituations were to occur this could have a material adverse effect on theCompany’s business, financial condition, results of operations and futureprospects.

 

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

 

The Medicsight CAD system is subject to regulatory requirements in theUSA, Europe, Japan, China and our other targeted markets.  Necessary regulatory approvals may not beobtained or may be delayed.  We may incur substantial additional cost inobtaining regulatory approvals for our products in our targetedmarkets. Any delays in obtaining the necessary regulatory approvalsincrease the risk that our competitors’ products are approved before ourown.  The failure to obtain theseapprovals on a timely basis and/or the associated costs could have a materialadverse effect on the Company’s business, financial condition, results ofoperations and future prospects.

 

*The medical imaging market we operate in is highlycompetitive.*

 

There are a number of groups and organizations, suchas software companies in the medical imaging field, MDCT scanner manufacturers,screening companies and other healthcare providers that may develop acompetitive offering to the Medicsight CAD products andMedicexchange.com.  In addition, these competitors may have significantlygreater resources than MGT.  We cannotmake any assurance that they will not attempt to develop such offerings, thatthey will not be successful in developing such offerings or that any offeringsthey may develop will not have a competitive edge over Medicsight CAD productsand Medicexchange.com. With delayed regulatory approvals and/or disputedclinical claims we may not have a commercial or clinical advantage overcompetitors’ products.  Should a superioroffering come to market, this could have a material adverse effect on theCompany’s business, financial condition, results of operations and futureprospects.

 

*We are a developing company with limited revenues fromoperations.*

 

We have incurred significant operating losses since inception and haveonly recently commenced generating revenues from operations.  As a result, we have generated negative cashflows from operations and have an accumulated deficit as of December 31,2009.  We are operating in a developingindustry based on new technology and our primary source of funds to date hasbeen through the issuance of securities and borrowed funds.  There can be no assurance that management’sefforts will be successful or that the products we develop and market will beaccepted by consumers.  If our products are ultimately unsuccessful in themarket, 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 havelimited revenue from operations. As a result, we have generated negative cashflows from operations and our cash balances continue to reduce. While we areoptimistic and believe appropriate actions are being taken to mitigate this,there can be no assurance that attempts to reduce cash outflows will besuccessful and this could have a material adverse effect on our business,financial condition, results of operations.

 

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

 

MGT’s corporate structure may make it more difficult or costly to takecertain actions.  We conduct our businessthrough: (a) Medicsight, a UK public company which is 55% owned by the MGTCapital Investments, Inc. and through Medicsight’s subsidiaries in theUnited Kingdom, the USA, Japan and Gibraltar; and (b) the Medicexchangesubsidiaries, 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 applicableto public companies in the United Kingdom and the USA.  Should MGT proposeto take any action, such as a transfer or allocation of assets or liabilitiesbetween MGT and its subsidiaries, MGT would have to take into consideration thepotentially conflicting interests of MGT’s stockholders and the non-controllingstockholders.  This may deter MGT from taking such actions that mightotherwise be in the best interest of MGT or cause MGT to incur additional costsin taking such actions.  The subsidiarycompanies would not be able to pay dividends or make other distributions ofprofits or assets to MGT without making pro-rata payments or distributions tothe respective non-controlling stockholders.  Although neither thesubsidiary companies nor MGT has plans to pay dividends or make distributionsto its shareholders, MGT’s corporate structure may deter its subsidiaries fromdoing so in the future.  If at any point we are ultimately unable toresolve any of these conflicts, this could have a material adverse effect onthe Company’s business, financial condition, results of operations and futureprospects.

 

*The protection of our intellectual property may beuncertain, and we may face possible claims of others.*

 

Although we have received patents and have filed patent applicationswith respect to certain aspects of our technology, we generally do not rely onpatent protection with respect to our products and technologies.  Instead, we rely primarily on a combinationof trade secret and copyright law, employee and third-party non-disclosureagreements and other protective measures to protect intellectual propertyrights pertaining to our products and technologies.  Such measures may not provide meaningfulprotection of our trade secrets, know-how or other intellectual property in theevent of any unauthorized use, misappropriation or disclosure.  Others may independently develop similartechnologies or duplicate our technologies. In addition, to the extent that we apply for any patents, suchapplications may not result in issued patents or, if issued, such patents maynot be valid or of value.  Third partiescould, in the future, assert infringement or misappropriation claims against uswith respect to our current or future products and technologies, or we may needto assert claims of infringement against third parties.  Any infringement or misappropriation claim byus 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 anintellectual property claim could be substantial and could adversely affect ourbusiness, even if we are ultimately successful in prosecuting or defending anysuch claims.  If our products ortechnologies are found to infringe the rights of a third party, we could berequired to pay significant damages or license fees or cease production, any ofwhich could have a material adverse effect on our business.  If a claim isbrought against us, or we ultimately prove unsuccessful on the claims on ourmerits, 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, researchand development and administrative operations. This expansion is expected to place a significant strain on ourmanagement and will require hiring a significant number of qualifiedpersonnel.  Accordingly, recruiting andretaining 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 organizationsfor qualified personnel in the areas of our activities.  If we fail to identify, attract, retain andmotivate these highly skilled personnel, we may be unable to continue ourmarketing and development activities, and this could have a material adverseeffect on the Company’s business, financial condition, results of operationsand future prospects.

 

*If we do not effectively manage changes in ourbusiness, these changes could place a significant strain on our management andoperations.*

 

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

 

*We face risks arising from foreign currency exchange.*

 

As our main operating currency is UK sterling and its financialstatements are reported in US dollars, MGT’s assets and liabilities and resultsof operations are affected by movements in the $:£ exchange rate.  Shouldthere be large or unexpected fluctuations in the $:£ exchange rate, this couldhave a material effect on the Company’s business, financial condition, resultsof 

 

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operationsand future prospects.  We currently do not engage in hedging activities tominimize the effect of adverse movements in the exchange rate.

 

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

 

We have a number of investments and receivables held at both at marketvalue and at cost.  There is a risk that we may not be able to swiftlyrealize these investments and receivables at the fair value or cost at whichthey are recorded in the financial statements.  If we are unable toquickly realize these investments and receivables at prices we believe to befair, this could have a material effect on the Company’s business, financialcondition, 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 fromlenders or suppliers, or have facilities reduced or terminated.  Failureto access credit from any of these sources could have a material adverse effecton the Company’s business, financial condition, results of operations andfuture prospects.

 

*Recent global economic trends could adversely affectour business, liquidity and financial results.*

 

Recent global economic conditions, including disruption of financialmarkets, could adversely affect us, primarily through limiting our access tocapital and disrupting our clients’ businesses.  In addition, continuationor worsening of general market conditions in economies important to ourbusinesses may adversely affect our clients’ level of spending and ability toobtain financing, leading to us being unable to generate the levels of salesthat we require.  Current and continued disruption of financial marketscould have a material adverse effect on the Company’s business, financialcondition, results of operations and future prospects.

 

*We may not be able to maintain effective internalcontrols.*

 

If we fail to maintain the adequacy of our internal accounting controls,as such standards are modified, supplemented or amended from time to time, wemay not be able to ensure that we can conclude on an ongoing basis that we haveeffective internal controls over financial reporting in accordance with Section 404.  Failure to achieve and maintain an effectiveinternal control environment could cause us to face regulatory action and alsocause 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.

 

**ITEM1B.**                                       **UNRESOLVED STAFFCOMMENTS**

 

None.

 

**ITEM2**                                           **PROPERTIES**

 

Our principal executiveoffice is located at Kensington Centre, 66 Hammersmith Road, London W14 8UD,United Kingdom where we occupy 8,787 square feet under a lease that expires on August 25,2016.  We have additional satellite offices in Japan (occupied byMedicsight) and New York City (occupied by Medicexchange).

 

**ITEM3******                                          **LEGAL PROCEEDINGS**

 

The Company is notengaged in any material legal proceedings at this time nor are we aware of anypending legal proceedings.

 

**ITEM4******                                          **SUBMISSION OF MATTERS TOA VOTE OF SECURITY HOLDERS**

 

(Removed and reserved)

 

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**PART II**

 

**ITEM 5******                                                                                             **MARKET FOR REGISTRANT’S COMMONEQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER’S PURCHASES OF EQUITYSECURITIES.**

 

**Market information**

 

The Company’s commonstock is traded on the NYSE AMEX stock exchange (www.nyse.com) under the symbol“MGT”.  The following table sets forth the range of high and low salesprices per share of our common stock for each quarterly period during 2009 and2008.

 
| ** **     | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------|------------|----------|------------|---------|------------|
|           |       |     |       |    |       |
| **2009**       |       |     |       |    |       |
| Fourth Quarter |       | $        | 0.54       |    | $          | 0.30 |   |
| Third Quarter  |       | 0.76     |       | 0.27    |       |
| Second Quarter |       | 0.52     |       | 0.28    |       |
| First Quarter  |       | 1.11     |       | 0.20    |       |
|           |       |     |       |    |       |
| **2008**       |       |     |       |    |       |
| Fourth Quarter |       | 1.60     |       | 0.34    |       |
| Third Quarter  |       | 2.10     |       | 1.12    |       |
| Second Quarter |       | 2.80     |       | 1.55    |       |
| First Quarter  |       | $        | 3.78       |    | $          | 2.07 |   |

 

On March 19, 2010the Company’s common stock closed on the NYSE AMEX US stock exchange at $0.24per share.

 

As of March 19, 2010 there were 709holders of record of the Company’s commonstock.

 

**Dividends**

 

The Company has neverdeclared or paid cash dividends on its common stock. The Company currentlyintends to retain earnings, if any, to support its growth strategy and does notanticipate paying cash dividends in the foreseeable future. Payment of futuredividends, if any, will be at the discretion of the Company’s Board ofDirectors after taking into account various factors, including the Company’sfinancial condition, operating results, current and anticipated cash needs andplans for expansion.

 

**Recent sales of unregisteredsecurities**

 

None.

 

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**ITEM6******                                          **SELECTED FINANCIAL DATA.**

 

The following tableshould be read in conjunction with statements and notes thereto appearingelsewhere in this Form 10-K.

 
| ** **                                       | ** ** | **2009(1)** | ** ** | **2008(1)** | ** ** | **2007(1)** | ** ** | **2006 (1)** | ** ** | **2005** | ** ** |
|--------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------------|------------|----------|------------|
|                                             |       |        |       |        |       |        |       |              |       |     |       |
| Revenues - continuing operations                 |       | $           | 228        |        | $          | 354         |       | $                 | 89         |     | $          | — |   | $ | — |   |
| Gross profit - continuing operations             |       | $           | 225        |        | $          | 238         |       | $                 | 54         |     | $          | — |   | $ | — |   |
|                                             |       |        |       |        |       |        |       |              |       |     |       |
| Loss from continuing operations                  |       | (26,377     | )          | (20,001     | )          | (13,800     | )          | (14,935           | )          | (10,738  | )          |
| Loss from discontinued operations                |       | —      |       | —      |       | —      |       | —            |       | (1,478   | )          |
|                                             |       |        |       |        |       |        |       |              |       |     |       |
| Net loss (1)                                     |       | (26,377     | )          | (20,001     | )          | (13,800     | )          | (14,935           | )          | (12,216  | )          |
|                                             |       |        |       |        |       |        |       |              |       |     |       |
| Loss per share from continuing operations        |       | (0.81       | )          | (0.60       | )          | (0.35       | )          | (0.39             | )          | (0.31    | )          |
|                                             |       |        |       |        |       |        |       |              |       |     |       |
| Dividends declared per common share              |       | —      |       | —      |       | —      |       | —            |       | —   |       |
|                                             |       |        |       |        |       |        |       |              |       |     |       |
| Total Assets                                     |       | 24,277      |       | 55,451      |       | 109,020     |       | 38,469            |       | 24,486   |       |
|                                             |       |        |       |        |       |        |       |              |       |     |       |
| Long term obligations                            |       | —      |       | —      |       | —      |       | —            |       | 6        |       |
|                                             |       |        |       |        |       |        |       |              |       |     |       |
| Cash, cash equivalents and marketable securities |       | 22,165      |       | 40,178      |       | 94,592      |       | 24,735            |       | 11,249   |       |
| Current assets                                   |       | 23,385      |       | 41,212      |       | 95,319      |       | 25,306            |       | 11,867   |       |
| Current liabilities                              |       | (2,244      | )          | (4,340      | )          | (4,420      | )          | (3,378            | )          | (2,746   | )          |
| Working capital surplus                          |       | $           | 21,141     |        | $          | 36,872      |       | $                 | 90,899     |     | $          | 21,928 |   | $ | 9,121 |   |

 

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(1)                  Includesequity-based compensation of $1,999 for Fiscal 2009, $3,932 for Fiscal 2008,$1,541 for Fiscal 2007 and $440 for Fiscal 2006.

 

**ITEM 7****                                                                            **                **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS.**

 

**Executive Summary**

 

MGT Capital InvestmentsInc. achieved the following results in 2009:

 

·                        Revenue fromlicense and other sales decreased 36% to $228 compared to $354 in 2008.

 

·            Grossmargin decreased 5% to $225 compared to $238 in 2008.

 

·                        Operating expensesdecreased 42% to $17,193 compared to $29,731 in 2008.

 

·                        Net loss increased32% to $26,377and resulted in a loss per share of $0.81 compared to a net loss of$20,001 and net loss per share of $0.60 in 2008.

 

In Medicsight revenue hasfallen in U.S. dollar terms but has edged up in sterling, its localcurrency.  Revenue has fallen inMedicExchange due to the scaling back of equipment sales.  This focus on on-line sales, predominantlyadvertizing with minimal cost of sales, has led to an increase in gross marginpercentage.

 

Regulatory approvals andrevenue in Medicsight have been delayed and, as a consequence, we have reducedheadcount and reduced budgets across all departments and locations.  Combined with a similar program in Medicexchangein Fiscal 2008, overall operating costs have fallen in Fiscal 2009 compared tothe prior year, though favorable foreign exchange movements account for some ofthe fall.  We expect costs to fallfurther in 2010 as a full year of lower headcount and reduced discretionaryspending impacts the statement of operations.

 

Net loss has increased inFiscal 2009 due to impairment losses on goodwill and investments.  We reviewed the value of goodwill relating toMedicsight in first quarter of 2009 and, due to Medicsight’s share price,decided to fully impair the value of the goodwill and recorded an impairmentcharge of $12,157.  Furthermore, weconcluded that we should fully impair our investments in XShares Group LLC andrecorded an impairment charge of $2,210.

 

Our balance sheet retainscash of $22,165 compared to cash and marketable securities of $40,178 in 2008.The movement is 

 

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predominantly due to operating losses and investing$2,000 in convertible notes in XShares Group LLC.

 

**Critical accounting policies andestimates**

 

Our discussion andanalysis of financial condition and results of operations are based upon ourconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States of America (“GAAP”).The notes to the consolidated financial statements contained in this AnnualReport describe our significant accounting policies used in the preparation ofthe consolidated financial statements. The preparation of these financialstatements requires us to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting periods. Actual resultscould differ from those estimates. We continually evaluate our criticalaccounting policies and estimates.

 

We believe the criticalaccounting policies listed below reflect significant judgments, estimates andassumptions used in the preparation of our consolidated financial statements.

 

*RevenueRecognition*

 

*Medicsight*

 

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

 

Licensefee revenue is derived from the licensing of computer software.  Maintenance revenue is derived from softwaremaintenance.  Our software licenses aregenerally sold as part of an arrangement that includes maintenance and support.

 

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

 

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

 

Additionally:

 

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

 

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

 

Multiple-elementarrangements — we enter into arrangements with Resellers that include acombination of software products, maintenance and support.  For such arrangements, we recognize revenueusing the residual method.  We allocatethe total arrangement fee among the various elements of the arrangement basedon the fair value of each of the undelivered elements determined byvendor-specific objective evidence.  Thefair value of maintenance and support services is evidence of fair value forall elements, revenue is deferred until the earlier of when vendor-specificobjective evidence is determined for the undelivered elements (residual method)or when all elements for which we do not have vendor-specific objectiveevidence of fair value have been delivered.

 

*Medicexchange*

 

Werecognize revenue when the following revenue recognition criteria aremet:  persuasive evidence of an arrangement exists, services have beenrendered, the selling price is fixed or determinable and collectability isreasonable assured.  Deferred revenue is recorded when payments arereceived in advance of performing our service obligations.

 

*Goodwill*

 

Goodwill and intangibleassets with indefinite lives are reviewed for impairment annually or morefrequently if events or changes 

 

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in circumstances indicatethat the asset might be impaired.  Thefirst step of the goodwill impairment test, used to identify potentialimpairment, compares the fair value of a reporting unit with its carryingamount, including goodwill.  We comparethe book value to the market value (market capitalization plus a controlpremium) for the reporting unit.  If themarket value exceeds the book value, goodwill is considered not impaired, andthus 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 theamount of impairment loss, if any.  Thesecond step of the goodwill impairment test, used to measure the amount ofimpairment loss, compares the implied fair value of the goodwill with the bookvalue of the goodwill.  If the carryingvalue of the goodwill exceeds the implied fair value of the goodwill, animpairment loss would be recognized in an amount equal to the excess.  Any loss recognized cannot exceed thecarrying amount of goodwill.  After agoodwill impairment loss is recognized, the adjusted carrying amount ofgoodwill is its new accounting basis. Subsequent reversal of a previously recognized goodwill impairment lossis prohibited once the measurement of that loss is completed.

 

*Equity-basedcompensation*

 

Werecognize compensation expense for all equity-based payments.  Under fair value recognition provisions, werecognize equity-based compensation net of an estimated forfeiture rate andrecognize compensation cost only for those shares expected to vest over therequisite service period of the award.

 

Thefair value of each option award is estimated on the date of grant using theBlack-Scholes option valuation model. The Black-Scholes option valuation model requires the development ofassumptions that are input into the model. These assumptions are the expected stock volatility, the risk-free interestrate, the option’s expected life and the dividend yield on the underlyingstock. Expected volatility is calculated based on the historical volatility ofour common stock over the expected option life and other appropriatefactors.  Risk-free interest rates arecalculated based on continuously compounded risk-free rates for the appropriateterm.  The dividend yield is assumed tobe zero as we have never paid or declared any cash dividends on our commonstock and do not intend to pay dividends on our common stock in the foreseeablefuture.  The expected forfeiture rate isestimated based on historical experience.

 

Determiningthe appropriate fair value model and calculating the fair value of equity-basedpayment awards require the input of the subjective assumptions describedabove.  The assumptions used incalculating the fair value of equity-based payment awards represent management’sbest estimates, which involve inherent uncertainties and the application ofmanagement judgment.  As a result, iffactors change and we use different assumptions, our equity-based compensationexpense could be materially different in the future.  In addition, we are required to estimate theexpected forfeiture rate and recognize expense only for those shares expectedto vest.  If our actual forfeiture rateis materially different from our estimate, the equity-based compensationexpense could be significantly different from what we have recorded in thecurrent period.

 

*Researchand development*

 

Weincur costs incurred in connection with the development of software productsthat are intended for sale.  Costsincurred prior to technological feasibility being established for the productare expensed as incurred.  Technologicalfeasibility is established upon completion of a detail program design or, inits absence, completion of a working model. Thereafter, all software production costs are capitalized andsubsequently reported at the lower of unamortized cost or net realizable value.  Capitalized costs are amortized based on currentand future revenue for each product with an annual minimum equal to thestraight-line amortization over the remaining estimated economic life of theproduct.  Amortization commences when theproduct is available for general release to customers.

 

Weconcluded that capitalizing such expenditures on completion of a working modelwas inappropriate because we did not incur any material software productioncosts and therefore have decided to expense all research and development costs.  Our research and development costs arecomprised of staff, consultancy and other costs expensed on the Medicsightproducts.

 

*Fairvalue of financial instruments*

 

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

 

*Investments*

 

Investmentsin various corporations where our investment is less than 20% of issued sharecapital 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 areaccounted for under the equity method.

 

*Impairmentof long-lived assets and long-lived assets to be disposed of*

 

Weevaluate the carrying value of long-lived assets for impairment whenever eventsor changes in circumstances indicate that the carrying amount of an asset maynot be recoverable.  Our assessment forimpairment of an asset involves estimating the 

 

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undiscounted cash flowsexpected to result from use of the asset and its eventual disposition.  An impairment loss recognized is measured asthe amount by which the carrying amount of the asset exceeds the fair value ofthe asset.

 

Calculatingthe estimated fair value of an asset involves significant judgments and avariety of assumptions.  Judgments thatwe make concerning the value of its intangible assets include assessing timeand cost involved for development, time to market, and risks of regulatoryfailure or obsolescence (due to market, environmental or technological advancesfor example).  For calculating fair valuebased on discounted cash flows, we forecast future operating results and futurecash flows, which include long-term forecasts of revenue growth, gross profitsand capital expenditures.

 

Impairmentanalyses 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, andits holding in Eurindia.

 

**Resultsof Operations**

 

**Fiscal Year Ended December 31,2009 vs. Fiscal Year Ended December 31, 2008**

 

*Revenueand margin*

 

The Company has generatedrevenues of $228 and gross margin of $225 for Fiscal 2009 compared to $354 and$238 for Fiscal 2008.

 

Medicsight has soldlicenses primarily in Europe where it has regulatory approvals.  Its dollar denominated revenue fell by 6% butincreased by 11% in sterling, its functional currency.  Scaling back Medicexchange’s equipment salestowards the end of Fiscal 2008 has reduced Medicexchange revenue by 70% in Fiscal2009.  The cost of equipment sales has,however, also reduced leading to an increase in gross margin as a percentage ofrevenue.

 

*Operatingexpenses excluding goodwill impairment*

 

Operating costs excludinggoodwill impairment have reduced due to a reduction in headcount and reducedbudgets due to the delay of anticipated regulatory approvals.  The strength of the dollar compared tosterling has also reduced operating expenses in dollar terms by $3,800 (13%).

 

The Company’s researchand development expenses for Fiscal 2009 were $1,998 compared to $3,665 inFiscal 2008. These costs were comprised of staff, staff related consultancy,stock options and product development software costs expensed on the researchand development of Medicsight’s products. The reduction is due to cutbacks in the research and developmentdepartment as well as extended dates for product development completion.

 

The Company’s selling,general and administrative expenses for Fiscal 2009 were $15,195 compared to$26,066 for Fiscal 2008.  Somesignificant items follow:

 

People related costsdecreased by $5,145 (42%) due to series of headcount reductions inMedicexchange in Fiscal 2008 and Medicsight in Fiscal 2009 and because offoreign exchange movements.  Thisincluded $nil bonus payments in Fiscal 2009 compared to $1,286 in the prioryear.  Furthermore, foreign exchangemovements reduced the expense by $1,900.

