UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

WASHINGTON,
D.C. 20549



FORM
10–Q



|[X] | QUARTERLY
    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | -------------------------------------------------------------------------------------------



For
the quarterly period ended September 30, 2016



|[  ] | TRANSITION
    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|---- | --------------------------------------------------------------------------------------------



For
the transition period from ______________ to ______________



Commission
file number: 001–32698



MGT
CAPITAL INVESTMENTS, INC.

(Exact
name of Registrant as specified in its charter)



|Delaware                                                          |  | 13–4148725                             
|----------------------------------------------------------------- |  | ---------------------------------------
|(State
    or other jurisdiction ofincorporation or organization) |  | (I.R.S.
    EmployerIdentification No.)



512
S. Magnum Street, Suite 408

Durham,
NC 27701

(Address
of principal executive offices)



(914)
630–7430

(Registrant’s
telephone number, including area code)



Indicate
by check whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days Yes [X] No [  ]



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S–T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No
[  ]



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



|Large
    Accelerated Filer [  ]                |  | Accelerated
    filer [  ]       
|----------------------------------------------- |  | ---------------------------------
|                                                |  |                                  
|Non–accelerated
    Filer [  ]                  |  | Smaller
    reporting company [X]
|(Do
    not check if smaller reporting company) |  |                                  



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act). Yes [  ]
No [X]





As of November 14, 2016, the registrant had outstanding 28,162,855shares
of Common stock, $0.001 par value.

















INDEX



|              |                                                                                                                                     |  | Page
|------------- | ----------------------------------------------------------------------------------------------------------------------------------- |  | ----
|PART
    I    | FINANCIAL
    INFORMATION (UNAUDITED)                                                                                               |  |     
|Item
    1.   | Condensed
    consolidated balance sheets – September 30, 2016 and December 31, 2015                                                |  | 3   
|              | Condensed
    consolidated statements of operations and comprehensive loss – for the three months ended September 30, 2016 and 2015 |  | 4   
|              | Condensed
    consolidated statements of operations and comprehensive loss – for the nine months ended September 30, 2016 and 2015  |  | 5   
|              | Condensed
    consolidated statements of cash flows – for the nine months ended September 30, 2016 and 2015                         |  | 6   
|              | Notes
    to unaudited condensed consolidated financial statements                                                                  |  | 7   
|Item
    2.   | Management’s
    discussion and analysis of financial condition and results of operations                                           |  | 16  
|Item
    3.   | Quantitative
    and qualitative disclosure about market risk                                                                       |  | 20  
|Item
    4.   | Controls
    and procedures                                                                                                         |  | 20  
|              |                                                                                                                                     |  |     
|PART
    II   | OTHER
    INFORMATION                                                                                                               |  |     
|Item
    1.   | Legal
    proceedings                                                                                                               |  | 21  
|Item
    1–A. | Risk
    factors                                                                                                                    |  | 21  
|Item
    2.   | Unregistered
    sale of equity securities and use of proceeds                                                                      |  | 21  
|Item
    3.   | Defaults
    upon senior securities                                                                                                 |  | 21  
|Item
    4.   | Mine
    safety and disclosures                                                                                                     |  | 21  
|Item
    5.   | Other
    information                                                                                                               |  | 21  
|Item
    6.   | Exhibits                                                                                                                            |  | 21  
|              | Signatures                                                                                                                          |  | 22  



2







PART
I. FINANCIAL INFORMATION



MGT
CAPITAL INVESTMENTS, INC. AND SUBSIDIARIES

CONDENSED
CONSOLIDATED BALANCE SHEETS

(In
thousands, except share and per–share amounts) (unaudited)