 

Staff who have left thegroup have forfeited their stock options, reducing the related charge from$3,932 in Fiscal 2008 to $1,999 in Fiscal 2009. Medicsight stock option Plans C and D were fully vested in 2008 and2009, reducing the charge recognized. Stock options were modified for various employees who left Medicsight inFiscal 2008, which increased the charge in that year.  In Fiscal 2009 all Medicsight employees weregive the opportunity to forfeit their existing options in Plans A through Iand, in their place receive in Plan J 50% of the number of forfeited options.  This is accounted for as a modification, butthe total modification charge was less significant than in 2008.  Also, the effect of foreign exchange reducedthe reported charge by $400.

 

Professional feesincreased by $222 (9%) though the increase would have been $493 withoutfavorable foreign exchange movements. The increase was due to legal fees incurred in investing in MoneygateGroup Limited and XShares Group LLC.

 

Our travel expense hasreduced by $758 (42%) due to reduced discretionary budgets, especially inMedicsight, as well as foreign exchange movements as sterling weakened againstthe dollar. Similarly, marketing, conferences and public relations reduced by$1,865 (72%) as part of the same focus on cost reduction.

 

Software development andrelated costs were lower by $769 (41%) due to foreign exchange, the timing ofproduct development 

 

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and the strict cost control discussed above.

 

*Goodwill impairment*

 

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

 

Theshares of Medicsight plc are traded on the AIM Market of the London StockExchange.  We consider this to be a Level 1 input in the fair valuehierarchy as this is an unadjusted quoted price in an active market.

 

Theestimate of future cash flow is based upon, among other things, certainassumptions about expected future operating performance and an appropriatediscount rate determined by our management.  Our estimates of discountedcash 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.

 

Inaddition, estimates of discounted cash flows would involve assumptions on abusiness with limited revenue history and developing revenue models, whichincrease the risk of differences between the projected and actualperformance.  Significant differencesbetween these estimates and actual cash flows could materially affect ourfuture financial results.  We consider these to be Level 3 inputs in thefair value hierarchy, as this is an unobservable input with little or no marketactivity that require significant management judgment.

 

In the three months ended March 31, 2009, the market value ofMedicsight plc, as traded on the AIM Market of the London Stock Exchange,declined from $53,000 to $13,200.  We concluded that this decline in valuewas a triggering event with respect to the carrying value of our goodwill andwe conducted an impairment test of goodwill as of March 31, 2009. Due to the uncertainties involved in using the unobservable inputs to estimatefuture cash flows, we used market price, Level 1 inputs, as the primary basisof our impairment review.  As a result of this test we determined that thecarrying amount of Medicsight plc exceeded its fair value and recorded an impairmentloss of $12,157 during the quarter ended March 31, 2009.

 

*Otherincome (expense)*

 

Other income moved from income in Fiscal 2008 to an expense in Fiscal2009.  Fiscal 2009’s expense includedimpairments of the XShares Group LLC convertible notes ($2,210), XShares GroupLLC equity investments ($600), Eurindia ($176) and HipCricket ($701).  Interest income was lower than in the prioryear, due to lower cash balances available to generate interest and asignificant $3,881 foreign exchange gain in 2008.

 

*IncomeTax*

 

Our effective tax ratefor fiscal year 2009 was 0%.  The difference in the Company’s effectivetax rate from the Federal statutory rate is primarily due to a 100% valuationallowance provided for all deferred tax assets.

 

*Netloss and net loss per share*

 

Net loss was $26,377 forFiscal 2009 compared to a net loss of $20,001 for Fiscal 2008. Net loss pershare for Fiscal 2009 was $0.81 (based on weighted average shares outstandingof 32,550,590), compared to $0.60 for Fiscal 2008 (based on weighted averageshares outstanding of 33,188,294). The weighted average shares outstandingdecreased as a result of the Fiscal 2008 buyback of 6,349,793 shares thatremain in treasury.

 

*Operationalcurrency*

 

The Company’s mainoperating currency is UK sterling (£). Its results of operations are affectedby changes in the $: £ rates used to translate the operational result. ForFiscal 2009 the average rate was $1.5651: £1.00 and for Fiscal 2008 the ratewas $1.85: £1.00, an increase of 15 % in the value of the dollar againststerling.

 

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**FiscalYear Ended December 31, 2008 vs. Fiscal Year Ended December 31, 2007**

 

*Revenue andmargin*

 

The Company has generatedrevenues of $354 and gross margin of $238 for Fiscal 2008, compared to $89 and$54 for Fiscal 2007. Both Medicsight and Medicexchange have increased revenuesin the period.

 

Medicsight sold licensesprimarily in Europe where it has regulatory approvals.

 

Medicexchange increasedthe level of equipment sales in China with revenue of $131 compared to $35 in2007. Revenue from advertising on its website has increased from $13 in 2007 to$32 in 2008.

 

*OperatingExpenses*

 

The Company’s researchand development expenses for Fiscal 2008 were $3,665 compared to $2,670 forFiscal 2007. The Company’s research and development costs were comprised ofstaff, staff related consultancy, stock options and product developmentsoftware costs expensed on the research and development of Medicsight’sproducts.

 

The Company’s selling,general and administrative expenses for Fiscal 2008 were $26,066 compared to$19,307 for Fiscal 2007, the significant items being:

 

People related costsincreased by $2,223 (21%) as we continued to expand our operations. InMedicsight the commercial team has increased in size in Europe, Japan and seenthe full year impact of the US team that started in the fourth quarter of2007.  In addition, we have seen theeffects of exchange rate depreciation on both the dollar and the Yen.

 

Bonus payments reducedfrom $2,190 to $1,286 in the year as the prior year included an IPO bonus notrepeated in 2008.  In addition, executiveand year end bonus payments were lower.

 

Stock option charges haveincreased significantly, by $2,391 (155%), in the year. This is as a result ofnew grants being issued in Medicsight and the full year impact of last year’sgrants.  In addition there have beenmodifications made for some employees who left during the year.

 

Professional feesincreased by $436 (23%) due to increased legal fees related to commercialagreements in addition to fees incurred as part of the share buy back program.

 

Our travel expense hasincreased by $531 (41%) as the business has continued to expand internationallyand employees have travelled to overseas offices. In addition, furthercooperation with overseas partners and involvement in overseas conferences hasincreased the level of spend.

 

Software development andrelated costs increased $883 (139%) as we signed agreements to develop theMedicRead products and perform research and development with University CollegeLondon.

 

Marketing, conferencesand public relations remained in line with last year as a result of continuingto supporting our Medicsight partners, and promoting our internationalpresence.

 

*IncomeTax*

 

Our effective tax ratefor fiscal year 2008 was 0%.  The difference in the Company’s effectivetax rate from the Federal statutory rate is primarily due to a 100% valuationallowance provided for all deferred tax assets.

 

*Netloss and net loss per share*

 

Net loss was $20,001 forFiscal 2008 compared to a net loss of $13,800 for Fiscal 2007. Net loss pershare for Fiscal 2008 was $0.60 (based on weighted average shares outstandingof 33,188,294), compared to $0.35 for Fiscal 2007 (based on weighted averageshares outstanding of 38,900,383). The weighted average shares outstandingdecreased as a result of the buyback of 6,349,793 shares that remain intreasury.

 

*Operationalcurrency*

 

The Company’s mainoperating currency is UK sterling (£). Its results of operations are affectedby changes in the $: £ rates used to translate the operational result. ForFiscal 2008, the average rate was $1.85: £1.00 and for Fiscal 2007 the rate was$2.01:£1.00, a decrease of 7.9%.

 

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**Operating results by business segment**

 

We consider MGT’s businesssegments to be those of its two operating subsidiaries, Medicsight andMedicexchange.

 

**Medicsight**

 
| ** **                                                 | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                       |       |     |       |     |       |     |       |
| Revenue                                                    |       | $        | 180        |     | $          | 191      |       | $ | 41 |   |
| Cost of revenue                                            |       | —   |       | —   |       | —   |       |
| Gross margin                                               |       | 180      |       | 191      |       | 41       |       |
| Operating expenses                                         |       | 12,592   |       | 20,790   |       | 14,970   |       |
| Research and development (included in operating  expenses) |       | 1,998    |       | 3,665    |       | 2,670    |       |
| Operating loss                                             |       | (12,412  | )          | (20,599  | )          | (14,930  | )          |
| Interest and other income                                  |       | 721      |       | 4,937    |       | 1,226    |       |
| Depreciation                                               |       | 206      |       | 269      |       | 190      |       |
| Stock based compensation                                   |       | 1,082    |       | 2,379    |       | 1,349    |       |
| Cash                                                       |       | 17,058   |       | 26,624   |       | 50,398   |       |
| Net assets                                                 |       | 16,608   |       | 25,302   |       | 48,825   |       |
|                                                            |            |          |            |          |            |          |            |  |  |  |

 

The $12,157 goodwillimpairment in the consolidated financial statements related to Medicsight.  This is recorded in the books of MGT CapitalInvestments, Inc. and is not included in the Medicsight operating segment.

 

Medicsight has receivedregulatory approvals in Europe and some other regions of the world.  We are still working with the regulatorybodies in the USA and Japan to receive the necessary approvals in what weconsider to be our key markets.  Due tothe delay of these approvals, as well as the timing of integrating a version ofour CAD with our commercial partners, cost cutting measures were taken byMedicsight in Fiscal 2009.  A headcountreduction was implemented across all departments and locations, as well astighter budgetary limits on discretionary spend.

 

Medicsight revenue decreasedin dollar terms but increased by 11% in sterling.  Our product is becoming more widely known butsales have disappointed whilst we integrate CAD 4.0 with our partners’workstations.  We expect the USA andJapan to be bigger drivers of revenue once we and our partners (in whoseproducts our CAD is distributed) receive the necessary approvals.

 

Our ColonCADTM product has avery high margin, though revenue from our insufflator product, MedicCO2LON, willgenerate a greater cost of sales.  Sincethe end of Fiscal 2009 we have signed an agreement with a global distributorfor MedCO2LONand we expect sales to commence in the first half of 2010.  We are currently reviewing our commercialstrategy for our MedicRead visualization product.

 

Included in operatingexpenses are costs that we allocate to research and development.  This is made up of staff, staff related consultancy,stock options and product development software costs expensed on the researchand development of Medicsight’s products. These have decreased in Fiscal 2009 because, asdiscussed above, we are cutting down on expenditure in all areas of thebusiness in response to delays in anticipated approvals, whilst notjeopardizing long term product development and commercial opportunities.

 

The following table showssome of Medicsight’s larger expense categories in operating costs.

 
| ** **                 | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|----------|------------|
|                       |       |     |       |     |       |     |       |
| Salaries and related costs |       | $        | 5,560      |     | $          | 7,490    |       | $ | 4,746 |   |
| Bonus                      |       | —   |       | 954      |       | 1,506    |       |
| Commercial and marketing   |       | 617      |       | 2,362    |       | 1,836    |       |
| Travel and accommodation   |       | 771      |       | 1,374    |       | 1,080    |       |
| Professional fees          |       | 760      |       | 921      |       | 986      |       |
|                            |            |          |            |          |            |          |            |  |  |  |

 

Salaries have reducedbetween 2008 and 2009, though this is partly due to the rate of exchangerates.  We expect to see a moresignificant fall in the salaries cost in Fiscal 2010 as we see a full year ofreduced staff numbers.  No bonuses werepaid in Fiscal 2009.

 

Commercial and marketingcosts were sharply reduced as we incurred lower costs at trade shows andconferences, in line with our reduced spending. Similarly, travel and accommodation costs have reduced as fewer membersof staff have travelled to conferences as part of our emphasis on reducingcosts.

 

Professional fees have reducedin dollar terms but have remained largely stable in local currency.  Our professional fees predominantly relate tothe cost of being a listed company, as well as ongoing business costs such ascontract work and human 

 

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resource consultancy.

 

Interest and other incomereduced in 2009 as we felt the effect of a full year of significantly lowerinvestment returns on cash deposits due to the fall in global interest ratesover the last two years.  In 2008 some ofour cash was invested blue chip marketable securities with higher investmentreturns; in 2009 we only held cash. Furthermore, in 2008 we recorded a $3,881 foreign currency exchange gainon cash that was transferred from US dollars to pounds sterling.  Whilst a similar gain was made in 2009, thisonly amounted to $309.

 

Stock based compensation has decreased due tostock option Plans C and D fully vesting.  This reduction in expense was not outweighedby the issuance of new stock option plans. To motivate our employees and align their interests with shareholders,Medicsight employees were given the opportunity to forfeit their existingoptions and, for every two forfeited, to be issued a new option in Plan J.  This led us to incur an accounting charge forthe modification, to be spread over the term that the options vest, but thischarge was significantly lower than modification charges incurred in Fiscal 2008.

 

Cash and net assets were lower at December 31,2009 compared to December 31, 2008 predominantly because of cash used inMedicsight’s operations.

 

**Medicexchange**

 
| ** **                 | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|----------|------------|
|                       |       |     |       |     |       |     |       |
| Revenue                    |       | $        | 48         |     | $          | 163      |       | $ | 48 |   |
| Cost of revenue            |       | 3        |       | 116      |       | 34       |       |
| Gross margin               |       | 45       |       | 47       |       | 14       |       |
| Operating expenses         |       | 1,296    |       | 3,643    |       | 3,947    |       |
| Operating loss             |       | (1,251   | )          | (3,522   | )          | (3,933   | )          |
| Stock based compensation   |       | 49       |       | 195      |       | 104      |       |
| Net (liabilities) / assets |       | (3,151   | )          | (1,412   | )          | 1,546    |       |
|                            |            |          |            |          |            |          |            |  |  |  |

 

In 2007 Medicexchange’s revenue was derived fromboth online (predominantly website advertising) and offline equipmentsales.  Towards the end of Fiscal 2008offline sales were scaled back, reducing revenue, as evidenced by the lowerrevenue in Fiscal 2009.  However, thiswas compensated for by an increase in online advertising sales with a highermargin in Fiscal 2009.

 

In 2008 we took the decision to scale backour operations in the UK and refocus on our New York office, reducing staffnumbers in London and Beijing.  Theeffect of this is apparent in Fiscal 2009 with sharply reduced operatingcosts.  This is demonstrated in thefollowing table.

 
| ** **                 | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|----------|------------|
|                       |       |     |       |     |       |     |       |
| Salaries and related costs |       | $        | 595        |     | $          | 1,547    |       | $ | 1,713 |   |
| Bonus                      |       | —   |       | 72       |       | 93       |       |
| Commercial and marketing   |       | 120      |       | 264      |       | 539      |       |
| Travel and accommodation   |       | 73       |       | 218      |       | 167      |       |
| Consultants                |       | 212      |       | 178      |       | 321      |       |
| Professional fees          |       | 165      |       | 29       |       | 29       |       |
|                            |            |          |            |          |            |          |            |  |  |  |

 

Salaries are, therefore, 62% lower in Fiscal2009 than in Fiscal 2008 and no bonuses were paid.  Costs to consultants in 2009 increased,however, reflecting the outsourcing of website management activities.  Lower staff numbers have also manifestedthemselves in reduced commercial and travel costs.

 

Professional fees have increased due to theoutsourcing of various accounting, legal and other services.

 

We also use less office space and the lowernumber of staff has lead to a lower level of ancillary costs.  We have also reduced our discretionaryspending, demonstrated by the continued reduction in commercial and marketingcosts.

 

The stock based compensation has reduced dueto the number of staff who have left the company and whose options willtherefore not vest.

 

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**Other investments**

 

*Moneygate*

 

On October 8 2009 we invested a nominalsum in Moneygate Group Limited (“Moneygate”), a UK based Independent FinancialAdvisor (“IFA”), and acquired 49% of its share capital.  We also provided a £250 ($398) workingcapital facility and an acquisition facility of £2,000 ($3,186) facility foracquisitions.  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 thateventually did not occur.

 

Moneygate’s business plan is predicated onacquisition based growth in the fragmented UK IFA market and we are providingit with the capital to expand.  Moneygatehas not yet made any acquisitions but has organically increased the number ofIFAs employed.  Its management iscurrently reviewing a number of potential acquisitions and hopes to completeone by the end of the first half of 2010.

 

*XShares Group LLC*

 

In Fiscal 2007 and 2008 wemade a $3,000 equity investment in XShares Group LLC (“XShares”).  XShares is an investment advisor thatcreates, issues and supports exchange traded funds (ETFs) with a particularhealthcare speciality.  XShares’ wasunable to produce the revenue it anticipatedduring the market turbulence of 2007 and 2008. On December 31, 2008 we therefore impaired the investment to $600,a level we believed was its fair value at that time.

 

In Fiscal 2009 we invested $2,000 inconvertible notes with a principal of $2,100 in XShares.  In the second half of 2009 XShares were attemptingto raise funds to drive the business forward. We planned to receive the return on our investment in the convertiblenotes in either cash or shares after thisfundraising had been completed.

 

In the last quarter ofFiscal 2009 it became clear that, due to adverse market conditions, thefundraising had not been successful. Xshares’ management is still focusing on growing the business but iscurrently marketing a distressed property fund reviewing alternative ways topromote its ETFs or dispose of certain operating units.  As a consequence, we fully impaired ourinvestment, the convertible notes and the interest receivable on the notes,recording a charge of $2,210 in interest and other expense.

 

*HipCricket*

 

In Fiscal 2007 we invested $2,000 in HipCricketInc. (“HipCricket”), a mobile marketing company.  This was originally accounted for as amarketable security and we valued it at its closing price on the AIMMarket.  In Fiscal 2009 HipCricket delistedfrom the AIM Market at a price of $0.61 per share, valuing our holding at$224.  This reduction is value wasaccounted for as an other than temporary impairment while the investment wasclassified as an available for sale marketable security.  At this point we accounted for it as aninvestment held at cost.

 

Based on our review of published financialdata and discussions with HipCricket management about their business plan, webelieve that $224 represents fair value for our holding in HipCricket.

 

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**Liquidity and Capital Resources**

 

*Working Capital information*

 
| ** **                                       | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Working capital summary**            |       |     |       |     |       |     |       |
| Cash, cash equivalents and marketable securities |       | $        | 22,165     |     | 40,178     |     | $          | 94,592 |   |
| Current assets                                   |       | 23,385   |       | 41,212   |       | 95,319   |       |
| Current liabilities                              |       | (2,244   | )          | (4,340   | )          | (4,420   | )          |
| Working capital surplus                          |       | $        | 21,141     |     | 36,872     |     | $          | 90,899 |   |
| Ratio of current assets to current liabilities   |       | 10.4     |       | 9.5      |       | 21.6     |       |

 
| ** **                                              | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **Cash flow summary**                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash (used for) provided by                             |       |       |       |       |       |       |       |
| Operating activities                                    |       | $          | (14,905    | )          | (19,292    | )          | $          | (14,426 | ) |
| Investing activities                                    |       | (1,654     | )          | (3,772     | )          | 842        |       |
| Financing activities                                    |       | —     |       | (20,163    | )          | 85,611     |       |
| Effects of exchange rates on cash and cash  equivalents |       | 430        |       | (10,852    | )          | 589        |       |
| Net cashflow                                            |       | $          | (16,129    | )          | (54,079    | )          | $          | 72,616 |   |

 

Our cash, cash equivalents and marketablesecurities have reduced during 2009 predominantly because of the cash used inoperating activities.

 

Cash used in operating activities was lowerthan in the prior year due to the reduced headcount and concentration onreducing costs discussed above. Significant non-cash items in thereconciliation from net loss to cash used in operating activities are the$12,157 impairment loss on goodwill and the $2,210 impairment of the XSharesGroup LLC (“XShares”) convertible loan notes.

 

Included in investing activities in Fiscal2009 is the payment of $2,000 to invest in XShares convertible loan notes and$546 to provide working capital and acquisition facilities to Moneygate.  This is offset by the receipt of $946 fromthe sales of marketable securities held at the end of Fiscal 2008.  More cash was used in investing activities inFiscal 2008 as $2,040 was invested in XShares equity as well a higher netinvestment in marketable securities.

 

Also in Fiscal 2008 $20,163 was spentrepurchasing our own and Medicsight’s stock, classified in financingactivities.  In 2007 the largest movementin cash was due to Medicsight’s fundraising, when $24,569 was raised in aprivate placement and $61,049 in an IPO.

 

At the end of 2009 our ratio of currentassets to current liabilities was 10.4, similar to that of Fiscal 2008.  Whilst our cash has reduced compared to 2008our cost reductions have also reduced our current liabilities.

 

*Valuation of investments held atfair value*

 

We attribute ourinvestments using the fair value hierarchy defined in the statement. Thehierarchy consists of the following three levels with associated definitions:

 

Level 1 inputs areunadjusted, quoted prices in active markets for identical assets orliabilities.

 

Level 2 inputs are inputsother than quoted prices included within Level 1 that are observable for theasset or liability, either directly or indirectly.  Level 2 inputs include quoted prices foridentical assets or liabilities in markets that are not active, that is,markets in which there are few transactions.

 

Level 3 inputs areunobservable inputs that are supported by little or no market activity. These inputs require significant management judgment and reflect our estimateof assumptions that market participants would use in pricing the asset.

 

As at December 31, 2009 we have noinvestments that we hold at fair value.

 

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*Investment in Medicsight*

 

MGT Capital Investments, Inc.’s consolidatedfinancial statements include the results and financial condition of itssubsidiary, Medicsight.  MGT CapitalInvestments, Inc.’s holding in Medicsight is 86,000,000 shares out ofMedicsight’s issued share capital of 155,524,504 shares.  As of December 31, 2009 Medicsight’sshare price closed at £0.079 ($0.13), valuing the holding at £6,794 ($10,821).

 

As of March 19, 2010 Medicsight’s share price was£0.05 ($0.076) valuing the Company’s investment at £4,300 ($6,658), using a $:£exchange rate of 1.5274.

 

*Additional capital fundingrequirements*

 

On June 21, 2007 Medicsight plc completed itsinitial public offering on the AIM Market of the London Stock Exchange. Approximately 29,000,000 new shares were issued to institutional and otherinvestors at a price of £1.10 ($2.20) per share raising £32,000 ($64,115) grossnew money.  We incurred fees of approximately £1,550 ($3,096), includingapproximately £147 ($298) with Asia IT Capital Investments Ltd (a relatedparty).  £5,500 ($11,100) of the net proceeds was used to repay debt(between Medicsight plc and the Company).  The remaining £24,900 ($49,800)cash inflow from the IPO was to be used for working capital and businessdevelopment.

 

Immediately prior to the Medicsight plc IPO, theCompany sold down, by private placement approximately 11,700,000 of itsMedicsight plc shares.  The shares were priced at £1.10 ($2.20) — the sameprice as the Medicsight IPO.  Gross proceeds on the private placement wereapproximately £12,845 ($25,736).  We incurred fees with Asia IT CapitalInvestments Ltd (a related party) of approximately £578 ($1,167).

 

To date we have primarily financed our operationsthrough private placements of equity securities.  In the future we expect to fund ouroperations by growing revenues and generating profits and a positiveoperational cashflow.

 

*Risks and uncertainties related toour future capital requirements*

 

To the extent that additional capital is raisedthrough the sale of equity or equity-related securities of the Company or itssubsidiaries, the issuance of such securities could result in dilution to theCompany’s stockholders.

 

No assurance can be given, however, that we will haveaccess to the capital markets in the future, or that financing will beavailable on acceptable terms to satisfy the Company’s cash requirements toimplement its business strategies.

 

If we are unable to access the capital markets orobtain acceptable financing, our results of operations and financial conditionscould be materially and adversely affected.  We may be required to raisesubstantial additional funds through other means.

 

Our technology has not yet been fully commercializedand we have not begun to receive any significant revenues from commercialoperations.  We cannot assure our stockholders that our technology andproducts 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 berequired to curtail operations significantly or to obtain funds throughentering into arrangements with collaborative partners or others that may requireus to relinquish rights to certain of our technologies or products that wewould not otherwise relinquish.

 

*Capital commitments*

 

On August 25, 2006 we executed a 10 yearagreement with Pirbright Holdings Limited to lease 8,787 square feet of officespace at the Kensington Centre, 66 Hammersmith Road, London W14 8UD, UK.

 

Under this lease agreement our UK property rent,services and related costs will be approximately £330 ($524) per annum, paidquarterly in advance.  We have the right to terminate this agreement onthe expiration of the fifth year of the lease.  Our annual rent is subjectto upward only review on August 24, 2011.  We have two 10-month rent-free periods: the firstcommencing August 25, 2006; the second commencing August 25, 2011.

 

We have satellite offices in Tokyo (Japan) and NewYork.  The Tokyo office is on a threeyear rental agreement but has agreed with the landlord that they will move outin the second quarter of 2010.  Since theyear end we signed a two year lease on a new office in Tokyo.  The New York office has no lease commitment.

 

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In July 2008 we entered into an agreement with apartner to develop interfaces for our software.  We have committed to payEuros 1,445 ($2,071) over an expected thirty-six month period.  As at December 31,3009 we have paid Euros 845 ($1,210).  These payments will be recoveredagainst future royalty payments, should the products be successfullycommercialized.  They have been expensedto the income statement and classified as research and development.

 

Thefollowing table analyses our contractual obligations.

 
| ** **                       | ** ** | **Payments due by period** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| **Contractual obligations** | ** ** | **Total**                                 | ** ** | **Less than 1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** |
| Operating lease obligations      |       | $                                         | 620        |   | $ | 432 |   | $ | 186 |   | $ | 2 |   |
| Purchase obligations             |       | $                                         | 861        |   | $ | 861 |   | $ | — |   | $ | — |   |
|                             |       |                                      |       |   |   |   |   |   |   |
| Total                            |       | $                                         | 1,481      |   | $ | 1,293 |   | $ | 186 |   | $ | 2 |   |

 

**Recent accounting pronouncements.**

 

There are no recent accounting pronouncements thathave not yet been adopted that the Company believes may have a material impacton its financial statements.

 

**ITEM 7A.**                                       **QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

*Interest Rate and MarketableSecurity Prices Risk -* Our exposure to market rate risk for changes in interest rates relatesprimarily to our investment portfolio. We place our investments in a mixture of(a) cash deposits on either overnight or 30 day rates and (b) highlyliquid blue chip market securities. A decline in interest rates or a decline inequity and fixed income markets would have an adverse impact on interestincome.  We do not have any debt and we do not use derivative financialinstruments.

 

Based upon the balance of our cash and cashequivalents at December 31, 2009, for each one percentage point reductionin interest rates, the Company would suffer a reduction of approximately $222in interest income.  A severe decline in equity and fixed income marketswould be likely to reduce the capital value of the securities held.

 

*Foreign Currency Risk -* We are exposed to foreign currencyexchange rate fluctuations relating to the operation of our internationalsubsidiaries.  Our main operating currency is UK sterling (£).  Wealso have subsidiary operations in Japan and China which operate in their localcurrencies.  At the end of each reporting period, expenses of thesubsidiaries are converted into US dollars using the average currency rate ineffect for the period and assets and liabilities are converted into US dollarsusing either historical rates or the exchange rate in effect at the end of theperiod.  Additionally, we are exposed to foreign currency exchange ratefluctuations relating to payments we make to vendors and suppliers using foreigncurrencies.  We currently do not hedge against this foreign currencyrisk.  Fluctuations in exchange rates mayimpact our financial condition and results of operations.

 

Our operating costs in Fiscal 2009 were predominantlyin UK sterling; we do not foresee any change in Fiscal 2010.  A tenpercent increase or decline in the US dollar exchange rate against UK sterlingwould have created a decline or increase in our Fiscal 2008 operating costs ofapproximately $1,307.

 

**ITEM 8**                                           **FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

 

See Financial Statements and Schedules attachedhereto.

 

**ITEM 9**                                           **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE.**

 

None.

 

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**ITEM 9A (T).**                                **CONTROLS AND PROCEDURES**

 

**(a)****         ****Evaluationof Disclosure Controls and Procedures.**

 

The Company hasestablished controls and procedures designed to ensure that information requiredto be disclosed in the reports that the Company files or submits under theExchange Act is recorded, processed, summarized and reported, within the timeperiods specified in the Commission’s rules and forms and is accumulatedand communicated to management, including the principal executive officer andprincipal financial officer, to allow timely decisions regarding requireddisclosure.  Under the supervision and with the participation ofthe Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer,the Company conducted an evaluation of the effectiveness of the design andoperation of our disclosure controls and procedures (as such term is defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Actof 1934, as amended (the “Exchange Act”)) as of the end of the period coveredby this report (the “Evaluation Date”).There are inherent limitations to the effectiveness ofany system of disclosure controls and procedures, including the possibility ofhuman error and the circumvention or overriding of the controls andprocedures.  Accordingly, even effective disclosure controls andprocedures can only provide reasonable assurance of achieving their controlobjectives.  Based upon that evaluation, the Chief ExecutiveOfficer and Chief Financial Officer concluded that, as of the end of the periodcovered by this report, the Company’s disclosure controls and procedures wereeffective such that information relating to the Company (including its combinedsubsidiaries) required to be disclosed in the Company’s SEC reports (1) isrecorded, processed, summarized and reported within the time periods specifiedin the SEC rules and forms and (2) is accumulated and communicated tothe Company’s management, including the Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

**(b)****         ****Management’sAnnual Report on Internal Control over Financial Reporting**

 

SECrules implementing Section 404 of the Sarbanes-Oxley Act of 2002require our 2009 Annual Report on Form 10-K to contain management’s reportregarding the effectiveness of internal control over financial reporting. As abasis for our report, we tested and evaluated the design, documentation, andoperating effectiveness of internal control.

 

Managementis responsible for establishing and maintaining effective internal control overfinancial reporting, asdefined in Rule 13a-15(f) under the Exchange Act, of MGT CapitalInvestments, Inc. and its subsidiaries. The Company’s internal control over financialreporting consists of policies and procedures that are designed and operated toprovide reasonable assurance about the reliability of the Company’s financialreporting and its process for preparing financial statements in accordance withgenerally accepted accounting principles (“GAAP”).  There are inherentlimitations in the effectiveness of any internal control, including thepossibility of human error and the circumvention or overriding of controls.Accordingly, even effective internal controls can provide only reasonableassurance with respect to financial statement preparation. Further, because ofchanges in conditions, the effectiveness of internal control may vary overtime.

 

Managementhas evaluated the Company’s internal control over financial reporting as of December 31,2009. This assessment was based on criteria for effective internal control overfinancial reporting described in the standards promulgated by the PCAOB and inthe Internal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on this assessment, managementbelieves that MGT Capital Investments, Inc. maintained effective internalcontrol over financial reporting as of December 31, 2009.

 

Thisannual report does not include an attestation report of the Company’sindependent public accounting firm regarding internal control over financialreporting. Management’s report was not subject to attestation by the Company’sindependent public accounting firm pursuant to temporary rules of theSecurities and Exchange Commission that permit the Company to provide onlymanagement’s report in this annual report.

 

**(c)****         ****Changes in Internal Control OverFinancial Reporting**

 

No changes in the Company’s internal control overfinancial reporting have occurred during the quarter ended December 31,2009 that have materially affected, or are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

**ITEM9B.**                                       **OTHER INFORMATION.**

None

 

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**PART III**

 

**ITEM10**                                        **DIRECTORS, EXECUTIVEOFFICERS AND CORPORATE GOVERNANCE.**

 

The following table sets forth the current officersand directors of MGT.

 
| **Name**              | ** ** | **Age** | ** ** | **Position**                                                                                      |
|-----------------------|------------|---------|------------|---------------------------------------------------------------------------------------------------|
|                  |       |    |       |                                                                                              |
| Tim Paterson-Brown    |       | 49      |       | Chairman, Chief Executive Officer and Director                                                    |
| Allan Rowley          |       | 41      |       | Chief Financial Officer and Director                                                              |
| Neal Wyman            |       | 57      |       | Independent Director, Audit Committee Member and  Remuneration and Nominations Committee Chairman |
| Dr L. Peter Fielding  |       | 70      |       | Independent Director and Audit Committee Member                                                   |
| Peter Venton          |       | 67      |       | Independent Director, Audit Committee Chairman and  Remuneration and Nominations Committee Member |
| Sir Christopher Paine |       | 75      |       | Independent Director                                                                              |
| Dr Allan Miller       |       | 74      |       | Independent Director                                                                              |

 

Directors are elected in accordance with the Company’sby-laws to serve until the next annual stockholders meeting and until theirsuccessors are elected in their stead.  Officers are appointed by theBoard of Directors and hold office until their successors are chosen andqualified, until their death or until they resign or have been removed fromoffice. All corporate officers serve at the discretion of the Board ofDirectors. There are no family relationships between any director or executiveofficer and any other director or executive officer of the Company.

 

*Tim Paterson-Brown* joined the Company in December 2003as a director, was appointed Chief Executive Officer in September 2004 andChairman in June 2007.  Tim is also a non-executive director ofMedicsight.  He qualified as a Chartered Surveyor with Strutt and Parkerin 1984 following degrees at London University and Magdalene College,Cambridge. In 1987 Tim joined Leisure Investments PLC.  Between 1990 and2003 Tim worked in a variety of capacities to assist and invest in a number ofleisure and technology businesses, including Accsys Technologies plc, aUK-listed company, of which Tim is a non-executive Director.  The Board believes that Tim has theexperience, qualifications, attributes and skills necessary to serve as CEObecause of his years of experience in managing businesses.

 

*Allan Rowley* joined the Company in April 2006 asFinance Director of both Medicsight and Medicexchange and was appointed theCompany’s Chief Financial Officer in August 2006. As of March 19,2009 he resigned as Finance Director of Medicsight plc and was appointed ChiefExecutive Officer of Medicsight plc. He resigned as finance director ofMedicExchange on December 23, 2009. Prior to joining, Allan served in acorporate development role at ComMedica Limited, a UK-based medical softwarecompany specializing in Picture Archiving & Communication System (“PACS”)software. In this role he worked on financing and acquisition opportunities andon commercial proposals with the sales and finance group. Before joiningComMedica, Allan was revenue controller and a director of European Finance atBea Systems, a NASDAQ-listed US-based software company.  Allan has severalyears of experience in public accounting in the United Kingdom and UnitedStates with Arthur Andersen and Ernst & Young, respectively. He is amember of the Institute of Chartered Accountants in England and Wales and holdsa Master of Philosophy and a Bachelor of Science degree from AberystwythUniversity College of Wales. The Board believes that Allan has the experience,qualifications, attributes and skills necessary to serve as CFO because of hisyears of accounting experience in public practice and in commerce.

 

*Neal Wyman* trained as a Chartered Accountant withCoopers and Lybrand before moving to KPMG where he worked in the Far East. Hemoved into the recruitment industry in London specializing in financialservices, gaining experience with a diverse range of clients. He enteredexecutive search in 1981, initially specializing in the financial servicesindustry before broadening into general appointments and professional services.He now focuses on general management, finance and non-executive appointments inboth private and quoted companies, with particular focus on venture capital. Heis a graduate of the London School of Economics. Neal was appointed anindependent director of the Company and a member of the Audit Committee in November 2004.  The Board believes that Neal has theexperience, qualifications, attributes and skills necessary to serve as adirector because of his years of experience in finance and business.

 

*Dr L. Peter Fielding*, M.D. is an experienced physician whoprovides consulting services to healthcare and academic organizations, inaddition to his departmental and institutional responsibilities at WellSpanSurgical Associates. His clients in the past five years have included, in theU.S.A. National Cancer Institute; American Joint Committee on Cancer; TaikoPost University — Connecticut; Purely Cotton Inc. — Seattle; MusculoskeletalSystems Inc. - Pittsburgh; University of Connecticut Medical School, and, 

 

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in the U.K.; Imperial College for Science, Technologyand Medicine and the Association of Surgeons in the United Kingdom andIreland.  Dr Fielding specializes in healthcare strategic planning,organizational structure and operational issues. He has participated in theorganization and development of the Pain Relief Center, Hyperbaric Medicine andAdvanced Wound Care Center, Clinical Weight Reduction Center, York HospitalHuman Motion Institute and the Molecular Biology Research Laboratory. Peter wasappointed an independent director of the Company and a member of the AuditCommittee in July 2005.    The Boardbelieves that Peter has the experience, qualifications, attributes and skillsnecessary to serve as a director because of his years of experience in medicineand business.

 

*Peter Venton, OBE* has over 30 years’ experience in thecomputing and telecommunications industry and holds several patents in thesector. He is a former Chief Executive of Plessey Radar and of GEC-MarconiPrime Contracts. Peter currently serves as the Technical Audit Chairman for theDefence Evaluation & Research Agency and joined the Board ofMedicsight as an independent director in April 2007.  He was also anindependent director of Medicsight between November 2001 and July 2005. Peter was appointed an independent director of the Company and a member of theAudit Committee in November 2004. The Board believes that Peter has the experience, qualifications,attributes and skills necessary to serve as a director because of his years ofexperience in business, finance and audit.

 

*Sir Christopher Paine* was the President of the British MedicalAssociation until 2001. He is currently the chairman of the Medical AdvisoryBoard of the International Hospitals Group, chairman of Royal Society ofMedicine Support Services Ltd and a trustee of the London Clinic.  He wasMedical Director of the Advisory Committee on Distinction Awards for the NationalHealth Service until the end of 1999 and has been President of the RoyalCollege of Radiologists and The Royal Society of Medicine. Sir Christopher is aMedical Oncologist. He was a consultant clinical oncologist from 1970 at theChurchill Hospital in Oxford.  He also served as director of clinicalstudies at the medical school. He was district general manager of the OxfordHealth Authority from 1984-88. In addition, he has served on the Animal WelfareCouncil and Imperial Cancer Research Fund. Sir Christopher was appointed anindependent director of the Company in November 2004.    The Board believes that Sir Christopher hasthe experience, qualifications, attributes and skills necessary to serve as adirector because of his years of experience in medicine.

 

*Dr Allan Miller* qualified in medicine at St Bartholomew’sHospital Medical School, London in 1961. In 1965 Allan was admitted to theRoyal College of Physicians. After spending eight years in general practice hejoined Hoffman La Roche where he held the positions of Head of ClinicalCardiovascular Research Worldwide, Head of Dermatological Research Worldwideand Head of Clinical Research UK.   Allan spent 14 years as MedicalDirector for Napp Pharmaceuticals Ltd and four years as European Medical ResearchDirector of the Purdue Pharma, Mundipharma, Napp group based in Cambridge,England.   Allan is a Member of the British Medical Association and aFellow of the Royal Society of Medicine. Allan was appointed an independentdirector of the Company in December 2002. The Board believes that Allan has the experience, qualifications,attributes and skills necessary to serve as a director because of his years ofexperience in medicine and business.

 

**Corporate Code of Ethics**

 

On December 28, 2007 the Board of Directorsadopted a new Code of Business Conduct and Ethics which applies to alldirectors and employees including the Company’s principal executive officer,principal financial officer and principal accounting officer or personsperforming similar functions.

 

Prior to December 28, 2007 the Company’semployees were subject to the previous Code of Ethics adopted by the Board ofDirectors on November 25, 2004.

 

On December 28, 2007, the Board of Directorsadopted the MGT Share Dealing Code, an Anti-Fraud Policy, a WhistleblowingPolicy and a Fraud Response Plan.  The Board of Directors of Medicsightadopted the Medicsight Share Dealing Code on June 6, 2007.

 

Copies of the Code of Business Conduct and Ethics, theAnti-Fraud Policy, the Whistleblowing Policy, the MGT Share Dealing Code andthe Medicsight Share Dealing Code can be obtained, without charge by writing tothe Corporate Secretary at MGT Capital Investments, Inc., KensingtonCentre, 66 Hammersmith Road, London W14 8UD, United Kingdom.

 

**Section 16(a) BeneficialOwnership Reporting Compliance**

 

Under the securities laws of the United States, theCompany’s directors, its executive officers, and any persons holding more thanfive percent of the Company’s common stock are required to report their initialownership of the Company’s common stock and any subsequent changes in thatownership to the Securities and Exchange Commission (the “Commission”). Specific due dates for these

 

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reports have been established and the Company isrequired to disclose any failure to file by these dates.  The Company canreport that there were no delinquent filings in Fiscal 2009.

 

**Audit Committee and Audit CommitteeFinancial Expert**

 

On November 25, 2004 the Company’s Board ofDirectors established an Audit Committee to carry out its auditfunctions.  At December 31, 2009 the membership of the AuditCommittee was Peter Venton as Chairman and Neal Wyman and Dr L Peter Fieldingas members.

 

The Company’s Board of Directors has determined thatPeter Venton, an independent director, is the audit committee financial expert,as defined in Regulation S-K promulgated under the Securities and Exchange Actof 1934, serving on its audit committee.

 

**ITEM11**                                        **EXECUTIVE COMPENSATION.**

 

**Compensation Discussion and Analysis**

 

*Goals of our compensation program*

 

We provide a compensation package for our executiveofficers we refer to as our “named executive officers” that we believe isdesigned to fairly compensate them and to enhance shareholder value. We havedisclosed the compensation packages for our named executive officers in thesummary compensation table and related tables below. We have structured ourcompensation packages to motivate our named officers to achieve the Company’sbusiness objectives and to align their interests with the interests of ourshareholders. Specifically, our compensation program is designed to achieve thefollowing objectives:

 

·                                   Attract and retain excellent executives who areappropriate for the Company’s needs;

 

·                                   Motivate and reward executives whose knowledge, skillsand performance are critical to the Company’s success;

 

·                                   Motivate the executives to increase shareholder valuefor both the Company and its subsidiary operations through the use of options;and

 

·                                   Tie compensation to corporate and individualperformance.

 

We use various elements of compensation to rewardspecific types of performance. Our employment agreements for each for our namedexecutive officers determine the salary of each officer, which provides thebasic level of compensation for performing the job expected of them. We usecash bonus awards as an incentive thatprovides a timely reward for attainment ofexemplary corporate and individual performance in a particular period. We usestock options to provide a long term incentive, which adds value tocompensation packages if the value of our common stock rises and aligns theinterest of our executives with those of shareholders.

 

*Elements of our compensation program*

 

Our total compensation package for named executiveofficers consists of salary, bonuses and options. Each element of compensationis considered separately and we do not generally take into account amounts realizedfrom prior compensation in establishing other elements of compensation. Ourgoal is to provide a total compensation package that we believe our namedofficers and our shareholders will view as fair and equitable. We consider thepay of each named executive officer relative to each other named executiveofficer so that the total compensation program is consistent for ourexecutives. This is not a mechanical process, and our Board of Directors hasused its judgment and experience and works with our Remuneration and NominationCommittees to determine the appropriate mix of compensation for eachindividual.

 

*Named Executive Officers*

 

We have the following named executive officers:

 

·                                    Tim Paterson-Brown - Chairman and Chief ExecutiveOfficer, MGT Capital Investments, Inc. and Non-executive Director,Medicsight plc.

 

·                                    Allan Rowley - Chief Financial Officer, MGT CapitalInvestments, Inc. and Chief Executive Officer of Medicsight plc.

 

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·                                    David Sumner - Executive Chairman, Medicsight plc.

 

·                                    Alex Van Klaveren — Chief Executive Officer,Medicexchange Limited.

 

*Salary*

 

Each named executive officer’s employment agreementdetermines his salary which varies with the scope of hisresponsibilities.  These agreements provide for an annual base salary of$382 (£240) for Tim Paterson-Brown; $319 (£200) for Allan Rowley; $319 (£200)for David Sumner and $160 for Alex Van Klaveren.  We believe that theannual salary must be competitive with the market with respect to the skillsand experience that are necessary to meet the requirements of the named executiveofficers’ position with us.

 

*Bonus*

 

The employment agreement in effect for each namedexecutive officer provides for the possibility of a cash performance bonus asdetermined by our Board of Directors based upon the attainment of performancegoals conveyed to the officer. The Board of Directors has the discretion toincrease the cash performance bonus for any year.

 

*Stock options and option exercisesof stock vested*

 

Options to the named executive officers may be grantedfrom the Company and or its subsidiaries. We have stock option plans in MGTCapital Investments, Inc. and in its subsidiary companies Medicsight(whose shares are listed on the AIM market of the London Stock Exchange underthe ticker symbol MDST.L) and Medicexchange (whose shares are not listed on anystock exchange).

 

We award options to align the interests of ourexecutives with the interest of our shareholders by having the realizable valuedepend on an increase in our stock price. We believe this will motivate ourofficers to return value to our shareholders through future appreciation of ourstock price. The options provide a long term incentive because they vest over aperiod of time (typically three years) and remain outstanding for ten years,encouraging executives to focus energies on long term corporate performance.The vesting periods are designed to encourage retention of our officers.

 

In Fiscal 2009 none of the named executive officersexercised any of their stock options that had vested.

 

*Pension and retirement benefits*

 

Our named executive officers do not participate in anydeferred benefit retirement plans such as a pension plan.

 

*Non-qualified deferred compensation*

 

We do not have any deferred compensation programs forour named executive officers.

 

*Other benefits*

 

We provide private health care insurance to some ofour named executives.

 

*Performance awards*

 

Our named executive officers are entitled to cashbonuses, as determined by our Remuneration and Nominations Committees and Boardof Directors, based upon the attainment of commercial goals conveyed to thatexecutive.