|                                                                                                                                                                                                                                                    |  | September
    30, 2016 |          |   | December
    31, 2015 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | -------- | - | --------------------- | -
|Assets                                                                                                                                                                                                                                              |  |                        |          |   |                       |  
|Current assets                                                                                                                                                                                                                                      |  |                        |          |   |                       |  
|Cash
    and cash equivalents                                                                                                                                                                                                                       |  | $                      | 2,113    |   |                       | $
|Digital currencies                                                                                                                                                                                                                                  |  |                        | 45       |   |                       |  
|Prepaid expenses
    and other current assets                                                                                                                                                                                                       |  |                        | 146      |   |                       |  
|Investments available
    for sale                                                                                                                                                                                                                  |  |                        | 100      |   |                       |  
|Notes receivable                                                                                                                                                                                                                                    |  |                        | 640      |   |                       |  
|Total current assets                                                                                                                                                                                                                                |  |                        | 3,044    |   |                       |  
|                                                                                                                                                                                                                                                    |  |                        |          |   |                       |  
|Non–current assets                                                                                                                                                                                                                                  |  |                        |          |   |                       |  
|Restricted cash                                                                                                                                                                                                                                     |  |                        | –        |   |                       |  
|Property and equipment,
    at cost, net                                                                                                                                                                                                            |  |                        | 328      |   |                       |  
|Intangible assets,
    net                                                                                                                                                                                                                          |  |                        | –        |   |                       |  
|Goodwill                                                                                                                                                                                                                                            |  |                        | –        |   |                       |  
|Note receivable                                                                                                                                                                                                                                     |  |                        | 45       |   |                       |  
|Investments, at cost                                                                                                                                                                                                                                |  |                        | 1,369    |   |                       |  
|Total assets                                                                                                                                                                                                                                        |  | $                      | 4,786    |   |                       | $
|                                                                                                                                                                                                                                                    |  |                        |          |   |                       |  
|Liabilities and equity                                                                                                                                                                                                                              |  |                        |          |   |                       |  
|Current liabilities                                                                                                                                                                                                                                 |  |                        |          |   |                       |  
|Accounts payable                                                                                                                                                                                                                                    |  | $                      | 272      |   |                       | $
|Accrued expenses                                                                                                                                                                                                                                    |  |                        | 110      |   |                       |  
|Other payables                                                                                                                                                                                                                                      |  |                        | 11       |   |                       |  
|Total current liabilities                                                                                                                                                                                                                           |  |                        | 393      |   |                       |  
|                                                                                                                                                                                                                                                    |  |                        |          |   |                       |  
|Non-current liabilities                                                                                                                                                                                                                             |  |                        |          |   |                       |  
|Notes payable, net
    of discount                                                                                                                                                                                                                  |  |                        | 1,579    |   |                       |  
|Total liabilities                                                                                                                                                                                                                                   |  |                        | 1,972    |   |                       |  
|                                                                                                                                                                                                                                                    |  |                        |          |   |                       |  
|Commitments and contingencies                                                                                                                                                                                                                       |  |                        |          |   |                       |  
|Redeemable Convertible
    Preferred stock – temporary equity                                                                                                                                                                                       |  |                        |          |   |                       |  
|Preferred stock,
    Series A Convertible Preferred, $0.001 par value, 1,500,000 shares authorized at September 30, 2016 and December 31, 2015;
    No shares outstanding at September 30, 2016 and 10,608 shares outstanding at December 31, 2015. |  |                        | –        |   |                       |  
|Stockholders’
    equity                                                                                                                                                                                                                            |  |                        |          |   |                       |  
|Undesignated Preferred
    stock, $0.001 par value, 8,583,840 shares authorized at September 30, 2016 and December 31, 2015. No shares issued and outstanding
    at September 30, 2016 and December 31, 2015                                       |  |                        | –        |   |                       |  
|Common stock, $0.001
    par value; 75,000,000   shares authorized; 25,862,855   and 17,928,221 shares issued and outstanding at
    September 30, 2016 and December 31, 2015, respectively                                                         |  |                        | 26       |   |                       |  
|Additional paid–in
    capital                                                                                                                                                                                                                      |  |                        | 325,316  |   |                       |  
|Accumulated other
    comprehensive income / (loss)                                                                                                                                                                                                 |  |                        | (10      | ) |                       |  
|Accumulated
    deficit                                                                                                                                                                                                                             |  |                        | (322,204 | ) |                       |  
|Total stockholders’
    equity                                                                                                                                                                                                                      |  |                        | 3,128    |   |                       |  
|Non–controlling
    interests                                                                                                                                                                                                                       |  |                        | (314     | ) |                       |  
|Total equity                                                                                                                                                                                                                                        |  |                        | 2,814    |   |                       |  
|                                                                                                                                                                                                                                                    |  |                        |          |   |                       |  
|Total equity,
    liabilities, redeemable convertible preferred stock and non–controlling interest                                                                                                                                                  |  | $                      | 4,786    |   |                       | $