 

*Our Compensation process*

 

We have a Remuneration and Nominations Committee thatis comprised of Neal Wyman and Peter Venton (two of the Company’s independentdirectors) that determines the compensation of the MGT Capital Investments, Inc.’sexecutive officers. The Board of Directors generally follows theserecommendations.  Medicsight plc has its own Remuneration and NominationsCommittee and Board of Directors that determines the executive compensation forDavid Sumner (Executive Chairman) and Allan Rowley (Chief ExecutiveOfficer).  MGT Capital Investments, Inc., in its capacity ascorporate director of Medicexchange, determines the executive compensation forthe Chief Executive Officer of Medicexchange (Alex Van Klaveren).

 

We do not formally benchmark our compensation againstany peer group. However we informally consider competitive market practiceswith respect to the salaries and total compensation of our named executiveofficers. We review the market practices by reviewing publicly availableinformation of other companies in the HCIT sector and our geographical areas.However while we

 

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review such market information, it is only one factorwe considered in establishing compensation, and we did not make use of anyformula incorporating such data.

 

Generally in determining whether to increase ordecrease compensation to our named executive officers, we take into account anychanges, of which we are aware, in the market pay levels, the performance ofthe executive officer, any increase or decrease in responsibilities and rolesof the executive officer, the business needs for the executive officer, thetransferability of managerial skills to another employer, the relevance of theexecutives officers experience to other potential employers and the readinessof the executive officer to assume a more significant role within theorganization.

 

*Change in Control*

 

The Company may immediately terminate the employmentof any named executive officer for gross misconduct.  Both TimPaterson-Brown and Allan Rowley have change in control provisions in theirservice contracts.  On a change in control event, Tim Paterson-Brown wouldbe entitled to an immediate payment of 3 years’ basic salary and all stockoptions would become immediately vested and exercisable within the following 3years.  On a change in control event, Allan Rowley would be entitled to animmediate payment of 2 years’ basic salary and all stock options would becomeimmediately vested and exercisable within the following 2 years.

 

*Stock ownership guidelines*

 

We have not implemented any stock ownershiprequirements for our named executive officers. We have issued stock options toour named executive officers which we believe allows management to own equityin the Company and accordingly align their interest with those of othershareholders.

 

**Summary Compensation Table**

 

The following table summarizes Fiscal Years 2009, 2008and 2007 compensation for services in all capacities of the Company’s namedexecutive officers and other individuals:

 
| **Name  Principal Position**       | ** ** | **Year** | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **Option  awards (4)** | ** ** | **All other  compensation** | ** ** | **Total  compensation** | ** ** |
|-----------------------------------------|------------|----------|------------|------------|------------|-----------|------------|-----------------------------|------------|----------------------------------|------------|-------------------------|------------|
|                                    |       |     |       |       |       |      |       |                        |       |                             |       |                    |       |
| **Tim Paterson-Brown**                  |       | 2009     |       | $          | 376        |      | $          | —                      |       | $                                | 7          |                    | $          | — |   | $ | 383 |   |
| Chairman and CEO (1)                    |       | 2008     |       | $          | 443        |      | $          | 277                         |       | $                                | —     |                    | $          | — |   | $ | 720 |   |
|                                    |       | 2007     |       | $          | 300        |      | $          | 500                         |       | $                                | 2,715      |                    | $          | — |   | $ | 3,515 |   |
|                                    |       |     |       |       |       |      |       |                        |       |                             |       |                    |       |
| **Allan Rowley**                        |       | 2009     |       | $          | 292        |      | $          | —                      |       | $                                | 176        |                    | $          | — |   | $ | 468 |   |
| CFO (2)                                 |       | 2008     |       | $          | 295        |      | $          | 231                         |       | $                                | —     |                    | $          | — |   | $ | 526 |   |
|                                    |       | 2007     |       | $          | 230        |      | $          | 380                         |       | $                                | 1,275      |                    | $          | — |   | $ | 1,885 |   |
|                                    |       |     |       |       |       |      |       |                        |       |                             |       |                    |       |
| **David Sumner**                        |       | 2009     |       | $          | 313        |      | $          | —                      |       | $                                | 150        |                    | $          | — |   | $ | 463 |   |
| Executive Chairman, Medicsight plc      |       | 2008     |       | $          | 370        |      | $          | 185                         |       | $                                | —     |                    | $          | — |   | $ | 555 |   |
|                                    |       | 2007     |       | $          | 280        |      | $          | 430                         |       | $                                | 898        |                    | $          | 18 |   | $ | 1,626 |   |
|                                    |       |     |       |       |       |      |       |                        |       |                             |       |                    |       |
| **Alex Van Klaveren**                   |       | 2009     |       | $          | 160        |      | $          | —                      |       | $                                | —     |                    | $          | — |   | $ | 160 |   |
| CEO, Medicexchange Limited              |       | 2008     |       | $          | 32         |      | $          | —                      |       | $                                | —     |                    | $          | 80 |   | $ | 112 |   |
|                                    |       | 2007     |       | $          | —     |      | $          | —                      |       | $                                | 160        |                    | $          | 80 |   | $ | 240 |   |
|                                    |       |     |       |       |       |      |       |                        |       |                             |       |                    |       |
| **Steven Howson**                       |       | 2009     |       | $          | 391        |      | $          | —                      |       | $                                | 31         |                    | $          | — |   | $ | 422 |   |
| Chief Operating Officer, Medicsight plc |       | 2008     |       | $          | 189        |      | $          | 18                          |       | $                                | 285        |                    | $          | — |   | $ | 492 |   |
|                                    |       | 2007     |       | $          | —     |      | $          | —                      |       | $                                | —     |                    | $          | — |   | $ | — |   |
|                                    |       |     |       |       |       |      |       |                        |       |                             |       |                    |       |
| **Kenichi Nakagawa**                    |       | 2009     |       | $          | 232        |      | $          | —                      |       | $                                | —     |                    | $          | — |   | $ | 232 |   |
| Managing Director, Medicsight Japan     |       | 2008     |       | $          | 210        |      | $          | 35                          |       | $                                | 26         |                    | $          | 12 |   | $ | 283 |   |
|                                    |       | 2007     |       | $          | 145        |      | $          | 31                          |       | $                                | 154        |                    | $          | 11 |   | $ | 341 |   |

 

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(1)           TimPaterson-Brown was appointed Chief Executive Officer on September 21, 2004and Chairman on June 21, 2007.

(2)           AllanRowley was appointed Chief Financial Officer on August 4, 2006.

(3)           AlexVan Klaveren was appointed CEO of Medicexchange Limited on September 15,2008.

(4)           Thiscolumn discloses the dollar amount of the aggregate grant date fair value ofoptions granted in the year.

 

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**Outstanding Equity Awards at December 31,2009**

 
| **Name**                           | ** ** | ** ** | ** ** | **Number of  securities  underlying  unexercised  options  exercisable** | ** ** | **Number of securities  underlying  unexercised  unearned  options** | ** ** | **Option exercise   price** | ** ** | **Option expiry  dates** | ** ** |
|------------------------------------|------------|------------|------------|-------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------|------------|
|                               |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| **Tim Paterson-Brown**             |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
|                               |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| Medicsight plc                     |       | Plan  J    |       | 145,833                                                                       |       | 729,166                                                                        |       | £0.09 ($0.14)                    |       | May 14,  2019            |       |
| MGT Capital Investments, Inc. |       | 2007  Plan |       | 666,667                                                                       |       | 333,333                                                                        |       | $3.69                                 |       | December 5,  2017        |       |
|                               |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| **Allan Rowley**                   |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
|                               |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| Medicsight plc                     |       | Plan  J    |       | 333,333                                                                       |       | 1,666,667                                                                      |       | £0.09 ($0.14)                    |       | May 14,  2019            |       |
| MGT Capital Investments, Inc. |       | 2007  Plan |       | 333,334                                                                       |       | 166,663                                                                        |       | $3.69                                 |       | December 5,  2017        |       |
|                               |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| **David Sumner**                   |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
|                               |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| Medicexchange Limited              |       | Plan  A    |       | 100,000                                                                       |       | 50,000                                                                         |       | £0.40 ($0.64)                    |       | June 30,  2016           |       |
| Medicsight plc                     |       | Plan  J    |       | 333,333                                                                       |       | 1,666,667                                                                      |       | £0.09 ($0.14)                    |       | May 14,  2019            |       |
|                               |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| **Alex Van Klaveren**              |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
|                               |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| MGT Capital Investments, Inc. |       | 2007  Plan |       | 66,667                                                                        |       | 33,333                                                                         |       | $3.69                                 |       | December 5,  2017        |       |
|                               |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| **Steven Howson**                  |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
|                               |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| Medicsight plc                     |       | Plan  J    |       | 112,500                                                                       |       | 562,500                                                                        |       | £0.09 ($0.14)                    |       | May 14,  2019            |       |
| Medicsight plc                     |       | Plan  K    |       | 300,000                                                                       |       | —                                                                         |       | £0.10 ($0.16)                    |       | May 20,  2019            |       |
|                               |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| **Kenichi Nakagawa**               |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
|                               |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| Medicsight plc                     |       | Plan  J    |       | 33,333                                                                        |       | 166,667                                                                        |       | £0.09 ($0.14)                    |       | May 14,  2019            |       |

 

InFiscal 2008 allemployees, including the executive officers and other individuals listed above,were given the opportunity to forfeit all their existing Medicsight stockoptions in stock option Plans A through I and, in their place, receive in PlanJ 50% of the number of forfeited options.

 

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**Grants of plan-based awards**

 
| **Name**                           | ** ** | **Option grant dates** | ** ** | **Number of  options** | ** ** | **Option exercise  price** | ** ** | **Grant date  fair value (4)** | ** ** |
|------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|---------------------------------|------------|-----------------------------------------------|------------|
|                               |       |                             |       |                        |       |                            |       |                                          |       |
| **Tim Paterson-Brown**             |       |                             |       |                        |       |                            |       |                                          |       |
|                               |       |                             |       |                        |       |                            |       |                                          |       |
| Medicexchange Limited              |       | July 20,  2006 (3)          |       | 150,000                     |       | £0.40 ($0.58)              |       | $                                             | 60         |   |
| Medicsight plc                     |       | May 14,  2009 (2)           |       | 875,000                     |       | £0.09 ($0.14)              |       | $                                             | 475        |   |
| MGT Capital Investments, Inc. |       | December 5,  2007 (1)       |       | 1,000,000                   |       | $3.69                           |       | $                                             | 1,600      |   |
|                               |       |                             |       |                        |       |                            |       |                                          |       |
| **Allan Rowley**                   |       |                             |       |                        |       |                            |       |                                          |       |
|                               |       |                             |       |                        |       |                            |       |                                          |       |
| Medicexchange Limited              |       | July 20,  2006 (3)          |       | 150,000                     |       | £0.40 ($0.58)              |       | $                                             | 60         |   |
| Medicsight plc                     |       | May 14,  2009 (2)           |       | 2,000,000                   |       | £0.09 ($0.14)              |       | $                                             | 482        |   |
| MGT Capital Investments, Inc. |       | December 5,  2007 (1)       |       | 500,000                     |       | $3.69                           |       | $                                             | 800        |   |
|                               |       |                             |       |                        |       |                            |       |                                          |       |
| **David Sumner**                   |       |                             |       |                        |       |                            |       |                                          |       |
|                               |       |                             |       |                        |       |                            |       |                                          |       |
| Medicexchange Limited              |       | July 20,  2006 (3)          |       | 150,000                     |       | £0.40 ($0.58)              |       | $                                             | 60         |   |
| Medicsight plc                     |       | May 14,  2009 (2)           |       | 2,000,000                   |       | £0.09 ($0.14)              |       | $                                             | 541        |   |
|                               |       |                             |       |                        |       |                            |       |                                          |       |
| **Alex Van Klaveren**              |       |                             |       |                        |       |                            |       |                                          |       |
|                               |       |                             |       |                        |       |                            |       |                                          |       |
| MGT Capital Investments, Inc. |       | December 5,  2007 (1)       |       | 100,000                     |       | $3.69                           |       | $                                             | 160        |   |
|                               |       |                             |       |                        |       |                            |       |                                          |       |
| **Steven Howson**                  |       |                             |       |                        |       |                            |       |                                          |       |
|                               |       |                             |       |                        |       |                            |       |                                          |       |
| Medicsight plc                     |       | May 14,  2009 (2)           |       | 375,000                     |       | £0.09 ($0.14)              |       | $                                             | 195        |   |
| Medicsight plc                     |       | May 20,  2009 (3)           |       | 300,000                     |       | £0.10 ($0.16)              |       | $                                             | 31         |   |
|                               |       |                             |       |                        |       |                            |       |                                          |       |
| **Kenichi Nakagawa**               |       |                             |       |                        |       |                            |       |                                          |       |
|                               |       |                             |       |                        |       |                            |       |                                          |       |
| Medicsight plc                     |       | May 14,  2009 (2)           |       | 200,000                     |       | £0.09 ($0.14)              |       | $                                             | 80         |   |

 

----

(1)       One-third of options vest on each of the first, secondand third anniversaries of the grant date

(2)       One-sixth of options vest every six months after thegrant date

(3)       Fully vested

(4)       We estimate grant date fair value using theBlack-Scholes option pricing model

 

**Discussion of Summary Compensationand Grant of Plan Based Award Tables.**

 

*Employment agreements*

 

Pursuant to their employment agreements, TimPaterson-Brown and Allan Rowley receive an annual salary of $382 (£240) and$319 (£200) respectively, plus a bonus each year as determined by our Board ofDirectors based on attainment of performance goals conveyed to theemployee.  Tim-Paterson Brown is on 12 months’ notice to the Company and36 months’ notice from the Company.  Allan Rowley is on 6 months’ noticeto the Company and 24 months’ notice from the Company.

 

*Potential Payments on Termination orChange in Control*

 

The Company may immediately terminate the employmentof any named officer for gross misconduct.  Both Tim Paterson-Brown andAllan Rowley have change in control provisions in their servicecontracts.  On a change in control event, Tim Paterson-Brown would beentitled to an immediate payment of 3 years’ basic salary and all stock optionswould become immediately vested and exercisable within the following 3years.  On a change in control event, Allan Rowley would be entitled to animmediate payment of 2 years’ basic salary and all stock options would becomeimmediately vested and exercisable within the following 2 years.

 

31

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**InsiderParticipation**

 

We have a Remuneration and Nominations Committee thatis comprised of Neal Wyman and Peter Venton (two of our independent directors)that determines the compensation of the MGT Capital Investments Inc.’sexecutive officers.  The Board of Directors generally follows theserecommendations.  Each of Tim Paterson-Brown, the Company’s ChiefExecutive Officer, and Allan Rowley, the Company’s Chief Financial Officer, isa member of the Company’s Board of Directors. Tim Paterson-Brown does notparticipate in board deliberations of his compensation.  Allan Rowley doesnot participate in board deliberations of his compensation or that of TimPaterson-Brown.

 

Medicsight plc has its own Remuneration andNominations Committee that determines the executive compensation for itsExecutive Chairman (David Sumner) and Chief Executive Officer (AllanRowley).  The Medicexchange Chairman determines the executive compensationfor the Chief Executive Officer of Medicexchange PLC (Alex Van Klaveren).

 

**Report**

 

The Board of Directors has reviewed and discussed theCompany’s Compensation Discussion and Analysis with management.  Based onthe review and discussions, those Directors have approved the inclusion of theCompensation Discussion and Analysis in our annual report on Form 10-K.

 

*Directors*

 

Tim Paterson-Brown

Allan Rowley

Neal Wyman

Dr L. Peter Fielding

Peter Venton

Sir Christopher Paine

Dr Allan Miller

 

**Director Compensation**

 
| **Name**              | ** ** | **Fees Earned or  Paid in Cash (1)** | ** ** | **Option  Awards** | ** ** | **All Other  Compensation** | ** ** | **Total** | ** ** |
|-----------------------|------------|---------------------------------------------------------------|------------|--------------------|------------|----------------------------------|------------|-----------|------------|
|                  |       |                                                          |       |               |       |                             |       |      |       |
| Neal Wyman            |       | $                                                             | 40         |               | $          | —                           |       | $         | —     |   | $ | 40 |   |
| Dr L. Peter Fielding  |       | $                                                             | 30         |               | $          | —                           |       | $         | —     |   | $ | 30 |   |
| Peter Venton (2)      |       | $                                                             | 87         |               | $          | —                           |       | $         | —     |   | $ | 87 |   |
| Sir Christopher Paine |       | $                                                             | 20         |               | $          | —                           |       | $         | —     |   | $ | 20 |   |
| Dr Allan Miller       |       | $                                                             | 20         |               | $          | —                           |       | $         | —     |   | $ | 20 |   |

 

All the Directors will be reimbursed for theirout-of-pocket expenses incurred in connection with the performance of Boardduties.

 

----

(1)           As employees of the Company, TimPaterson-Brown, the Chairman and Chief Executive Officer, and Allan Rowley, theCompany’s Chief Financial Officer, received no directors’ fees from the Companyduring 2009 and are therefore not included in the table.

(2)           Includes fees for services to the Companyand to Medicsight plc.

 

**Independent Director Compensation**

 

Each independent director receives annual compensationof $20.  Members of the audit committeeand/or remuneration committee receive an extra $10 for each committee theyserve on.  For the fiscal year 2010, theCompany does not propose any change in fees for its independent directors.

 

32

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**ITEM 12****                                       ****SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERSAND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.**

 

The following table sets forth certain informationregarding beneficial ownership of the Company’s common stock as of March 19, 2010:

 

·              eachperson known by the Company to be the beneficial owner of more than 5% of theoutstanding common stock;

 

·              eachperson serving as a director or executive officer of the Company; and

 

·              allexecutive officers and directors of the Company as a group.

 

Beneficial ownership is determined in accordance withthe rules of the Securities and Exchange Commission. In general, a personwho has voting power and/or investment power with respect to securities istreated as a beneficial owner of those securities. For purposes of this table,shares subject to outstanding warrants and options exercisable within 60 daysof the date of this Annual Report are considered as beneficially owned by theperson holding such securities. To our knowledge, except as set forth in thistable, the persons named in this table have sole voting and investment powerwith respect to the shares shown.

 

Percentage beneficially owned is based upon 32,500,893shares of common stock issued and outstanding as of March 26, 2010.

 
| **Name and address of Beneficial Owner** | ** ** | **Number of Shares  Beneficially Owned** | ** ** | **Percentage of Common  Equity Beneficially Owned** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
|                                                              |       |                                                    |       |                                                                    |       |
| **5% Beneficial Owners**                                          |       |                                                    |       |                                                                    |       |
| Columbia Partners LLC Investment Management                       |       | 1,655,645                                               |       | 5.1                                                                     | %          |
|                                                              |       |                                                    |       |                                                                    |       |
| **Directors and Officers**                                        |       |                                                    |       |                                                                    |       |
| Tim Paterson-Brown                                                |       | 2,000,000                                               |       | 6.2                                                                     | %          |
| Allan Rowley                                                      |       | —                                                  |       | —                                                                  |       |
| Neal Wyman                                                        |       | —                                                  |       | —                                                                  |       |
| L. Peter Fielding                                                 |       | —                                                  |       | —                                                                  |       |
| Peter Venton                                                      |       | 16,666                                                  |       | *                                                                       |       |
| Sir Christopher Paine                                             |       | 2,200                                                   |       | *                                                                       |       |
| Dr Allan Miller                                                   |       | —                                                  |       | —                                                                  |       |
| Total Officers and Directors as a Group (7  persons)              |       | 2,018,866                                               |       | 6.2                                                                     | %          |

 

----

* Less than 1%.

 

Addresses for these directors and officers are care ofthe Company at Kensington Centre, 66 Hammersmith Road, London W14 8UD, UnitedKingdom.

 

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**ITEM 13****                                       ****CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONSAND DIRECTOR INDEPENDENCE.**

 

*Asia IT Capital Investments Ltd*

 

A director of Asia IT is a brother of TimPaterson-Brown (our Chairman and Chief Executive Officer).  In addition tothe loan facilities made available by Asia IT to the Company and Medicsightplc, Asia IT received commissions on shares issuances and transactions inFiscal 2007, 2006 and 2005.

 

On June 21, 2007 Medicsight plc completed itsinitial public offering on the AIM Market of the London Stock Exchange. Approximately 29,000,000 new shares were issued to institutional and otherinvestors at a price of £1.10 ($2.20) per share raising £32,000 ($64,115) grossnew money.  We incurred fees of approximately £1,550 ($3,096), includingapproximately £149 ($298) with Asia IT Capital Investments Ltd (a relatedparty).  Immediately prior to the Medicsight plc IPO, the Company solddown, by private placement approximately 11,700,000 of its Medicsight plcshares.  The shares were priced at £1.10 ($2.20) — the same price as theMedicsight IPO.  Gross proceeds on the private placement wereapproximately £12,845 ($25,736).  We incurred fees with Asia IT CapitalInvestments Ltd (a related party) of approximately £578 ($1,167).

 

During the year ended December 31, 2007 theCompany placed monies on deposit with Asia IT. These monies earn interest at anannual rate of 5%. The funds were on call at any time. At December 31,2007 the balance of monies on deposit with Asia IT was $3,917 which included$262 of interest income earned in the year ended December 31, 2007.

 

During the year ended December 31, 2008 theCompany placed monies on deposit with Asia IT. These monies earn interest at anannual rate of 5.5%. The funds are on call at any time. At December 31,2008 the balance of monies on deposit with Asia IT was $1,234 which included$337 of interest income earned in the year ended December 31, 2008.

 

During the year ended December 31, 2009 theCompany placed monies on deposit with Asia IT. These monies earned interest atan annual rate of 3%. The funds are on call at any time. At December 31,2009 the balance of monies on deposit with Asia IT was $992 which included $32of interest income earned in the year ended December 31, 2009.

 

MGT has made various investments in XShares Group LLC(“XShares”).  MGT was introduced toXShares by Asia IT.  In December 31,2007 the Company invested $960 in XShares. During the year ended December 31, 2008 the Company acquired sharesvalued at $2,040 in XShares and the combined investment was impaired to$600.  During the year ended December 31,2009 the Company invested $2,000 in convertible notes with a principal of$2,100 in XShares Group LLC.  These notesand the investment were fully impaired in the year ended December 31,2009.  For part of the year ended December 31,2009 Tim Paterson-Brown was a director of XShares.  In Fiscal 2009 the equity investment,convertible notes and accrued interest were fully impaired.

 

In the year ended December 31, 2007 the Companyinvested $2,000 in HipCricket Inc. MGT was introduced to HipCricket Inc by AsiaIT Limited and a brother of Tim Paterson-Brown is a non-executive director ofHipCricket Inc.  In Fiscal 2008 and 2009the investment in HipCricket was impaired, with a new carrying value of $224.

 

*Accsys Technologies plc*

 

Tim Paterson-Brown is a non-executive director ofAccsys Technologies plc, which has a subsidiary company Titan WoodLimited.  Titan Wood Limited rents space in 66 Hammersmith Road.  Inthe year ended December 31, 2009 $168 of office related costs wererecharged to Titan Wood Limited.  At December 31,2009 there was a balance receivable of $66 from Titan Wood.  In the year ended December 31, 2008 $171of costs were recharged to Titan Wood.