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



3







MGT
CAPITAL INVESTMENTS, INC. AND SUBSIDIARIES

CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(In thousands, except share and per–share amounts, unaudited)





|                                                                        |  | Three
    months ended September 30, |           
|----------------------------------------------------------------------- |  | ------------------------------------ | ----------
|                                                                        |  | 2016                                 |           
|Revenues                                                                |  |                                      |           
|Bit coin
    mining                                                     |  | $                                    | 53        
|Licensing                                                               |  |                                      | –         
|                                                                        |  |                                      | 53        
|                                                                        |  |                                      |           
|Cost of revenues                                                        |  |                                      |           
|Bitcoin mining                                                          |  |                                      | 31        
|Licensing                                                               |  |                                      | –         
|                                                                        |  |                                      | 31        
|                                                                        |  |                                      |           
|Gross margin                                                            |  |                                      | 22        
|                                                                        |  |                                      |           
|Operating expenses                                                      |  |                                      |           
|General and administrative                                              |  |                                      | 10,572    
|Sales and marketing                                                     |  |                                      | 110       
|Research
    and development                                            |  |                                      | 184       
|                                                                        |  |                                      | 10,866    
|                                                                        |  |                                      |           
|Operating loss                                                          |  |                                      | (10,844   
|                                                                        |  |                                      |           
|Other non–operating (expense) / income                                  |  |                                      |           
|Interest and other
    income                                           |  |                                      | 221       
|Impairment of notes
    receivable                                      |  |                                      | –         
|Gain on sale of investments                                             |  |                                      | 110       
|Amortization of debt
    discount                                       |  |                                      | (41       
|Loss
    on sale of assets                                              |  |                                      | –         
|Impairment
    of investments, at cost                                  |  |                                      | (276      
|                                                                        |  |                                      | 14        
|                                                                        |  |                                      |           
|Net loss from
    continuing operations before non–controlling interest |  |                                      | (10,830   
|                                                                        |  |                                      |           
|Discontinued operations – DraftDay.com                                  |  |                                      |           
|Net loss from discontinued
    operations – DraftDay.com                |  |                                      | –         
|Gain on termination
    of asset purchase agreement                     |  |                                      | –         
|Loss
    on sale of assets                                              |  |                                      | –         
|                                                                        |  |                                      | –         
|                                                                        |  |                                      |           
|Net loss before
    non–controlling interest                            |  |                                      | (10,830   
|                                                                        |  |                                      |           
|Net loss attributable
    to non–controlling interest                   |  |                                      | –         
|                                                                        |  |                                      |           
|Net loss attributable
    to Common stockholders                        |  | $                                    | (10,830   
|                                                                        |  |                                      |           
|Other comprehensive loss                                                |  |                                      |           
|Reclassification
    adjustment for loss included in net Loss           |  |                                      | (94       
|Unrealized
    holding gain                                             |  |                                      | 3         
|Comprehensive
    loss                                                  |  | $                                    | (10,921   
|                                                                        |  |                                      |           
|Per–share data                                                          |  |                                      |           
|Basic and diluted
    loss per share – continuing operations            |  | $                                    | (0.42     
|Basic
    and diluted loss per share – discontinued operations          |  |                                      | –         
|Basic and diluted
    loss per share                                    |  | $                                    | (0.42     
|                                                                        |  |                                      |           
|Weighted average number of Common shares outstanding                    |  |                                      | 25,859,214