 

*Moneygate Group Limited*

 

In October 2009 the Company acquired 49% of theshare capital of Moneygate Group Limited (“Moneygate”) , which is accounted forunder the equity method.  Moneygate is arelated party as we own 49% of its share capital and have representation on theboard of directors.  In the period to December 31,2009 the Company advanced a $398 working capital facility and $159 as part of a$3,186 acquisition facility to Moneygate, which was all outstanding at the yearend.  We charged Moneygate a $35management fee for services provided and $40, including sales tax, wasoutstanding at the year end.

 

34

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Table of Contents

 

*Purchase of Shares*

 

In the year ended December 31, 2008 TimPaterson-Brown (our Chief Executive Officer) Allan Rowley (our Chief FinancialOfficer) and David Sumner (Medicsight’s Executive Chairman) purchased, on theopen market, 110,000, 82,000 and 118,500 ordinary shares respectively inMedicsight plc.

 

*Director independence*

 

Each of the Company’s independent directors: NealWyman, Dr. L. Peter Fielding, Peter Venton, Sir Christopher Paine and Dr. AllanMiller are considered independent under Section 803A of the NYSE AMEXstock exchange rules to which the Company must comply.

 

35

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**PART IV**

 
| **ITEM 14**           | **PRINCIPAL ACCOUNTING FEES AND  SERVICES.**                                                      |
|-----------------------|---------------------------------------------------------------------------------------------------|
|                  |                                                                                              |
| *Audit Fees.*         | Fees billed by our  principal accountant amounted to $240 in Fiscal 2009 and $226 in Fiscal 2008. |
| * *              | * *                                                                                          |
| *Audit Related Fees.* | Fees billed by our  principal accountant amounted to $0 in Fiscal 2009 and $58 in Fiscal 2008.    |
| * *              | * *                                                                                          |
| *Tax Fees.*           | Fees billed by our  principal accountant amounted to $80 in Fiscal 2009 and $60 in Fiscal 2008.   |
| * *              | * *                                                                                          |
| *All  Other Fees.*    | Fees billed by our principal accountant amounted to  $0 in Fiscal 2009 and $0 in Fiscal 2008.     |

 

The Company’s Audit Committee has approved the Company’saudit fees.

 

As of November 25, 2004, the Audit Committee isdirectly responsible for the appointment, compensation, retention and oversightof the work of any independent auditor engaged (including resolution ofdisagreements between management and the auditor regarding financial reporting)for the purpose of preparing or issuing an audit report or performing otheraudit, review or attest services for the Company.  Each such firm shallreport directly to the Company’s Audit Committee.  The Audit Committeealso is responsible for overseeing the accounting and financial reportingprocesses of the Company and the audits of the financial statements of theCompany.

 
| **ITEM 15** | **EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.** |
|-------------|-------------------------------------------------|

 

**Financial Statements**

 

The financial statements of the Company for the fiscalyears covered by this Annual Report are located on pages F-1 to F-24 ofthis Annual Report.

 

**Exhibits**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                 |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                            |
| 2.1                  |       | Articles of Merger of Medicsight, Inc., a Utah  corporation (1)                                                                            |
| 2.2                  |       | Certificate of Merger of Medicsight, Inc., a  Delaware corporation (1)                                                                     |
| 2.3                  |       | Offering Document to acquire shares of Radical  Technology plc. (2)                                                                             |
| 3.1                  |       | Certificate of Incorporation of  Medicsight, Inc. and amendments thereto (1)                                                               |
| 3.2                  |       | By-Laws of Medicsight, Inc. (1)                                                                                                            |
| 4.1                  |       | Loan Note issued by HTTP Insights, Ltd. to  Nightingale Technologies Ltd. (5)                                                                   |
| 10.1                 |       | Share Sale Agreement between Nightingale  Technologies Limited and Medicsight, Inc. (3)                                                    |
| 10.2                 |       | Letter Agreement between Asia IT Capital  Investments, Ltd. and Medicsight, Inc. (4)                                                       |
| 10.2                 |       | Letter Agreement between Asia IT Capital  Investments, Ltd. and Medicsight plc (5)                                                              |
| 10.3                 |       | Securities  Purchase Agreement with XShares Group, Inc. (6)                                                                                |
| 10.4                 |       | Second  Amended and Restated Certificate of Incorporation of XShares Group, Inc.  (6)                                                      |
| 10.5                 |       | Convertible  Promissory Note between XShares Group, Inc. and MGT Capital  Investments, Inc. (6)                                       |
| 10.6                 |       | First  Amendment to Securities Purchase Agreement with XShares Group, Inc. (7)                                                             |
| 10.7                 |       | Second  Amendment to Securities Purchase Agreement with XShares Group, Inc. (7)                                                            |
| 10.8                 |       | Convertible  Promissory Note between XShares Group, Inc. and MGT Capital  Investments, Inc. dated August 10, 2009. (7) |
| 10.9                 |       | Subscription agreement between Moneygate Group  Limited and MGT Capital Investments Limited (8)                                                 |
| 10.10                |       | Working capital facility agreement between MGT  Capital Investments Limited and Moneygate Group Limited (8)                                     |
| 10.11                |       | Facility agreement between MGT Capital Investments  Limited and Moneygate Group Limited (8)                                                     |
| 21.1                 |       | Subsidiaries (filed herewith at page E-1).                                                                                                 |
| 31.1                 |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 of Chief Executive Officer (filed herewith at  page E-2).    |
| 31.2                 |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 of Chief Financial Officer (filed herewith at  page E-3).    |

 

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| 32.1 |   | Certification pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 of Chief Executive Officer (filed herewith at  page E-4). |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------|
| 32.2 |   | Certification pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 of Chief Financial Officer (filed herewith at  page E-5). |

 

----

| (1)    | Incorporated herein by reference to the Company’s  Current Report on Form 8-K filed on January 19, 2007.         |
|--------|---------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                            |
| (2)    | Incorporated herein by reference to the Company’s  Current Report on Form 8-K filed on May 23, 2000.             |
|   |                                                                                                                            |
| (3)    | Incorporated herein by reference to the Company’s  Current Report on Form 8-K filed March 7, 2001.               |
|   |                                                                                                                            |
| (4)    | Incorporated herein by reference to the Company’s  Registration Statement on Form SB-2, filed December 26, 2001. |
|   |                                                                                                                            |
| (5)    | Incorporated herein by reference to the Company’s  Annual Report on Form 10-KSB, filed April 19, 2002.           |
|   |                                                                                                                            |
| (6)    | Incorporated herein by reference to the Company’s  Quarterly Report on Form 10-Q, filed May 15, 2009             |
|   |                                                                                                                            |
| (7)    | Incorporated herein by reference to the Company’s  Quarterly Report on Form 10-Q, filed August 14, 2009          |
|   |                                                                                                                            |
| (8)    | Incorporated herein by reference to the Company’s  Quarterly Report on Form 10-Q, filed November 12, 2009        |

 

37

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**SIGNATURES**

 

In accordance with Section 13 or 15(d) ofthe Exchange Act, the registrant caused this report to be signed on its behalfby the undersigned, thereunto duly authorized.

 

 
|                | MGT CAPITAL INVESTMENTS, INC |
|---------------------|------------------------------|
| March 30, 2010 |                         |   |
|                |                         |   |
|                |                         |   |
|                | By:                          | /s/ TIM PATERSON-BROWN |
| * *            | * *                     | *Chief Executive Officer (Principal  Executive Officer)* |
| March 30, 2010 |                         |   |
|                |                         |   |
|                |                         |   |
|                | By:                          | /s/ ALLAN ROWLEY |
| * *            | * *                     | *Chief Financial Officer (Principal  Financial Officer)* |

 

In accordance with the Exchange Act, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.

 
| **Signature**             | ** ** | **Title**  | ** ** | **Date**            |
|---------------------------|------------|------------|------------|---------------------|
| ** **                | ** ** | ** ** | ** ** | ** **          |
| /s/ TIM PATERSON-BROWN    |       | Director   |       | March 30, 2010 |
| Tim Paterson-Brown        |       |       |       |                |
|                      |       |       |       |                |
| /s/ ALLAN ROWLEY          |       | Director   |       | March 30, 2010 |
| Allan Rowley              |       |       |       |                |
|                      |       |       |       |                |
| /s/ NEAL WYMAN            |       | Director   |       | March 30, 2010 |
| Neal Wyman                |       |       |       |                |
|                      |       |       |       |                |
| /s/ L. PETER FIELDING     |       | Director   |       | March 30, 2010 |
| L. Peter Fielding         |       |       |       |                |
|                      |       |       |       |                |
| /s/ PETER VENTON          |       | Director   |       | March 30, 2010 |
| Peter Venton              |       |       |       |                |
|                      |       |       |       |                |
| /s/ SIR CHRISTOPHER PAINE |       | Director   |       | March 30, 2010 |
| Sir Christopher Paine     |       |       |       |                |
|                      |       |       |       |                |
| /s/ ALLAN MILLER          |       | Director   |       | March 30, 2010 |
| Allan Miller              |       |       |       |                |

 

38

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**MGTCAPITAL INVESTMENTS, INC. AND SUBSIDIARIES**

 

**INDEX TOCONSOLIDATED FINANCIAL STATEMENTS**

 
| Report  of Independent Registered Public Accounting Firm                                                                                                    | F-2         |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|
|                                                                                                                                                        |        |
| Consolidated  Balance Sheets as of December 31, 2009 and 2008                                                                                          | F-3         |
|                                                                                                                                                        |        |
| Consolidated  Statements of Operations for the years ended December 31, 2009, 2008 and  2007                                                           | F-4         |
|                                                                                                                                                        |        |
| Consolidated  Statements of Changes in Stockholders’ Equity and Comprehensive Income/(Loss)  for the years ended December 31, 2009, 2008 and 2007 | F-5         |
|                                                                                                                                                        |        |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2009, 2008 and  2007                                                           | F-6         |
|                                                                                                                                                        |        |
| Notes to  the Consolidated Financial Statements                                                                                                             | F-7 to F-24 |

 

F-1

----

Table of Contents

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

The Board of Directors and Stockholders

MGT Capital Investments, Inc. and Subsidiaries

 

We have audited the accompanying consolidated balance sheetsof MGT Capital Investments, Inc. and Subsidiaries as of December 31,2009 and 2008, and the related consolidated statements of operations,stockholders’ equity and comprehensive income (loss), and cash flows for eachof the three years in the period ended December 31, 2009.  These consolidated financial statements arethe responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that weplan and perform the audits to obtain reasonable assurance about whether theconsolidated financial statements are free of material misstatement.  The Company is not required to have, nor werewe engaged to perform, an audit of its internal control over financialreporting.  Our audits included considerationof internal control over financial reporting as a basis for designing auditprocedures that are appropriate in the circumstances, but not for the purposeof expressing an opinion on the effectiveness of the Company’s internal controlover financial reporting.  Accordingly weexpress no such opinion.  An audit alsoincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the consolidated financial statements, assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall consolidated financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the consolidatedfinancial position of MGT Capital Investments, Inc. and Subsidiaries as ofDecember 31, 2009 and 2008, and the consolidated results of theiroperations and their cash flows for each of the three years in the period endedDecember 31, 2009, in conformity with U.S. generally accepted accountingprinciples.

 

In connection with our audits of the consolidatedfinancial statements referred to above, we also audited Schedule II — Valuationand Qualifying Accounts for each of the three years in the period ended December 31,2009.  In our opinion, this financialschedule, when considered in relation to the consolidated financial statementstaken as a whole, presents fairly, in all material respects, the informationstated therein.

 

Amper, Politziner & Mattia, LLP

 

March 30, 2010

Edison, New Jersey

 

F-2

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Table of Contents

 

**MGTCAPITAL INVESTMENTS, INC AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**(Inthousands except share and per share amounts)**

 
| ** **                                                                                                          | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                          | ** ** | **2009**              | ** ** | **2008** | ** ** |
| ** **                                                                                                          | ** ** | ** **            | ** ** | **Revised note 3** | ** ** |
| **Assets**                                                                                                          |       |                  |       |   |   |
| Current assets:                                                                                                     |       |                  |       |   |   |
| Cash and cash equivalents                                                                                           |       | $                     | 22,165     |   | $ | 38,294 |   |
| Marketable securities                                                                                               |       | —                |       | 1,884 |   |
| Accounts receivable                                                                                                 |       | 97                    |       | 134 |   |
| Other receivables —  related party                                                                             |       | 105                   |       | 49 |   |
| Prepaid expenses and other  current assets                                                                          |       | 620                   |       | 851 |   |
| Loan receivable — related  party — current                                                                |       | 398                   |       | — |   |
| Total current assets                                                                                                |       | 23,385                |       | 41,212 |   |
|                                                                                                                |       |                  |       |   |   |
| Property and equipment, at  cost, net                                                                               |       | 290                   |       | 706 |   |
| Intangible assets, net                                                                                              |       | —                |       | 299 |   |
| Investments at cost                                                                                                 |       | 224                   |       | 776 |   |
| Security deposits                                                                                                   |       | 219                   |       | 301 |   |
| Goodwill                                                                                                            |       | —                |       | 12,157 |   |
| Loan receivable — related  party — long term                                                              |       | 159                   |       | — |   |
| Total assets                                                                                                        |       | $                     | 24,277     |   | $ | 55,451 |   |
|                                                                                                                |       |                  |       |   |   |
| **Liabilities**                                                                                                     |       |                  |       |   |   |
| Current liabilities:                                                                                                |       |                  |       |   |   |
| Accounts payable                                                                                                    |       | $                     | 916        |   | $ | 2,877 |   |
| Accrued expenses                                                                                                    |       | 1,214                 |       | 1,386 |   |
| Deferred revenue                                                                                                    |       | 114                   |       | 77 |   |
| Total current liabilities                                                                                           |       | $                     | 2,244      |   | $ | 4,340 |   |
|                                                                                                                |       |                  |       |   |   |
| Commitments and  contingencies                                                                                      |       |                  |       |   |   |
|                                                                                                                |       |                  |       |   |   |
| **Equity**                                                                                                          | ** ** | ** **            | ** ** | ** ** | ** ** |
| Stockholders’ equity                                                                                           |       |                  |       |   |   |
| Common stock, $0.001 par  value: 75,000,000 shares authorized; 38,900,383 issued and 32,550,590 shares  outstanding |       | 39                    |       | 39 |   |
| Additional paid-in capital                                                                                          |       | 299,878               |       | 298,376 |   |
| Accumulated other  comprehensive loss                                                                               |       | (4,549                | )          | (4,959 | ) |
| Accumulated deficit                                                                                                 |       | (265,827              | )          | (239,450 | ) |
|                                                                                                                |       | 29,541                |       | 54,006 |   |
| Treasury stock, at cost,  6,349,793 shares of common stock                                                          |       | (18,912               | )          | (18,912 | ) |
| Total stockholders’ equity                                                                                     |       | 10,629                |       | 35,094 |   |
| Non-controlling interest                                                                                            |       | 11,404                |       | 16,017 |   |
| Total equity                                                                                                        |       | 22,033                |       | 51,111 |   |
|                                                                                                                |       |                  |       |   |   |
| Total stockholders’  equity, liabilities and non-controlling interest                                          |       | $                     | 24,277     |   | $ | 55,451 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

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**MGTCAPITAL INVESTMENTS, INC AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Inthousands, except share and per share amounts)**

 
| ** **                                                  | ** ** | **For the Years Ended December 31,** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **2009**                                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                  | ** ** | ** **                                                    | ** ** | **Revised  note 3** | ** ** | **Revised  note 3** | ** ** |
| Revenues                                                    |       | $                                                             | 228        |   | $ | 354 |   | $ | 89 |   |
| Cost of revenue                                             |       | (3                                                            | )          | (116 | ) | (35 | ) |
| Gross profit                                                |       | 225                                                           |       | 238 |   | 54 |   |
|                                                        |       |                                                          |       |   |   |   |   |
| Operating expenses                                          |       |                                                          |       |   |   |   |   |
| Selling, general and administrative                         |       | 15,195                                                        |       | 26,066 |   | 19,307 |   |
| Research and development cost                               |       | 1,998                                                         |       | 3,665 |   | 2,670 |   |
| Impairment of goodwill                                      |       | 12,157                                                        |       | — |   | — |   |
|                                                        |       | 29,350                                                        |       | 29,731 |   | 21,977 |   |
|                                                        |       |                                                          |       |   |   |   |   |
| Operating loss                                              |       | (29,125                                                       | )          | (29,493 | ) | (21,923 | ) |
|                                                        |       |                                                          |       |   |   |   |   |
| Other income and (expense), net                             |       | (3,018                                                        | )          | 1,842 |   | 4,048 |   |
| Net Loss before non-controlling interest                    |       | (32,143                                                       | )          | (27,651 | ) | (17,875 | ) |
|                                                        |       |                                                          |       |   |   |   |   |
| Net Loss attributable to non-controlling interest           |       | 5,766                                                         |       | 7,650 |   | 4,075 |   |
|                                                        |       |                                                          |       |   |   |   |   |
| Net Loss attributable to MGT Capital Investments, Inc. |       | $                                                             | (26,377    | ) | $ | (20,001 | ) | $ | (13,800 | ) |
|                                                        |       |                                                          |       |   |   |   |   |
| Per share data:                                             |       |                                                          |       |   |   |   |   |
|                                                        |       |                                                          |       |   |   |   |   |
| Basic and diluted loss per share                            |       | $                                                             | (0.81      | ) | $ | (0.60 | ) | $ | (0.35 | ) |
|                                                        |       |                                                          |       |   |   |   |   |
| Weighted average number of common shares outstanding        |       | 32,550,590                                                    |       | 33,188,294 |   | 38,900,383 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

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**MGTCAPITAL INVESTMENTS, INC AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME / (LOSS)**

**(Inthousands except share and per share amounts)**

| ** **                                     | ** ** | **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, JANUARY 1, 2007                       |       | 38,900                |       | $                             | 39         |                                 | $          | 218,138           |       | $            | 853        |                                | $          | (205,649                    | )          | $            | —     |   | $ | 13,381 |   | $ | 21,710 |   | $ | 35,091 |   |
| Proceeds from sale of subsidiary company stock |       | —                |       | —                        |       | 9,749                                |       | —            |       | —       |       | —                              |       | 9,749                       |       | 14,820       |       | 24,569 |   |
| Medicsight share of IPO equity                 |       | —                |       | —                        |       | —                               |       | —            |       | —       |       | —                              |       | —                      |       | 61,019       |       | 61,019 |   |
| Incorporation of Medicexchange China           |       | —                |       | —                        |       | —                               |       | —            |       | —       |       | —                              |       | —                      |       | 30           |       | 30 |   |
| Stock-based compensation                       |       | —                |       | —                        |       | 1,541                                |       | —            |       | —       |       | —                              |       | 1,541                       |       | —       |       | 1,541 |   |
| COMPREHENSIVE INCOME/(LOSS)                    |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| Net loss for the period                        |       | —                |       | —                        |       | —                               |       | —            |       | (13,800      | )          | —                              |       | (13,800                     | )          | (4,075       | )          | (17,875 | ) |
| Translation adjustment                         |       |                  |       |                          |       |                                 |       | 589               |       |         |       |                                |       | 589                         |       | —       |       | 589 |   |
| Unrealized gain on marketable securities       |       | —                |       | —                        |       | —                               |       | (364              | )          | —       |       | —                              |       | (364                        | )          | —       |       | (364 | ) |
| Total comprehensive loss                       |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       | (13,575                     | )          | (4,075       | )          | (17,650 | ) |
| BALANCE, DECEMBER 31, 2007                     |       | 38,900                |       | $                             | 39         |                                 | $          | 229,428           |       | $            | 1,078      |                                | $          | (219,449                    | )          | $            | —     |   | $ | 11,096 |   | $ | 93,504 |   | $ | 104,600 |   |
| Reclassification from non-controlling interest |       | —                |       | —                        |       | 66,132                               |       | —            |       | —       |       | —                              |       | 66,132                      |       | (66,132      | )          | — |   |
| Purchase of stock in a subsidiary              |       | —                |       | —                        |       | —                               |       | —            |       | —       |       | —                              |       | —                      |       | (294         | )          | (294 | ) |
| Purchase of own stock                          |       | —                |       | —                        |       | —                               |       | —            |       |         |       | (18,912                             | )          | (18,912                     | )          | —       |       | (18,912 | ) |
| Stock-based compensation                       |       | —                |       | —                        |       | 2,816                                |       | —            |       | —       |       | —                              |       | 2,816                       |       | 1,116        |       | 3,932 |   |
| COMPREHENSIVE INCOME/(LOSS)                    |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| Net loss for the period                        |       | —                |       | —                        |       | —                               |       | —            |       | (20,001      | )          | —                              |       | (20,001                     | )          | (7,650       | )          | (27,651 | ) |
| Translation adjustment                         |       | —                |       | —                        |       | —                               |       | (5,956            | )          | —       |       | —                              |       | (5,956                      | )          | (4,527       | )          | (10,483 | ) |
| Unrealized gain on marketable securities       |       | —                |       | —                        |       | —                               |       | (81               | )          | —       |       | —                              |       | (81                         | )          | —       |       | (81 | ) |
| Total comprehensive loss                       |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       | (26,038                     | )          | (12,177      | )          | (38,215 | ) |
| BALANCE, DECEMBER 31, 2008                     |       | 38,900                |       | $                             | 39         |                                 | $          | 298,376           |       | $            | (4,959     | )                                   | $          | (239,450                    | )          | $            | (18,912    | ) | $ | 35,094 |   | $ | 16,017 |   | $ | 51,111 |   |
| Stock-based compensation                       |       | —                |       | —                        |       | 1,502                                |       |              |       |         |       | —                              |       | 1,502                       |       | 497          |       | 1,999 |   |
| COMPREHENSIVE INCOME/(LOSS)                    |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| Net loss for the period                        |       | —                |       | —                        |       |                                 |       |              |       | (26,377      | )          | —                              |       | (26,377                     | )          | (5,766       | )          | (32,143 | ) |
| Translation adjustment                         |       | —                |       | —                        |       |                                 |       | 410               |       |         |       | —                              |       | 410                         |       | 656          |       | 1,066 |   |
| Total comprehensive loss                       |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       | (25,967                     | )          | (5,110       | )          | (31,077 | ) |
| BALANCE, DECEMBER 31, 2009                     |       | 38,900                |       | $                             | 39         |                                 | $          | 299,878           |       | $            | (4,549     | )                                   | $          | (265,827                    | )          | $            | (18,912    | ) | $ | 10,629 |   | $ | 11,404 |   | $ | 22,033 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

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**MGTCAPITAL INVESTMENTS, INC AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENT OF CASH FLOWS**

**(Inthousands except share and per share amounts)**

 
| ** **                                                                   | ** ** | **For the Years Ended December 31,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2009**                                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                         |       |                                                          | ** ** | ** ** |   |   |   |
| Cash flows from operating  activities                                        |       |                                                          |       |   |   |   |   |
| Net loss before  non-controlling interest                                    |       | $                                                             | (32,143    | ) | $ | (27,651 | ) | $ | (17,875 | ) |
| Adjustments to reconcile  net loss to net cash used in operating activities: |       |                                                          |       |   |   |   |   |
| Stock-based compensation  expense                                            |       | 1,999                                                         |       | 3,932 |   | 1,541 |   |
| Depreciation                                                                 |       | 337                                                           |       | 468 |   | 367 |   |
| Amortization of intangible  fixed asset                                      |       | 133                                                           |       | 100 |   | — |   |
| Loss on disposal of fixed  assets                                            |       | 109                                                           |       | 158 |   | 6 |   |
| Loss on impairment of  goodwill                                              |       | 12,157                                                        |       | — |   | — |   |
| Realized loss on  investments                                                |       | —                                                        |       | 33 |   | — |   |
| Impairment of investments                                                    |       | 1,514                                                         |       | 3,684 |   | — |   |
| Profit on disposal of  companies                                             |       | 448                                                           |       | — |   | — |   |
| Accrued interest receivable                                                  |       | (210                                                          | )          | — |   | — |   |
| Impairment of XShares  convertible note                                      |       | 2,210                                                         |       | — |   | — |   |
| (Increase)/decrease in  assets                                               |       |                                                          |       |   |   |   |   |
| Accounts receivable                                                          |       | 69                                                            |       | (166 | ) | (7 | ) |
| Other receivable — related  party                                       |       | (51                                                           | )          | (47 | ) | 58 |   |
| Prepaid expenses and other  current assets                                   |       | 235                                                           |       | (354 | ) | 435 |   |
| Increase/(decrease) in  liabilities                                          |       |                                                          |       |   |   |   |   |
| Accounts payable                                                             |       | (1,667                                                        | )          | 309 |   | 945 |   |
| Accrued expenses                                                             |       | (146                                                          | )          | 167 |   | 84 |   |
| Deferred revenue                                                             |       | 101                                                           |       | 75 |   | 20 |   |
| Net cash used in operating  activities                                       |       | (14,905                                                       | )          | (19,292 | ) | (14,426 | ) |
|                                                                         |       |                                                          |       |   |   |   |   |
| Cash flows from investing  activities:                                       |       |                                                          |       |   |   |   |   |
| Purchase of investments at  cost                                             |       | —                                                        |       | (2,040 | ) | (960 | ) |
| Purchase of marketable  securities                                           |       | —                                                        |       | (4,585 | ) | (2,000 | ) |
| Sale of marketable  securities                                               |       | 946                                                           |       | 3,588 |   | 4,395 |   |
| Purchase of property and  equipment                                          |       | (22                                                           | )          | (515 | ) | (593 | ) |
| Purchase of Chinese  subsidiary                                              |       | —                                                        |       | (220 | ) | — |   |
| Issuance of XShares  convertible note                                        |       | (2,000                                                        | )          | — |   | — |   |
| Moneygate loans receivable                                                   |       | (578                                                          | )          | — |   | — |   |
| Net cash (used in)/provided  by investing activities                         |       | (1,654                                                        | )          | (3,772 | ) | 842 |   |
|                                                                         |       |                                                          |       |   |   |   |   |
| Cash flows from financing  activities:                                       |       |                                                          |       |   |   |   |   |
| Principal payments under  capital lease obligations                          |       | —                                                        |       | — |   | (7 | ) |
| Purchase of own stock                                                        |       | —                                                        |       | (18,912 | ) | — |   |
| Repurchase of subsidiary  company stock                                      |       | —                                                        |       | (1,251 | ) | — |   |
| Proceeds from sale of  subsidiary company stock                              |       | —                                                        |       | — |   | 24,569 |   |
| Proceeds from issue of  subsidiary company stock                             |       | —                                                        |       | — |   | 61,049 |   |
| Net cash (used in)/provided  by financing activities                         |       | —                                                        |       | (20,163 | ) | 85,611 |   |
|                                                                         |       |                                                          |       |   |   |   |   |
| Effects of exchange rates  on cash and cash equivalents                      |       | 430                                                           |       | (10,852 | ) | 589 |   |
| Net change in cash and cash  equivalents                                     |       | (16,129                                                       | )          | (54,079 | ) | 72,616 |   |
| Cash and cash equivalents,  beginning of year                                |       | 38,294                                                        |       | 92,373 |   | 19,757 |   |
| Cash and cash equivalents,  end of year                                      |       | $                                                             | 22,165     |   | $ | 38,294 |   | $ | 92,373 |   |
|                                                                         |       |                                                          |       |   |   |   |   |
| Supplemental disclosures of  cash paid                                       |       |                                                          |       |   |   |   |   |
| Interest paid                                                                |       | $                                                             | —     |   | $ | — |   | $ | 3 |   |

 

The accompanying notesare an integral part of these statements.

 

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**MGTCAPITAL INVESTMENTS, INC AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**(Inthousands except share and per share amounts)**

 

**1.     Organization, basis of presentation andliquidity**

 

MGT Capital Investments, Inc (“MGT”, “we”, “theCompany”, “the Group”, “us”) is a holding Company.  We currently have acontrolling interest in our two main operating subsidiaries: Medicsight plc (“Medicsight”)and Medicexchange Limited (“Medicexchange”). We also have wholly ownedsubsidiaries MGT Capital Investments (UK) Limited, MGT Investments (Gibraltar)Limited, Medicexchange Inc., Medicsight Nominees Limited, HTTP Tech Inc. andMedical Vision Systems Inc.

 

·                                  Medicsight and its wholly ownedsubsidiaries is a medical imaging software development company listed on theAIM Market of the London Stock Exchange (Ticker symbol “MDST”) that developsand commercializes enterprise-wide Computer-Aided Detection (“CAD”) applicationswhich analyze Computer Tomography (“CT”) scans to assist radiologists in theearly detection and measurement of colorectal polyps and lung lesions. Medicsight currently has limited revenue and is awaiting regulatory approvalsin key markets.  The Company holds 86million shares (55%) of the 155 million issued share capital of Medicsight.

 

·                                   Medicexchange and its majority ownedsubsidiaries provide medical imaging professionals with a global web portalcontaining an online sales channel for diagnostic, treatment and surgeryplanning solutions.  This combined with a variety of relevant clinicalpapers, training materials and content gives these professionals access toinformation and products that they otherwise would have difficulty accessing. The Company holds 22.5 million shares (73%) of the 30.8 million issued sharecapital of Medicexchange.  Medicexchange’s shares are not publicly traded.

 

·                                 MGT and its subsidiaries also holdvarious other investments.  The Companyhas a 49% holding in Moneygate Group Limited, a UK based firm of IndependentFinancial Advisors, and equity investments in XShares Group LLC, HipCricketInc. and Eurindia Limited.

 

The Company has incurredsignificant operating losses since inception and has just commenced generatingrevenue from operations. As a result, the Company has generated negative cashflows from operations and has an accumulated deficit of $265,827 at December 31,2009. The Company is operating in a developing industry based on new technologyand its primary source of funds to date has been through the issuance ofsecurities. While the Company is optimistic and believes appropriate actionsare being taken, there can be no assurance that management’s efforts will besuccessful or that the products the Company develops and markets will beaccepted by consumers.

 

**2.     Summary of significant accountingpolicies:**

 

*Principles of consolidation*

 

The consolidated financial statements include theaccounts of our Company and our wholly and majority owned subsidiaries.  Our main operating subsidiaries areMedicsight and Medicexchange.  The functionalcurrencies of our subsidiaries are their local currencies.  All intercompanytransactions and balances have been eliminated.  All foreign currencytranslation gains and losses arising on consolidation were recorded instockholders’ equity as a component of accumulated other comprehensive income(loss)*.*   Non-controllinginterest represents the minority equity investment in any of the MGT CapitalInvestments, Inc. group of companies, plus the minorities’ share of thenet operating result and other components of equity relating to thenon-controlling interest.

 

*Use of estimates*

 

The preparation of consolidated financial statementsin conformity with accounting principles generally accepted in the USA requiresmanagement to make estimates and assumptions that affect the amounts of assetsand liabilities and disclosure of contingent liabilities at the date of theconsolidated financial statements and the reported amounts of revenue andexpenses during the reporting period. Actual results could differ from thoseestimates.

 

*Cash and cash equivalents*

 

The Company considersinvestments with original maturities of three months or less to be cashequivalents.

 

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*Marketable securities*

 

The Company has invested some of its cash balances inshort-term, highly liquid, available for sale marketable securities, which arecarried in our consolidated balance sheet at fair value*,* withunrealized gains and losses reported in stockholders’ equity as a component ofaccumulated other comprehensive income (loss), unless the Company concludesthat unrealized losses represent an other-than-temporary impairment.  In that circumstance, such losses would bereflected in the consolidated statements of operations.  Realized gains and losses are included inother income / (expense).  Fair value isbased upon quoted market prices for these or similar instruments.  As at December 31, 2009 the Company hadliquidated all its marketable securities and transferred the proceeds to cash.

 

*Investments*

 

Investments in various corporations where ourinvestment is less than 20% of issued share capital are accounted for under thecost method.   Investments where we holdbetween 20% and 50% of issued share capital and we have significant influenceover the investee are accounted for under the equity method.

 

*Property and equipment*

 

Property and equipment are stated at cost lessaccumulated depreciation.  Depreciationis calculated using the straight line method on the various asset classes overtheir estimated useful lives, which range from two to five years.  Leasehold improvements are depreciated overthe term of the lease.

 

*Goodwill*

 

Goodwill is reviewed for impairment annually or morefrequently if events or changes in circumstances indicate that the asset mightbe impaired.  The first step of thegoodwill impairment test, used to identify potential impairment, compares thefair 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 themarket value exceeds the book value, goodwill is considered not impaired, andthus 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 theamount of impairment loss, if any.  Thesecond step of the goodwill impairment test, used to measure the amount ofimpairment loss, compares the implied fair value of the goodwill with the bookvalue of the goodwill.  If the carryingvalue of the goodwill exceeds the implied fair value of the goodwill, animpairment loss would be recognized in an amount equal to the excess.  Any loss recognized cannot exceed the carryingamount of goodwill.  After a goodwillimpairment loss is recognized, the adjusted carrying amount of goodwill is itsnew accounting basis.  Subsequentreversal of a previously recognized goodwill impairment loss is prohibited oncethe measurement of that loss is completed.

 

As of March 31, 2009 Medicsight’s share price hadfallen to a level at which book value exceeded market value.  As aconsequence, we carried out an impairment review at the end of the firstquarter of 2009 and concluded that the goodwill was fully impaired.  Seenote 7.

 

*Impairment of long-lived assets and long-lived assets to bedisposed of*

 

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

 

*Foreign currency translation*

 

The accounts of the Company’s foreign subsidiaries aremaintained using the local currency as the functional currency. For thesesubsidiaries, assets and liabilities are translated into US dollars atperiod-end exchange rates, and income and expense accounts are translated ataverage monthly exchange rates.  Netgains and losses from foreign currency translation are excluded from operatingresults and are accumulated as a separate component of stockholders’ equity.

 

Gains and losses on foreign currency transactions arereflected in selling, general and administrative expenses in the incomestatement.

 

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*Revenuerecognition*

 

*Medicsight*

 

The Company recognizes revenue when it is realized orrealizable and earned.  The Companyconsiders revenue realized or realizable and earned when it has persuasiveevidence of an arrangement, the product has been shipped or the services havebeen provided to the customer, the sales price is fixed or determinable, andcollectability is probable.

 

License fee revenue is derived from the licensing ofcomputer software. Maintenance revenue is derived from softwaremaintenance.  The Company’s softwarelicenses are generally sold as part of an arrangement that includesmaintenance and support.

 

The Company licenses software and sells maintenancethrough visualization solution partners and original equipmentmanufacturers.  The Company receivesregular sales reports detailing the number of licenses sold by originalequipment manufacturers, value-added resellers and independent distributors(collectively, “Resellers”) to end users. The Company generally offers terms that require payment 30 days frominvoicing.

 

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

 

Additionally:

 

Software — revenue from license fees is recognizedwhen notification of shipment to the end user has occurred, there are nosignificant Company obligations with regard to implementation and the Company’sservices are not considered essential to the functionality of other elements ofthe arrangement.

 

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

 

Multiple-element arrangements — the Company entersinto arrangements with resellers that include a combination of softwareproducts, maintenance and support.  Forsuch arrangements, the Company recognizes revenue using the residualmethod.  The Company allocates the totalarrangement fee among the various elements of the arrangement based on the fairvalue of each of the undelivered elements determined by vendor-specificobjective evidence of fair value.  Thefair value of maintenance and support services is established based on renewalrates.  In software arrangements forwhich the Company does not have vendor-specific objective evidence of fairvalue for all elements, revenue is deferred until the earlier of whenvendor-specific objective evidence of fair value is determined for theundelivered elements (residual method) or when all elements for which theCompany does not have vendor-specific objective evidence of fair value havebeen delivered.

 

As of December 31, 2009 we recorded in Medicsight$23 of deferred revenue relating to support and maintenance services and $73relating to deferred license revenue, compared with $20 relating to support andmaintenance revenue and $42 relating to deferred license revenue at December 31, 2008.

 

*Medicexchange*

 

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

 

As of December 31, 2009 we recorded $18 deferredrevenue relating to Medicexchange, compared with $15 at December 31, 2008.

 

*Research anddevelopment*

 

We incur costs incurred in connection with thedevelopment of software products that are intended for sale.  Costs incurred prior to technologicalfeasibility being established for the product are expensed as incurred.

 

Technological feasibility is established uponcompletion of a detailed program design or, in its absence, completion of aworking model.  Thereafter, all softwareproduction costs can be capitalized and subsequently reported at the lower ofun-amortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue foreach product with an annual

 

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minimumequal to the straight-line amortization over the remaining estimated economiclife of the product.  Amortizationcommences when the product is available for general release to customers.

 

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

 

For the years ended December 31, 2009, 2008 and2007 the Company expended $1,998, $3,665 and $2,670 respectively, for researchand development expenses for Medicsight CAD and its products.

 

*Fair value of financial instruments*

 

On January 1, 2008 the Company adopted certainprovisions of FASB ASC 820 “*Fair Value Measurementsand Disclosures”* for financial assets and financial liabilities andon January 1, 2009 for non-financial assets and non-financialliabilities.  This establishes aframework for measuring fair value and expands disclosure about fair valuemeasurements.

 

*Income taxes*

 

Effective January 1, 2007 the Companyadopted elements of FASB ASC 740-10 “*Income Taxes — Overall*”regarding accounting for uncertainty in income taxes.  This clarifies the accounting for uncertaintyin income taxes recognized in financial statements and requires the impact of atax position to be recognized in the financial statements if that position ismore likely than not of being sustained by the taxing authority.  At the adoption date of January 1, 2007and also as of December 31, 2009, the Company did not have anyunrecognized tax benefits.  We donot expect that the amount of unrecognized tax benefits will significantlyincrease or decrease within the next twelve months.  The Company’s policyis to recognize interest and penalties related to tax matters in the income taxprovision in the Consolidated Statements of Operations.  There was nointerest and penalties for the twelve months ended December 31, 2009, 2008and 2007.  Tax years beginning in 2004are generally subject to examination by taxing authorities, although netoperating losses from all years are subject to examinations and adjustments forat least three years following the year in which the attributes are used.

 

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

 

*Loss pershare*

 

Basic loss per share is calculated by dividing netloss attributable to the ordinary shareholders by the weighted average numberof common shares outstanding during the period. Diluted loss per share is calculated by dividing the net loss attributableto the ordinary shareholders by the sum of the weighted average number ofcommon shares outstanding and the diluted potential ordinary shares.

 

The computation of diluted loss per share excludes alloptions because they are anti-dilutive. For the year ended December 31, 2009 there were 11,503,359 optionsexcluded with a weighted average exercise price of $0.92 per share.  Forthe year ended December 31, 2008 there were 16,137,500 options excludedwith a weighted average exercise price of $1.31 per share.  For the year ended December 31, 2007there were 14,757,500 options excluded with a weighted average exercise priceof $1.72 per share.

 

*Comprehensiveincome (loss)*

 

Comprehensive income (loss) 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 gainsand losses on certain marketable securities, are separately classified in theconsolidated financial statements.  Suchitems are reported in the consolidated statements of stockholders’ equity asaccumulated comprehensive (loss).

 

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*Segmentreporting*

 

The Company reports the results of its operatingsegments.  We designate the internalorganization that is used by management for making operating decisions andassessing performance as the source of the Company’s reportable segments. Wealso disclose information about products and services, geographic areas andmajor customers.  We operate in two segments, Medicsight, a medicalimaging company, and Medicexchange, a web portal for radiologists.

 

*Stockoptions*

 

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

 

*Recentaccounting pronouncements*

 

There are no recentaccounting pronouncements that have not yet been adopted that the Companybelieves may have a material impact on its consolidated financial statements.

 

**3. Non-controlling interest**

 

On January 1, 2009 we adopted certain provisionsof FASB ASC 805-20 “*Business Combinations —Identifiable Assets and Liabilities, and Any Noncontrolling Interest*”.  These establish accounting and reportingstandards for the non-controlling interest (formerly known as minorityinterest) in a subsidiary (which may include variable interest entities) andfor the deconsolidation of a subsidiary. Significant changes include: balance sheet and income statementpresentation and expanded disclosures; accounting for changes in a parent’sownership interest in a subsidiary that do not result in deconsolidation; andrecognition and measurement of a gain or loss when a subsidiary isdeconsolidated.  For balance sheet presentation, non-controlling interestsare now recorded within equity and so-called “mezzanine” display is notpermitted.  In income statements, the amount of income attributable to thenon-controlling interest is now a deduction that impacts net income.  Thestatement requires prospective application except for the presentation anddisclosure requirements, which must be applied retrospectively for all periodspresented.  Prior periods werereclassified to conform to the current period presentation.

 

**4. Cashand cash equivalents**

 

We invest our cashin short-term deposits with major banks.  As of December 31, 2009 weheld $22,165 cash and cash equivalents.

 

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

 

*Concentrations*

 

The Company maintains its cash and cash equivalents atmajor financial institutions in Europe.  Cash held in foreign institutionsis not insured by the Federal Deposit Insurance Corporation and amounted to$22,165 as of December 31, 2009 and $38,294 as of December 31, 2008. The Company periodically evaluates the relative credit standing of financialinstitutions considered in its cash investment strategy.

 

**5.Marketable securities**

 

Investments in marketablesecurities as of December 31 were as follows:

 
| ** **                | ** ** | **Market  value** | ** ** | **Cost** | ** ** | **Unrealized  gains** | ** ** | **Transfer to net  loss (other than  temporary  impairment)** | ** ** |
|---------------------------|------------|-------------------|------------|----------|------------|-----------------------|------------|-------------------------------------------------------------------------|------------|
|                      |       |              |       |     |       |                  |       |                                                                    |       |
| At December 31, 2008 |       | $                 | 1,884      |     | $          | 2,985                 |       | $                                                                       | —     |   | $ | (1,101 | ) |
| At December 31, 2009 |       | $                 | —     |     | $          | —                |       | $                                                                       | —     |   | $ | — |   |

 

At December 31, 2008 investments in marketablesecurities consisted of HipCricket Inc. and a fund managed by Bank Sarasin & Company Limited.

 

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In the year ended December 31, 2009 we liquidatedour holdings in the fund managed by Sarasin and transferred $946 to cash.  In the year ended December 31, 2009HipCricket Inc. was delisted from AIM Market and we now account for it as aninvestment held at cost.

 

**6.Investments at cost**

 

We account for investments in non-marketablesecurities 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 overthe entity.  We continually review eachinvestment 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% holdingin Eurindia and accounts for this investment on a cost basis.

 

As of December 31, 2008 we carried out animpairment review of our holdings in Eurindia.  Eurindia’s management hadinformed us that they intended to pay a liquidating dividend of between 30cents and 50 cents per share in the first half of 2009.  We assumed thedividend to be the lower of these two values and impaired our holding to thevalue of 30 cents per share.

 

In 2009 Eurindia’s management informed us that itintended 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 ableto accurately ascertain the potential value of the investment on an IPO or thetimescale in which it might be realized. As a consequence, in the three months ended June 30, 2009 we fullyimpaired our investment and recognized an impairment loss of $176 in netloss.  We considered the amount of thisimpairment to be a Level 3 input under the fair value hierarchy, since it wasbased on significant unobservable inputs.

 

As of December 31, 2009 the investment hadnot been liquidated.

 

*XShares Group*

 

In 2007 the Company invested $960 in Series Cpreferred shares of XShares Group, Inc. (“XShares”), an investment advisorthat creates, issues and supports exchange traded funds with a particularhealthcare specialty.  In the year ended December 31,2008 the Company invested an additional $2,040 in shares of XShares bringingthe total invested to $3,000.  We accountfor these investments on a cost basis as our total holdings are less than 20%.

 

In Fiscal 2008 we reviewed the carrying value of ourinvestment in XShares.  XShares was inthe process of attempting to raise funds to drive the business forward.  As of December 31, 2008 we impaired thisinvestment to $600.  At various points during the year and as at December 31,2009 the Company carried out impairment reviews and decided to fully impair theinvestment.

 

We estimated these impairments based on management’sreview and discussion of the strategy and business plan of XShares.  XShares’ business plan was based on theanticipated receipt of equity finance. In the fourth quarter of Fiscal 2009 it became clear that XShares’fundraising was not going to be successful and that XShares would be unable tomeet the expectations in the business plan, leading us to fully impair ourinvestment.  These inputs are subject tomanagement’s judgment and we have therefore deemed them to be Level 3 inputs inthe fair value hierarchy.

 

In the year ended December 31, 2009 we issued$2,000 in XShares convertible notes with a principal of $2,100.  As part of the impairment review of theinvestment, as of December 31, 2009 we fully impaired these notes (seenote 10).

 

*HipCricket Inc.*

 

We hold shares in HipCricket Inc., a company engagedin mobile marketing.  In the year ended December 31,2009 HipCricket Inc. was delisted from the AIM Market and we now account for itas an investment held at cost.  Analyzingpublished financial and other information we reviewed the book value of theinvestment and decided that there was no need to impair its value. These inputsare subject to management’s judgment and we have therefore deemed them to beLevel 3 inputs in the fair value hierarchy.