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



4







MGT
CAPITAL INVESTMENTS, INC. AND SUBSIDIARIES

CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(In thousands, except share and per–share amounts, unaudited)





|                                                                        |  | Nine
    months ended September 30, |           
|----------------------------------------------------------------------- |  | ----------------------------------- | ----------
|                                                                        |  | 2016                                |           
|Revenues                                                                |  |                                     |           
|Bitcoin
    mining                                                      |  | $                                   | 53        
|Licensing                                                               |  |                                     | –         
|Gaming                                                                  |  |                                     | –         
|                                                                        |  |                                     | 53        
|                                                                        |  |                                     |           
|Cost of revenues                                                        |  |                                     |           
|Bitcoin mining                                                          |  |                                     | 31        
|Licensing                                                               |  |                                     | –         
|                                                                        |  |                                     | 31        
|                                                                        |  |                                     |           
|Gross margin                                                            |  |                                     | 22        
|                                                                        |  |                                     |           
|Operating expenses                                                      |  |                                     |           
|General and administrative                                              |  |                                     | 14,995    
|Sales and Marketing                                                     |  |                                     | 110       
|Research and development                                                |  |                                     | 184       
|                                                                        |  |                                     | 15,289    
|                                                                        |  |                                     |           
|Operating loss                                                          |  |                                     | (15,267   
|                                                                        |  |                                     |           
|Other non–operating (expense) / income                                  |  |                                     |           
|Interest and other
    income / (expense)                               |  |                                     | 257       
|Amortization of debt
    discount                                       |  |                                     | (41       
|Loss on sale of investments                                             |  |                                     | (1,083    
|Impairment of notes
    receivable                                      |  |                                     | –         
|Impairment of goodwill                                                  |  |                                     | (1,496    
|Impairment
    of intangible assets                                     |  |                                     | (673      
|Impairment
    of investments, at cost                                  |  |                                     | (276      
|Loss
    on sale of assets                                              |  |                                     | -         
|                                                                        |  |                                     | (3,312    
|                                                                        |  |                                     |           
|Net loss from
    continuing operations before non–controlling interest |  |                                     | (18,579   
|                                                                        |  |                                     |           
|Discontinued operations – DraftDay.com:                                 |  |                                     |           
|Net loss from discontinued
    operations – DraftDay.com                |  |                                     | –         
|Gain on termination
    of asset purchase agreement                     |  |                                     | –         
|Loss
    on sale of assets                                              |  |                                     | –         
|                                                                        |  |                                     | –         
|                                                                        |  |                                     |           
|Net loss before
    non–controlling interest                            |  |                                     | (18,579   
|                                                                        |  |                                     |           
|Net loss attributable to non–controlling
    interest                   |  |                                     | 319       
|                                                                        |  |                                     |           
|Net loss attributable
    to Common stockholders                        |  | $                                   | (18,260   
|                                                                        |  |                                     |           
|Other comprehensive gain                                                |  |                                     |           
|Reclassification
    adjustment for loss included in net Loss           |  |                                     | 1,111     
|Unrealized
    holding loss                                             |  |                                     | 85        
|Comprehensive
    loss                                                  |  | $                                   | (17,064   
|                                                                        |  |                                     |           
|Per–share data                                                          |  |                                     |           
|Basic and diluted
    loss per share – continuing operations            |  | $                                   | (0.84     
|Basic
    and diluted loss per share – discontinued operations          |  |                                     | –         
|Basic and diluted
    loss per share                                    |  | $                                   | (0.84     
|                                                                        |  |                                     |           
|Weighted average number of Common shares outstanding                    |  |                                     | 21,848,424