 

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The following table presentsthe changes in Level 3 instruments for the year ended December 31, 2009.

 
| ** **               | ** ** | **January 1, 2009** | ** ** | **Transfer from  marketable  securities** | ** ** | **Purchases** | ** ** | **Impairment  losses  included in  earnings** | ** ** | **December 31****, 2009** | ** ** | **Change in impairment  losses relating  to instruments  still held at****December 31, ****2009** | ** ** |
|--------------------------|------------|-------------------------------|------------|-------------------------------------------|------------|---------------|------------|----------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                     |       |                          |       |                                      |       |          |       |                                               |       |                                |       |                                                                                                                                      |       |
| Eurindia Limited         |       | $                             | 176        |                                      | —     |          | —     |                                               | (176       | )                                   | $          | —                                                                                                                                    |       | $ | (176 | ) |
| XShares Group, Inc. |       | 600                           |       | —                                    |       | —        |       | (600                                               | )          | —                              |       | (600                                                                                                                                      | )          |
| HipCricket Inc.          |       | —                        |       | 224                                       |       | —        |       | —                                             |       | 224                                 |       | —                                                                                                                                    |       |
|                     |       | $                             | 776        |                                      | 224        |          | —     |                                               | (776       | )                                   | $          | 224                                                                                                                                       |       | $ | (776 | ) |

 

**7.     Goodwill**

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

 

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

 

The shares of Medicsight plc are traded on the AIMMarket of the London Stock Exchange.  We consider this to be a Level 1 inputin the fair value hierarchy as this is an unadjusted quoted price in an activemarket.

 

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

 

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

 

In the three months ended March 31, 2009, themarket value of Medicsight plc, as traded on the AIM Market of the London StockExchange, declined from $53,000 to $13,200.  We concluded thatthis decline in value to be a triggering event with respect to the carryingvalue of our goodwill and we conducted an impairment test of goodwill as of March 31, 2009.  Due tothe uncertainties involved in using the unobservable inputs to estimate futurecash flows, we used market price, Level 1 inputs, as the primary basis of ourimpairment review.  As a result of this test we determined that thecarrying amount of Medicsight plc exceeded its fair value and recorded animpairment loss of $12,157 during the quarter ended March 31, 2009.

 

**8.     Property and equipment**

 

Property and equipmentconsist of the following as of December 31:

 
| ** **                      | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
|                            |       |     |       |     |       |
| Computer hardware and  software |       | $        | 1,233      |     | $          | 1,212 |   |
| Leasehold improvements          |       | 197      |       | 452      |       |
| Furniture and fixtures          |       | 214      |       | 237      |       |
|                            |       |     |       |     |       |
|                            |       | 1,644    |       | 1,901    |       |
| Less: Accumulated  depreciation |       | (1,354   | )          | (1,195   | )          |
|                            |       | $        | 290        |     | $          | 706 |   |

 

Depreciation of $337 wascharged in 2009, compared to $468 and $367 in 2008 and 2007 respectively.

 

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**9.     Intangible assets**

 

Intangible assets consistof the following as of December 31:

 
| ** **                     | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
|                           |       |     |       |     |       |
| Maydeal website                |       | $        | —     |     | $          | 399 |   |
|                           |       |     |       |     |       |
| Less: Accumulated depreciation | * *   | *—* |       | (100     | )          |
|                           |       | $        | —     |     | $          | 299 |   |

 

The Maydeal website wasdisposed of during the year for a nominal sum resulting in a $165 loss ondisposal, included within operating costs.

 

**10.  Convertiblenotes**

 

In the second and thirdquarters of Fiscal 2009 we issued convertible notes with a principal of $2,100in XShares Group LLC (“XShares”) for $2,000. The principal included a fee of $100 payable to us which was recognizedin interest and other income in the year ended December 31, 2009.  The notes were unsecured and attractedinterest at an annualized rate of 10%. In the third and fourth quarter of Fiscal 2009 we amended the notes,extending the conversion date to April 2010.

 

XShares had been attemptingto raise equity finance during Fiscal 2009. In the fourth quarter of 2009 it became clear that this fundraising wasnot going to be successful and, as a consequence, fully impaired theconvertible notes and associated accrued interest.

 

In February 2010 weamended the notes to ensure that on conversion we would receive 50% of XShares’share capital.

 

**11.  Investmentaccounted for under the equity method**

 

On October 8, 2009 weacquired a 49% stake in Moneygate Group Limited (“Moneygate”) for a nominalsum.  As part of the investment weprovided a £250 ($398) working capital facility and made available a £2,000($3,186) acquisition facility.  Theworking facility is repayable in October 2010 and the acquisition facilityis repayable in October 2012.  Theacquisition facility attracts interest at an annual rate of 5%, both facilitiesare unsecured.  As at December 31,2009 the working capital facility and £100 ($159) of the acquisition facilityhad been drawn down.

 

As we have significantinfluence over Moneygate we account for it under the equity method.  Since the investment was acquired at anominal value, also its fair value, and has incurred losses since we made ourinvestment, it is recorded in the consolidated financial statements at a valueof $nil.

 

**12.  Accrued expenses**

 
| ** **                             | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|
|                                   |       |     |       |     |       |
| Professional fees                      |       | $        | 406        |     | $          | 352 |   |
| Suppliers with deferred  payment terms |       | 142      |       | 493      |       |
| Rent, rates and property  related      |       | 115      |       | 162      |       |
| Other                                  |       | 551      |       | 379      |       |
|                                   |       |     |       |     |       |
| Total Accruals                         |       | $        | 1,214      |     | $          | 1,386 |   |

 

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**13.  Stockholders’ equity and non-controllinginterest**

 

*MGTCapital Investments Inc.*

 

*Treasury stock*

 

In the first quarter of 2008MGT’s Board of Directors authorized the repurchase of up to 6,350,000 shares ofits common stock. 1,000,000 of which were under a publicly announcedprogram.  In the following seven monthsof 2008 we purchased 6,349,793 shares, which are now classified as treasurystock in equity.  The following table details the transactions.

 
| ** **                                     | ** ** | **Shares purchased** | ** ** | **Average cost** | ** ** | **Shares purchased  under publicly  announced  programs** | ** ** | **Shares that  may yet be  purchased** | ** ** |
|------------------------------------------------|------------|---------------------------|------------|-----------------------|------------|---------------------------------------------------------------------|------------|-------------------------------------------------------|------------|
|                                           |       |                      |       |                  |       |                                                                |       |                                                  |       |
| February 1 —  February 28, 2008 |       | 271,401                   |       | $                     | 3.16       |                                                                | 271,401    |                                                  | 728,599    |   |
| March 1 —  March 31, 2008       |       | 339,500                   |       | 3.00                  |       | 339,500                                                             |       | 389,099                                               |       |
| April 1 —  April 30, 2008       |       | 5,643,759                 |       | 2.98                  |       | 293,966                                                             |       | 95,133                                                |       |
| May 1 — May 31,  2008           |       | 50,212                    |       | 2.12                  |       | 50,212                                                              |       | 44,921                                                |       |
| June 1 — June 30,  2008         |       | 39,014                    |       | 1.91                  |       | 39,014                                                              |       | 5,907                                                 |       |
| July 1 — July 31,  2008         |       | 5,805                     |       | 2.05                  |       | 5,805                                                               |       | 102                                                   |       |
| August 1 —  August 31, 2008     |       | 102                       |       | 1.83                  |       | 102                                                                 |       | —                                                |       |
|                                           |       |                      |       |                  |       |                                                                |       |                                                  |       |
| Total                                          |       | 6,349,793                 |       | $                     | 2.98       |                                                                | 1,000,000  |                                                  |       |   |

 

As of December 31,2009 and 2008 the Company had repurchased a total of 6,349,793 shares at anaverage price of $2.98 per share, for a total of $18,912.

 

*Medicsightplc*

 

In March and April 2008we purchased a total of 1,000,000 shares in Medicsight for £634 ($1,251),bringing our total holding in Medicsight to 86,000,000 (55%) of the 155,524,904issued share capital of Medicsight.  Theacquisition of these shares was accounted for under the purchase method ofaccounting and the excess of the acquisition cost over the associatednon-controlling interest of the investment was added to goodwill.  On December 31, 2009 Medicsight sharesclosed at a price of £0.08 ($0.13), valuing MGT’s 86,000,000 shares at $10,822.

 

*MedicexchangeLtd*

 

Company owns 22,500,000ordinary shares in Medicexchange, constituting 73% of the outstanding shares.

 

*Non-controllinginterest*

 

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

 
| ** **                                                          | ** ** | **Medicsight** | ** ** | **Medicexchange** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------|------------|----------------|------------|-------------------|------------|-----------|------------|
|                                                                |       |           |       |              |       |      |       |
| Non-controlling interest at  December 31, 2007                 |       | $              | 84,851     |              | $          | 8,653     |       | $ | 93,504 |   |
| Purchase of stock in  subsidiary                                    |       | (294           | )          | —            |       | (294      | )          |
| Transfer to APIC                                                    |       | (58,985        | )          | (7,147            | )          | (66,132   | )          |
| Less non-controlling  interest share of net loss                    |       | (7,029         | )          | (621              | )          | (7,650    | )          |
| Non-controlling interest  share of stock-based compensation expense |       | 1,063          |       | 53                |       | 1,116     |       |
| Non-controlling interest  share of other comprehensive income       |       | (4,570         | )          | 43                |       | (4,527    | )          |
| Non-controlling interest at  December 31, 2008                 |       | $              | 15,036     |              | $          | 981       |       | $ | 16,017 |   |
|                                                                |       |           |       |              |       |      |       |
| Less non-controlling  interest share of net loss                    |       | (5,225         | )          | (541              | )          | (5,766    | )          |
| Non-controlling interest  share of stock-based compensation expense |       | 484            |       | 13                |       | 497       |       |
| Non-controlling interest  share of other comprehensive income       |       | 855            |       | (199              | )          | 656       |       |
|                                                                |       |           |       |              |       |      |       |
| Non-controlling interest at  December 31, 2009                 |       | $              | 11,150     |              | $          | 254       |       | $ | 11,404 |   |

 

**14.  Other income (and expense)**

 

We had the followingother income and expense amounts:

 

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| ** **                             | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                   |       |     |       |     |       |     |       |
| Dividend income                        |       | $        | —     |     | $          | —   |       | $ | 467 |   |
| Interest Income                        |       | 397      |       | 1,678    |       | 2,755    |       |
| Foreign exchange gain                  |       | 309      |       | 3,881    |       | —   |       |
| (Loss) gain on marketable securities   |       | (738     | )          | (1,134   | )          | 826      |       |
| Impairment of XShares convertible note |       | (2,210   | )          | —   |       | —   |       |
| Impairment of investments held at cost |       | (776     | )          | (2,583   | )          | —   |       |
| Total                                  |       | $        | (3,018     | )        | $          | 1,842    |       | $ | 4,048 |   |

 

In both 2009 and 2008, Medicsight recorded foreignexchange gains.  These realized gainswere made on translating U.S. dollars into sterling.  As the transactions were settled, the gain isrecognized in the Consolidated Statement of Operations.

 

Interest income includes bank interest and interestfrom the XShares convertible notes. These notes and the accrued interest were impaired and the impairmentloss is included in interest and other (expense).

 

**15.  Comprehensive loss**

 

Comprehensive losses for the years ended December 31,2009 and 2008 are as follows:

 
| ** **                                                             | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                   |       |     |       |     |       |
| Net loss as reported                                                   |       | $        | (32,143    | )        | $          | (27,651 | ) |
| Other comprehensive (loss)                                             |       |     |       |     |       |
| Unrealized foreign exchange gain (loss)                                |       | 1,066    |       | (10,483  | )          |
| Unrealized loss on marketable securities                               |       | —   |       | (81      | )          |
| Comprehensive loss                                                     |       | (31,077  | )          | (38,215  | )          |
| Comprehensive loss attributable to non-controlling  interest           |       | 5,110    |       | 12,177   |       |
| Comprehensive loss attributable to MGT Capital  Investments, Inc. |       | $        | (25,967    | )        | $          | 26,038 |   |

 

The accumulated balancesrelated to each component of other comprehensive losses were as follows:

 
| ** **                        | ** ** | **Foreign  currency  translation** | ** ** | **Unrealized  gain (loss) on  investments** | ** ** | **Accumulated other  comprehensive loss** | ** ** |
|-----------------------------------|------------|------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|
| Balance at December 31, 2007 |       | $                                  | 997        |                                        | $          | 81                                        |       | $ | 1,078 |   |
| Other comprehensive gain (loss)   |       | (5,956                             | )          | (81                                         | )          | (6,037                                    | )          |
| Balance at December 31, 2008 |       | (4,959                             | )          | —                                      |       | (4,959                                    | )          |
| Other comprehensive (loss)        |       | 410                                |       | —                                      |       | 410                                       |       |
| Balance at December 31, 2009 |       | $                                  | (4,549     | )                                           | $          | —                                    |       | $ | (4,549 | ) |

 

**16.  Stockoption plans**

 

We have a number of Stock Option Plans as follows.

 

*MGT Stock Option Plan*

 

On December 5, 2007 we approved the 2007 MGTstock option plan and granted options for 1,975,000 shares under thisplan.  At December 31, 2009 there were 1,975,000 options outstanding,of which 1,316,673 were exercisable.  Options issued under this plan vestin equal one-thirds after employees have been employed for 12, 24 and 36 monthsfrom the date of grant.

 

*Medicsight Stock Option Plans*

 

We have nine Stock Option Plans in Medicsight. The shares of this company were listed on the AIM Market of the London StockExchange on June 21, 2007.

 

Plan A - on February 26, 2003 we approved stockoption plan “A” and in the period ended June 30, 2003 we granted optionsfor 2,971,000 shares under this plan.  At December 31, 2009 therewere 62,500 options outstanding, all of which were exercisable.

 

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

 

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Plan C - on August 15, 2005 we approved stockoption plan “C” and between April 1, 2005 and June 30, 2006 we grantedoptions for 515,000 shares under this plan.  Options issued under thisplan vest in equal one-thirds after employees have been employed for 12, 24 and36 months from date of grant.  At December 31, 2009 there were 85,000options outstanding, all of which were exercisable.

 

Plan D - On July 13, 2006 we approved stockoption 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 beenemployed for 12, 24 and 36 months from the date of grant. At December 31,2009 there were 26,667 options outstanding, all of which were exercisable.

 

Plan E - on February 22, 2007 we approved andgranted options for 5,900,000 shares under stock option plan “E”.  Optionsunder this plan vest in equal one thirds after employees have been employed for12, 24 and 36 months.  At December 31,2009 there were 1,015,001 options outstanding, of which 751,670 wereexercisable.

 

Plan F - on May 16, 2007 we approved andsubsequently granted options for 350,000 shares under stock option plan “F”. Options under this plan vest in equal one thirds after employees have beenemployed for 12, 24 and 36 months from the grant date.  At December 31,2009 there were 50,000 options outstanding, of which 33,333 were exercisable.

 

Plan G - on December 18, 2007 we approved andsubsequently granted options for 3,025,000 shares under stock option plan “G”. Options under this plan vest in equal one thirds after employees have beenemployed for 12, 24 and 36 months from the grant date.  At December 31,2009 there were 241,667 options outstanding, of which 191,666 were exercisable.

 

Plan H - on June 2, 2008 we approved andsubsequently granted options for 750,000 shares under stock option plan “H”.Options under this plan vest in equal one thirds after employees have beenemployed for 12, 24 and 36 months from the grant date.  At December 31,2009 there were no options outstanding.

 

Plan I - on December 16, 2008 we approved andsubsequently granted options for 1,805,000 shares under stock option plan “I”.Options under this plan vest in equal one thirds after employees have beenemployed for 12, 24 and 36 months from the grant date.  At December 31,2009 125,000 options were outstanding, of which 41,667 were exercisable.

 

Plan J — on May 14, 2009 we approved andsubsequently granted options for 7,848,750 shares under stock option plan “J”.  Options under this plan vest in equal onesixths for each six months that employees have been employed from the grantdate.  At December 31, 2009 therewere 7,050,024 options outstanding, of which 1,274,213 were exercisable.

 

Plan K — on May 20, 2009 we approved andsubsequently granted options for 300,000 shares under stock option plan “J”.  Options under this plan vested in threetranches in the period to December 31, 2009.  At December 31, 2009 there were 300,000options outstanding, all of which were exercisable.

 

*Medicexchange Stock Option Plans*

 

We have two stock option plans in Medicexchange. The shares of this company are not publicly traded.

 

Plan A - on July 20, 2006 we approvedMedicexchange stock option plan “A” and granted options for 950,000 sharesunder this plan.  Options issued under this plan vest in equal one-thirdsafter employees have been employed for 12, 24 and 36 months from the date ofgrant. At December 31, 2009 there were 250,000 options outstanding, all ofwhich were exercisable.

 

Plan B — on July 26, 2007 we approvedMedicexchange stock option plan “B” and granted options for 300,000 sharesunder this plan. Options issued under this plan vest equal one-thirds afteremployees have been employed for 12, 24 and 36 months from the date ofgrant.  At December 31, 2009 there were 150,000 options outstanding,of which 100,000 were exercisable.

 

The following weighted average assumptions were usedto estimate the fair value of stock options granted in the years ended December 31:

 
| ** **               | ** ** | **2009**       | ** ** | **2008**     | ** ** | **2007**      | ** ** |
|--------------------------|------------|----------------|------------|--------------|------------|---------------|------------|
|                     |       |           |       |         |       |          |       |
| Dividend yield           |       | nil            |       | nil          |       | nil           |       |
| Expected volatility      |       | 105            | %          | 39% to 66    | %          | 57%-65        | %          |
| Risk-free interest rate  |       | 3.89           | %          | 2.0% to 5.0  | %          | 4.65%-5.75    | %          |
| Expected life of options |       | 5 to 6.3 years |       | 3 to 6 years |       | Up to 4 Years |       |

 

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| Weighted average fair value of options granted                                              |   |              |   |              |   |              |   |
|---------------------------------------------------------------------------------------------|--------|-------------------|--------|-------------------|--------|-------------------|--------|
| Weighted-average grant-date fair value —  Medicsight Plan E                            |   | —            |   | —            |   | £0.26 ($0.51 | )      |
| Weighted-average grant-date fair value —  Medicsight Plan F                            |   | —            |   | —            |   | £0.33 ($0.65 | )      |
| Weighted-average grant-date fair value —  Medicsight Plan G                            |   | —            |   | —            |   | £0.43 ($0.86 | )      |
| Weighted-average grant-date fair value —  Medicexchange Plan B                         |   | —            |   | —            |   | £0.51 ($1.05 | )      |
| Weighted-average grant-date fair value — MGT  Capital Investments, Inc. 2007 plan |   | —            |   | —            |   | $1.59             |   |
| Weighted-average grant-date fair value — Medicsight  Plan H                            |   | —            |   | £0.20 ($0.29 | )      | —            |   |
| Weighted-average grant-date fair value —  Medicsight Plan I                            |   | —            |   | £0.14 ($0.20 | )      | —            |   |
| Weighted-average grant-date fair value —  Medicsight Plan J                            |   | £0.24 ($0.38 | )      |              |   |              |   |
| Weighted-average grant-date fair value —  Medicsight Plan K                            |   | £0.07 ($0.11 | )      | —            |   | —            |   |

 

The assumptions above arebased on multiple factors including 10-year United Kingdom treasury bonds forthe risk-free rate at the time of grant, expected future exercising patterns(we cannot base the estimate on the historical exercise patterns as no optionshave been exercised) and the volatility of the MGT Capital Investments Inc. ownstock price.

 

The assumptions used in the Black-Scholes optionvaluation model are highly subjective, and can materially affect the resultingvaluation.

 

The following table summarizes stock option activityfor the three years ended December 31, 2009, 2008 and 2007 under alloption plans:

 
| ** **                            | ** ** | **Outstanding**           | ** ** | **Exercisable**                      | ** ** |
|---------------------------------------|------------|---------------------------|------------|--------------------------------------|------------|
| ** **                            | ** ** | **Number of Shares** | ** ** | **Weighted-Average  Exercise Price** | ** ** | **Number of  Shares** | ** ** | **Weighted-Average  Exercise Price** | ** ** |
| ** **                            | ** ** | ** **                | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Outstanding at January 1, 2007   |       | 5,040,000                 |       | £0.91 ($1.79                    | )          | 2,256,200 |   | £1.00 ($1.96 | ) |
|                                  |       |                      |       |                                 |       |   |   |   |   |
| Granted                               |       | 11,550,000                |       | £0.91 ($1.81                    | )          |   |   |   |   |
| Exercised                             |       | —                    |       | —                               |       |   |   |   |   |
| Forfeited                             |       | (1,832,500                | )          | £0.72 ($1.43                    | )          |   |   |   |   |
|                                  |       |                      |       |                                 |       |   |   |   |   |
| Outstanding at December 31, 2007 |       | 14,757,500                |       | £0.86 ($1.72                    | )          | 2,066,667 |   | £0.72 ($1.44 | ) |
|                                  |       |                      |       |                                 |       |   |   |   |   |
| Granted                               |       | 2,555,000                 |       | £0.37 ($0.54                    | )          |   |   |   |   |
| Exercised                             |       | —                    |       | —                               |       |   |   |   |   |
| Forfeited                             |       | (1,175,000                | )          | £0.83 ($1.21                    | )          |   |   |   |   |
|                                  |       |                      |       |                                 |       |   |   |   |   |
| 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                             |       | (12,782,891               | )          | £0.64 ($1.02                    | )          |   |   |   |   |
|                                  |       |                      |       |                                 |       |   |   |   |   |
| Outstanding at December 31, 2009 |       | 11,503,359                |       | £0.58 ($0.92                    | )          | 4,605,890 |   | £0.94 ($1.50 | ) |

 

The following is a summary of the status of stockoptions outstanding at December 31, 2009:

 
| ** **        | ** ** | **Outstanding Options** | ** ** | **Exercisable Options**                       | ** ** |
|-------------------|------------|------------------------------|------------|-----------------------------------------------|------------|
| ** **        | ** ** | **Number**                   | ** ** | **Remaining  Contractual Life  (years)** | ** ** | **Average  Exercise  Price** | ** ** | **Number** | ** ** | **Average  Exercise  price** | ** ** |
| MGT 2007 Plan     |       | 1,975,000                    |       | 7.9                                           |       | $3.69 |   | 1,316,673 |   | $3.69 |   |
|              |       |                         |       |                                          |       |   |   |   |   |   |   |
| Medicsight Plan A |       | 62,500                       |       | 3.0                                           |       | £0.75 ($1.19 | ) | 62,500 |   | £0.75 ($1.19 | ) |
| Medicsight Plan B |       | 172,500                      |       | 4.7                                           |       | £0.75 ($1.19 | ) | 172,500 |   | £0.75 ($1.19 | ) |
| Medicsight Plan C |       | 85,000                       |       | 6.1                                           |       | £0.75 ($1.19 | ) | 85,000 |   | £0.75 ($1.19 | ) |
| Medicsight Plan D |       | 26,667                       |       | 6.5                                           |       | £0.83 ($1.32 | ) | 26,667 |   | £0.83 ($1.32 | ) |
| Medicsight Plan E |       | 1,015,001                    |       | 7.1                                           |       | £0.50 ($0.72 | ) | 751,670 |   | £0.50 ($0.72 | ) |
| Medicsight Plan F |       | 50,000                       |       | 7.4                                           |       | £0.75 ($0.80 | ) | 33,333 |   | £0.75 ($0.80 | ) |

 

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| Medicsight Plan G    |   | 241,667   |   | 8.0    |   | £1.10 ($1.75 | )      | 191,667   |   | £1.10 ($1.75 | )      |
|----------------------|--------|-----------|--------|--------|--------|-------------------|--------|-----------|--------|-------------------|--------|
| Medicsight Plan H    |   | —    |   | 8.4    |   | —            |   | —    |   | —            |   |
| Medicsight Plan I    |   | 125,000   |   | 9.0    |   | £0.24 ($0.38 | )      | 41,667    |   | £0.24 ($0.38 | )      |
| Medicsight Plan J    |   | 7,050,024 |   | 9.4    |   | £0.09 ($0.14 | )      | 1,274,213 |   | £0.09 ($0.14 | )      |
| Medicsight Plan K    |   | 300,000   |   | 9.4    |   | £0.10 ($0.16 | )      | 300,000   |   | £0.10 ($0.16 | )      |
|                 |   |      |   |   |   |              |   |      |   |              |   |
| Medicexchange Plan A |   | 250,000   |   | 6.6    |   | £0.40 ($0.64 | )      | 250,000   |   | £0.40 ($0.64 | )      |
| Medicexchange Plan B |   | 150,000   |   | 7.6    |   | £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 toforfeit 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 account forthis as a modification of the existing options, specifically a cancel andreissue.  Of the options issued in Plan J 3,032,500 were issued as newoptions and 4,816,250 were issued as replacements for options cancelled inexisting plan.  Forty-three employeestook this opportunity and received options in Plan J.  The modification charge in the year ended December 31,2009 solely relates to Plan J and amounted to $12.

 

During 2008 we modified the options of four employeeswho left the Company, to extend the period in which they could exercise theiroptions after leaving.  After the deathof an employee, we modified the plan by transferring it to his estate andextending the period that the estate could benefit from the options.  These modifications increased the stock basedcompensation charge by $709.

 

On February 22, 2007 we modified the exerciseprice of 50% of the shares in Medicsight plc under plans “A” through to “C”from £1.00 to £0.50 per share. On February 22, 2007 we modified theexercise price of 50% of the shares in Medicsight plc under plan “D” from £1.10to £0.50 per share. No other terms and conditions of the shares within theseplans were modified. The total modification charge for the year ended December 312007 was $192.

 

The Company has recorded the following amounts relatedto its share-based compensation expense in the accompanying Statements ofOperations:

 
| ** **                          | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Selling, general and administrative |       | $        | 1,904      |     | $          | 3,732    |       | $ | 1,334 |   |
| Research and development            |       | 95       |       | 200      |       | 207      |       |
| Total                               |       | $        | 1,999      |     | $          | 3,932    |       | $ | 1,541 |   |

 

Of the $1,999 stock basedexpense for the year, $497 was allocated to non-controlling interest

 

No compensation costs were capitalized.

 

The aggregate intrinsic value for options outstandingand exercisable at December 31, 2009 was $nil (December 31, 2008nil).

 

The average grant date fair value of options was$0.38, $0.23 and $0.81 for options granted during the years ended December 31, 2009,2008 and 2007 respectively.

 

A summary of non-vested options at December 31,2009 and the change during the years ended December 31, 2009, 2008 and2007 is presented below:

 
| ** **                                                    | ** ** | **Options** | ** ** | **Weighted Average  Grant Date Fair  Value** | ** ** |
|---------------------------------------------------------------|------------|-------------|------------|-------------------------------------------------------------|------------|
| Nonvested options at January 1, 2007 |       | 2,783,800   |       | £0.41 ($0.81                                           | )          |
| Granted                                                       |       | 11,550,000  |       | £0.41 ($0.81                                           | )          |
| Vested                                                        |       | (990,467    | )          | £0.42 ($0.72                                           | )          |
| Forfeited                                                     |       | (652,500    | )          | £0.41 ($0.92                                           | )          |
| Nonvested options at December 31, 2007                   |       | 12,690,833  |       | £0.41 ($0.81                                           | )          |
| Granted                                                       |       | 2,555,000   |       | £0.16 ($0.23                                           | )          |
| Vested                                                        |       | (4,386,667  | )          | £0.34 ($0.49                                           | )          |
| Forfeited                                                     |       | (400,832    | )          | £0.28 ($0.41                                           | )          |
| Nonvested options at December 31, 2008                   |       | 10,458,334  |       | £0.35 ($0.56                                           | )          |
| Granted                                                       |       | 8,148,750   |       | £0.24 ($0.38                                           | )          |
| Vested                                                        |       | (4,432,527  | )          | £0.35 ($0.56                                           | )          |

 

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| Forfeited                                   |   | (7,277,088 | )      | £0.30 ($0.48 | ) |
|---------------------------------------------|--------|------------|--------|-------------------|---|
| Nonvested options at December 31, 2009 |   | 6,897,469  |   | £0.31 ($0.49 | ) |

 

As of December 31, 2009 there was $4,224 of totalunrecognized compensation cost related to non-vested share-based compensationarrangement granted under the option plans. That cost is expected to berecognized over a weighted average period of 2.3 years.

 

**17.  Income taxes**

 

There was no income tax or benefit recorded for theyear because net losses realized.

 

Significant components of deferred tax assets were asfollows as of December 31:

 
| **Deferred Tax Assets**          | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
| Tax loss carry-forward                     |       | $        | 23,074     |     | $          | 19,902 |   |
| Fixed asset depreciation methods and other |       | 5,434    |       | 1,869    |       |
| Total                                      |       | 28,508   |       | 21,771   |       |
| Valuation Allowance                        |       | (28,508  | )          | (21,771  | )          |
| Net deferred tax asset                     |       | $        | —     |     | $          | — |   |

 

The Company has net operating loss carry-forwards forUnited States tax purposes to offset future taxable income of approximately$5,440 expiring through 2029. As it is not more likely than not that theresulting deferred tax benefits will be realized, a full valuation allowancehas been recognized for such deferred tax assets. The utilization of netoperating loss carry forwards may be significantly limited under the InternalRevenue Code as a result of ownership changes due to the Company’s stock andother equity offerings.

 

Under United Kingdom taxation, Medicsight has $54,103(£34,696) of net operating loss carry-forwards to offset future taxable income.As it is not more likely than not that the resulting deferred tax benefits willbe realized, a full valuation allowance has been recognized for such deferredtax assets.

 

The provision for income tax differs from the amountcomputed by applying the statutory federal income tax rate to income before theprovision for income taxes. The sources and tax effects of the differences areas follows for the year ended December 31:

 
| ** **                                  | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Income taxes at the federal statutory rates |       | (35      | )%         | (35      | )%         | (35      | )%         |
| Foreign rate differential                   |       | 3        |       | 10       |       | 15       |       |
| Change in valuation allowance               |       | 32       |       | 25       |       | 20       |       |
| Effective rate of income tax                |       | 0        | %          | 0        | %          | 0        | %          |

 

The Company or one of its subsidiaries files incometax returns in the U.S. federal jurisdiction, and various states and foreignjurisdictions. With few exceptions, the Company is no longer subject to U.S.federal, state and local, or non-U.S. income tax examinations by taxauthorities for years before 2003.

 

**18.  Operatingleases, commitments and security deposit**

 

On August 25, 2006 we executed a 10 yearagreement with Pirbright Holdings Limited, to lease 8,787 square feet of officespace at the Kensington Centre, 66 Hammersmith Road, London W14 8UD, UK.

 

Under this lease agreement our UK property rent,services and related costs will be approximately £330 ($524) per annum, paidquarterly in advance.  We have the right to terminate this agreement onthe expiration of the fifth year of the lease.  Our annual rent is subjectto upward only review on August 24, 2011.  We have two 10-month rent-free periods: the firstcommencing August 25, 2006; the second commencing August 25, 2011.

 

We have satellite offices in Tokyo (Japan) and NewYork.  The Tokyo office is on a three yearrental agreement but has agreed with the landlord that they will move out inthe second quarter of 2010.  Since theyear end we signed a two year lease on a new office in Tokyo.  The New York office has no lease commitment.

 

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In July 2008 we entered into an agreement with apartner to develop interfaces for our software.  We have committed to payEuros 1,445 ($2,071) over an expected thirty-six month period.  As at December 31,3009 we have paid Euros 845 ($1,210).  These payments will be recoveredagainst future royalty payments, should the products be successfullycommercialized.  They have been expensedto the income statement and classified as research and development.

 

At December 31, 2009 we have paid in total $219in deposit for these office rentals.

 

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

 
| **Year Ending** | ** ** | ** ** | ** ** |
|----------------------|------------|------------|------------|
|                 |       |       |       |
| 2010                 |       | $          | 432        |   |
| 2011                 |       | 184        |       |
| 2012                 |       | 2          |       |
| 2013                 |       | 2          |       |
| 2014                 |       | —     |       |
| Total                |       | $          | 620        |   |

 

Total rent expense was$642, $770, and $659 for the years ended December 31, 2009, 2008, and 2007respectively.

 

**19.  Segmentreporting**

 

Operating segments are defined as components of anenterprise about which separate financial information is available that isevaluated regularly by the chief operating decision maker, or decision makinggroup in deciding how to allocate resources and in assessing performance. Ourchief operating decision making group is composed of the chief executiveofficer and members of senior management. The Company’s reportable operatingsegments are Medicsight and Medicexchange.

 

The accounting policies of the segments are the sameas those described in the summary of significant accounting policies. Weevaluate performance of our operating segments based on revenue and operating(loss). Segments information for 2009, 2008 and 2007 are as follows (inthousands):

 
| ** **                                                                | ** ** | **Medicsight** | ** ** | **Medicexchange** | ** ** | **Corporate  and other** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------------|------------|----------------|------------|-------------------|------------|--------------------------|------------|-----------|------------|
|                                                                      |       |           |       |              |       |                     |       |      |       |
| **2009**                                                                  |       |           |       |              |       |                     |       |      |       |
| Revenue from external customers                                           |       | $              | 180        |              | $          | 48                       |       | $         | —     |   | $ | 228 |   |
| Cost of revenue                                                           |       | —         |       | 3                 |       | —                   |       | 3         |       |
| Gross Margin                                                              |       | 180            |       | 45                |       | —                   |       | 225       |       |
| Operating Expenses (includes goodwill impairment  in corporate and other) |       | 12,592         |       | 1,296             |       | 15,462                   |       | 29,350    |       |
| Operating loss                                                            |       | (12,412        | )          | (1,251            | )          | (15,462                  | )          | (29,125   | )          |
| Depreciation                                                              |       | 206            |       | 27                |       | 104                      |       | 337       |       |
| Stock-based compensation                                                  |       | 1,082          |       | 49                |       | 868                      |       | 1,999     |       |
| Assets                                                                    |       | 17,713         |       | 1,097             |       | 5,467                    |       | 24,277    |       |
| Expenditure for property plant and equipment                              |       | 14             |       | 6                 |       | 2                        |       | 22        |       |
|                                                                      |       |           |       |              |       |                     |       |      |       |
| **2008**                                                                  |       |           |       |              |       |                     |       |      |       |
| Revenue from external customers                                           |       | $              | 191        |              | $          | 163                      |       | $         | —     |   | $ | 354 |   |
| Cost of revenue                                                           |       | —         |       | 116               |       | —                   |       | 116       |       |
| Gross Margin                                                              |       | 191            |       | 47                |       | —                   |       | 238       |       |
| Operating Expenses                                                        |       | 20,790         |       | 3,643             |       | 5,298                    |       | 29,731    |       |
| Operating loss                                                            |       | (20,599        | )          | (3,522            | )          | (5,372                   | )          | (29,493   | )          |
| Depreciation                                                              |       | 269            |       | 240               |       | 58                       |       | 567       |       |
| Stock-based compensation                                                  |       | 2,379          |       | 195               |       | 1,358                    |       | 3,932     |       |

 

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| Assets                                       |   | 28,897  |   | 2,326  |   | 24,228 |   | 55,451  |   |
|----------------------------------------------|--------|---------|--------|--------|--------|--------|--------|---------|--------|
| Expenditure for property plant and equipment |   | 304     |   | 35     |   | 176    |   | 515     |   |
|                                         |   |    |   |   |   |   |   |    |   |
| **2007**                                     |   |    |   |   |   |   |   |    |   |
| Revenue from external customers              |   | $       | 41     |   | $      | 48     |   | $       | — |   | $ | 89 |   |
| Cost of revenue                              |   | 1       |   | 34     |   | — |   | 35      |   |
| Gross Margin                                 |   | 40      |   | 14     |   | — |   | 54      |   |
| Operating Expenses                           |   | 14,970  |   | 3,947  |   | 3,060  |   | 21,977  |   |
| Operating loss                               |   | (14,930 | )      | (3,933 | )      | (3,060 | )      | (21,923 | )      |
| Depreciation                                 |   | 190     |   | 177    |   | — |   | 367     |   |
| Stock-based compensation                     |   | 1,349   |   | 104    |   | 88     |   | 1,541   |   |
|                                              |        |         |        |        |        |        |        |         |        |  |  |  |  |

 

The Company’s main operations and fixed assets are inthe UK.

 

Medicsight listed on the AIM Market of the LondonStock Exchange on June 21, 2007.  AIM listing rules requireMedicsight to publish results under International Financial Reporting Standards(“IFRS”) in UK Sterling (“GBP”).

 

The following is a reconciliation between Medicsightpublished financial statements and the US GAAP consolidated results (inthousands):

 
| ** **                                | ** ** | **Medicsight  plc** | ** ** | **Medicsight  plc** | ** ** | **Medicsight  plc** | ** ** | **Medicexchange**  | ** ** | **Corporate  and Other** | ** ** | **Total**          | ** ** |
|-------------------------------------------|------------|---------------------|------------|---------------------|------------|---------------------|------------|--------------------|------------|--------------------------|------------|--------------------|------------|
| ** **                                | ** ** | **(IFRS)**          | ** ** | **GAAP**            | ** ** | **(US GAAP)**  | ** ** | **(US GAAP)** | ** ** | **(US GAAP)**       | ** ** | **(US GAAP)** | ** ** |
| ** **                                | ** ** | ** **          | ** ** | **Adjustments**     | ** ** | ** **          | ** ** | ** **         | ** ** | ** **               | ** ** | ** **         | ** ** |
|                                      |       |                |       |                |       |                |       |               |       |                     |       |               |       |
| **Twelve months December 31, 2009**  |       |                |       |                |       |                |       |               |       |                     |       |               |       |
| Net revenue from external customers       |       | 180                 |       | —              |       | 180                 |       | 48                 |       | —                   |       | 228                |       |
| Operating loss                            |       | (12,260             | )          | (152                | )          | (12,412             | )          | (1,251             | )          | (15,462                  | )          | (29,125            | )          |
| Assets                                    |       | 17,713              |       | —              |       | 17,713              |       | 1,097              |       | 5,467                    |       | 24,277             |       |
|                                      |       |                |       |                |       |                |       |               |       |                     |       |               |       |
| **Twelve months December 31,  2008** |       |                |       |                |       |                |       |               |       |                     |       |               |       |
| Net revenue from external customers       |       | 191                 |       | —              |       | 191                 |       | 163                |       | —                   |       | 354                |       |
| Operating loss                            |       | (20,149             | )          | (450                | )          | (20,599             | )          | (3,522             | )          | (5,372                   | )          | (29,493            | )          |
| Assets                                    |       | 28,897              |       | —              |       | 28,897              |       | 2,326              |       | 24,228                   |       | 55,451             |       |

 

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

 

**20.  RelatedParty Transactions**

 

*Asia IT Capital Investments Ltd*

 

A director of Asia IT is a brother of TimPaterson-Brown (our Chairman and Chief Executive Officer).  In addition tothe loan facilities made available by Asia IT to the Company and Medicsightplc, Asia IT received commissions on shares issuances and transactions in Fiscal2007, 2006 and 2005.

 

On June 21, 2007 Medicsight plc completed itsinitial public offering on the AIM Market of the London Stock Exchange. Approximately 29,000,000 new shares were issued to institutional and otherinvestors at a price of £1.10 ($2.20) per share raising £32,000 ($64,115) grossnew money.  We incurred fees of approximately £1,550 ($3,096), includingapproximately £149 ($298) with Asia IT Capital Investments Ltd (a relatedparty).  Immediately prior to the Medicsight plc IPO, the Company solddown, by private placement approximately 11,700,000 of its Medicsight plcshares.  The shares were priced at £1.10 ($2.20) — the same price as theMedicsight IPO.  Gross proceeds on the private placement wereapproximately £12,845 ($25,736).  We incurred fees with Asia IT CapitalInvestments Ltd (a related party) of approximately £578 ($1,167).

 

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During the year ended December 31, 2007 theCompany placed monies on deposit with Asia IT. These monies earn interest at anannual rate of 5%. The funds were on call at any time. At December 31,2007 the balance of monies on deposit with Asia IT was $3,917 which included$262 of interest income earned in the year ended December 31, 2007.

 

During the year ended December 31, 2008 theCompany placed monies on deposit with Asia IT. These monies earn interest at anannual rate of 5.5%. The funds are on call at any time. At December 31,2008 the balance of monies on deposit with Asia IT was $1,234 which included$337 of interest income earned in the year ended December 31, 2008.

 

During the year ended December 31, 2009 theCompany placed monies on deposit with Asia IT. These monies earned interest atan annual rate of 3%. The funds are on call at any time. At December 31,2009 the balance of monies on deposit with Asia IT was $992 which included $32of interest income earned in the year ended December 31, 2009.

 

MGT has made various investments in XShares Group LLC(“XShares”); MGT was introduced to XShares by Asia IT.  In December 31, 2007 the Companyinvested $960 in XShares.  During theyear ended December 31, 2008 the Company acquired shares valued at $2,040in XShares and the combined investment was impaired to $600.  During the year ended December 31, 2009the Company invested $2,000 in convertible notes with a principal of $2,100 inXShares Group LLC.  These notes and theinvestment were fully impaired in the year ended December 31, 2009.  For part of the year ended December 31,2009 Tim Paterson-Brown was a director of XShares.  In Fiscal 2009 the equity investment,convertible notes and accrued interest were fully impaired.

 

In the year ended December 31, 2007 the Company invested$2,000 in HipCricket Inc. MGT was introduced to HipCricket Inc by Asia ITLimited and a brother of Tim Paterson-Brown is a non-executive director ofHipCricket Inc.  In Fiscal 2008 and 2009the investment in HipCricket was impaired with a new carrying value of $224.

 

*Accsys Technologies plc*

 

Tim Paterson-Brown is also a non-executive director ofAccsys Technologies plc, which has a subsidiary company Titan WoodLimited.  Titan Wood Limited rents space in 66 Hammersmith Road.  Inthe year ended December 31, 2009 $168 of office related costs wererecharged to Titan Wood Limited.  At December 31,2009 there was a balance receivable of $66 from Titan Wood.  In the year ended December 31, 2008 $171of costs were recharged to Titan Wood.

 

*Moneygate Group Limited*

 

In October 2009 the Company acquired 49% of theshare capital of Moneygate Group Limited (“Moneygate”), which is accounted forunder the equity method.  Moneygate is arelated party as we have significant influence over it and have representationon the board of directors.  In the periodto December 31, 2009 the Company advanced a $398 working capital facilityand $159 as part of a $3,186 acquisition facility to Moneygate, which was alloutstanding at the year end.  We charged Moneygatea $35 management fee for services provided and $40, including sales tax, wasoutstanding at the year end.

 

**21.  QuarterlyFinancial Data (unaudited)**

 

The tables below summarize the Company’s unauditedquarterly operating results for Fiscal 2009 and 2008:

 
| ** **                       | ** ** | **First Quarter** | ** ** | **Second Quarter** | ** ** | **Third Quarter** | ** ** | **Fourth Quarter** | ** ** |
|----------------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|--------------------|------------|
|                             |       |              |       |               |       |              |       |               |       |
| **2009**                         |       |              |       |               |       |              |       |               |       |
| Revenues                         |       | $                 | 74         |               | $          | 47                |       | $                  | 62         |   | $ | 45 |   |
| Gross Margin                     |       | 72                |       | 47                 |       | 61                |       | 45                 |       |
| Net loss                         |       | (15,330           | )          | (3,845             | )          | (2,595            | )          | (4,607             | )          |
| Basic and diluted loss per share |       | (0.47             | )          | (0.12              | )          | (0.08             | )          | (0.14              | )          |
|                                  |            |                   |            |                    |            |                   |            |                    |            |  |  |  |  |

 

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| **2008**                         |   |   |   |   |   |   |   |   |   |
|----------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Revenues                         |   | $      | 52     |   | $      | 85     |   | $      | 120    |   | $ | 97 |   |
| Gross Margin                     |   | 40     |   | 67     |   | 34     |   | 97     |   |
| Net loss                         |   | (3,779 | )      | (5,136 | )      | (1,300 | )      | (9,786 | )      |
| Basic and diluted loss per share |   | (0.10  | )      | (0.14  | )      | (0.04  | )      | (0.32  | )      |
|                                  |        |        |        |        |        |        |        |        |        |  |  |  |  |

 

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**Schedule II**

 

**MGTCapital Investments, Inc.**

 

Valuation and QualifyingAccounts

 
| ** **                                          | ** ** | **Balance at**   | ** ** | ** **    | ** ** | ** **     | ** ** | ** **      | ** ** |
|-----------------------------------------------------|------------|------------------|------------|---------------|------------|----------------|------------|-----------------|------------|
| ** **                                          | ** ** | **Beginning**    | ** ** | ** **    | ** ** | ** **     | ** ** | **Balance at**  | ** ** |
| **Deferred Tax Valuation Allowance** | ** ** | **of year** | ** ** | **Additions** | ** ** | **Write-offs** | ** ** | **end of year** | ** ** |
|                                                |       |             |       |          |       |           |       |            |       |
| 2007                                                |       | $                | 56,656     |          | $          | 3,921          |       | $               | (37,380    | ) | $ | 23,197 |   |
| 2008                                                |       | 23,197           |       | (1,334        | )          | (92            | )          | 21,771          |       |
| 2009                                                |       | 21,771           |       | 6,737         |       | —         |       | 28,508          |       |
|                                                     |            |                  |            |               |            |                |            |                 |            |  |  |  |  |

 

The deferred tax valuation allowance applies to bothoperating loss carry-forwards and capital losses incurred by the Company andother temporary timing differences.

 

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