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



5







MGT
CAPITAL INVESTMENTS, INC. AND SUBSIDIARIES

CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS

(In
thousands, unaudited)





|                                                                               |  | Nine
    months ended September 30, |        
|------------------------------------------------------------------------------ |  | ----------------------------------- | -------
|                                                                               |  | 2016                                |        
|Cash flows from operating activities                                           |  |                                     |        
|Net loss                                                                       |  | $                                   | (18,579
|Net
    loss from discontinued operations                                      |  |                                     | –      
|                                                                               |  |                                     | (18,579
|Adjustments to reconcile net loss to net
    cash used in operating activities |  |                                     |        
|Depreciation                                                                   |  |                                     | 30     
|Amortization of intangible
    assets                                          |  |                                     | 57     
|Stock–based
    expense                                                        |  |                                     | 10,538 
|Reserve for note
    receivable                                                |  |                                     | –      
|Warrant modification
    expense                                               |  |                                     | 431    
|Loss on sale of investments
    – short term                                   |  |                                     | 1,083  
|Impairment
    of long term investments                                        |  |                                     | 276    
|Impairment of intangible
    assets                                            |  |                                     | 673    
|Impairment of goodwill                                                         |  |                                     | 1,496  
|Amortization
    of debt discount                                              |  |                                     | 41     
|Change in operating assets and liabilities                                     |  |                                     |        
|Accounts receivable                                                            |  |                                     | –      
|Prepaid expenses
    and other current assets                                  |  |                                     | (130   
|Accounts payable                                                               |  |                                     | 210    
|Accrued expenses                                                               |  |                                     | 95     
|Other
    payables                                                             |  |                                     | 7      
|Net
    cash used in operating activities                                      |  |                                     | (3,772 
|                                                                               |  |                                     |        
|Cash flows from investing activities                                           |  |                                     |        
|Release of restricted
    cash and security deposit                            |  |                                     | 39     
|Purchase of equipment                                                          |  |                                     | (321   
|Purchase of investments
    – short term                                       |  |                                     | (414   
|Purchase of investments
    – long term                                        |  |                                     | (265   
|Purchase of note
    receivable – long term                                    |  |                                     | (45    
|Proceeds from sale
    of intangible assets                                    |  |                                     | –      
|Proceeds
    from sale of investments                                          |  |                                     | 1,805  
|Net
    cash provided by / (used in) investing activities                      |  |                                     | 799    
|                                                                               |  |                                     |        
|Cash flows from financing activities                                           |  |                                     |        
|Proceeds from At–The–Market
    sales of Common stock, net of fees             |  |                                     | –      
|Proceeds from issuance
    of notes payable and warrants                       |  |                                     | 2,300  
|Proceeds
    from exercise of Common stock warrants                            |  |                                     | 2,427  
|Net
    cash provided by financing activities                                  |  |                                     | 4,727  
|                                                                               |  |                                     |        
|Cash flows from discontinued operations –
    DraftDay.com                     |  |                                     |        
|Net cash used in
    operating activities                                      |  |                                     | –      
|                                                                               |  |                                     |        
|Net change in cash and cash equivalents                                        |  |                                     | 1,754  
|Cash and cash
    equivalents, beginning of period                             |  |                                     | 359    
|Cash and cash
    equivalents, end of period                                   |  | $                                   | 2,113  



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



6







MGT
CAPITAL INVESTMENTS, INC. AND SUBSIDIARIES

NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In
thousands, except share and per–share amounts)



Note
1. Organization and basis of presentation



Organization





MGT Capital Investments, Inc.
(“MGT,” “the Company,” “we,” “us”) is a Delaware corporation, incorporated in
2000. The Company was originally incorporated in Utah in 1977. MGT is comprised of the parent company, wholly–owned subsidiaries
MGT Cybersecurity, Inc. (“MGT Cybersecurity”), Medicsight, Inc. (“Medicsight”), MGT Sports, Inc. (“MGT
Sports”), MGT Studios, Inc. (“MGT Studios”), and majority–owned subsidiary MGT Gaming, Inc. (“MGT
Gaming”). MGT Studios also owns a controlling minority interest in the subsidiary M2P Americas, Inc. Our corporate office
is located in Durham, North Carolina.





Cybersecurity





MGT
and its subsidiaries are in the process of acquiring a diverse portfolio of cyber security technologies. With cyber security industry
pioneer, John McAfee, as the Executive Chairman, the Company is positioned to address various
cyber threats through advanced protection technologies for mobile and personal tech devices, including tablets and smart phones.
The Company is currently in the process of acquiring D–Vasive, a provider of leading edge anti–spy software, and Demonsaw,
a provider of a secure and anonymous file sharing software platform.





On
May 9, 2016 we, through our wholly owned subsidiary, MGT Cybersecurity,
Inc. entered into an Asset Purchase Agreement (the “D–Vasive APA”) to acquire certain assets related to the
D–Vasive business (as defined below). D–Vasive, Inc., a Wyoming corporation, is in the business of developing and
marketing of certain privacy and anti–spy applications (the “D–Vasive Business”). Pursuant to the terms
of the D–Vasive APA, the Company has agreed to purchase assets (“D–Vasive Assets”) integral to the D–Vasive
Business, including but not limited to applications for use on mobile devices, intellectual property, customer lists, databases,
sales pipelines, proposals and project files, licenses and permits. Among the Purchased Assets is the D–Vasive application
which is designed for protection from invasive applications that seek access to personal contacts, cameras and other information
on smart phones, tablets and other mobile devices. The Company intends to change its corporate name to “John McAfee Global
Technologies, Inc.” upon closing of the D–Vasive transaction.



On September 19, 2016,
the New York Stock Exchange (the “Exchange”) informed the Company that it will not approve the listing on the
Exchange of the 43.8 million shares that the Company is required to issue in order to complete the closing of the merger with
D-Vasive, Inc., a Wyoming corporation. The parties to the transaction remain committed to closing the transaction and are exploring
alternatives. The terms under which the acquisition would be consummated, including a cash investment in the Company that might
be made in connection with the acquisition, remain under discussion. However, we cannot assure you at this time whether or when
the D-Vasive acquisition would be consummated.



On
May 26, 2016, the Company entered into an asset purchase agreement (the “Demonsaw APA”) with Demonsaw LLC, a Delaware
company (“Demonsaw”) and the shareholders of Demonsaw, for the purchase of certain technology and assets of Demonsaw.
Demonsaw is in the business of developing and marketing certain secure and anonymous information sharing applications (the “Demonsaw
Business”). Pursuant to the terms of the Demonsaw APA, the Company has agreed to purchase assets (“Demonsaw Assets”)
integral to the Demonsaw Business, including but not limited to the source code for the Demonsaw solution, intellectual property,
customer lists, databases, sales pipelines, proposals and project files, licenses and permits. Among the Demonsaw Assets is the
Demonsaw application which is designed for use in Windows and Apple operating systems. However, prior to the closing of this transaction,
the Company and Demonsaw executed an agreement to terminate the Demonsaw APA, pursuant to Section 3.4 of the Demonsaw APA. Subsequently,
D–Vasive entered into a Membership Interest Purchase Agreement (the “LLC Purchase Agreement”) with the holders
of all of Demonsaw’s outstanding membership interest, whereby D–Vasive purchased all such membership interest from
the Demonsaw members. The closing of the transaction contemplated under the LLC Purchase Agreement is contingent on, among other
things, the closing of the transaction contemplated under the D-Vasive APA.



Gaming



Prior
to second quarter ending June 30, 2016, the Company and its subsidiaries were principally engaged in the business of acquiring,
developing and monetizing assets in the online and mobile gaming space as well as the social casino industry. MGT’s portfolio
includes a social casino platform Slot Champ and minority stakes in the skill–based gaming platform MGT Play and fantasy
sports operator DraftDay Gaming Group, Inc. (“DDGG”) (see September 8, 2015 development below).



In
addition, MGT Gaming owns three patents covering certain features of casino slot machines. Two of the patents were asserted against
alleged infringers in various actions in federal court in Mississippi. In July 2014, MGT Gaming dismissed its lawsuits against
WMS Gaming Inc., and in August 2015, the Company and defendants Aruze America and Penn National Gaming agreed to settle all pending
litigation and all proceedings at the U. S. Patent and Trademark Office. The Company received a payment of $90, which was recorded
as licensing revenue. In an effort to monetize its gaming patent portfolio during the nine months ended September 30, 2016, the
Company engaged Munich Innovations GmbH, the patent monetization firm that sold MGT’s medical patent portfolio to Samsung
in 2013 for $1.5 million. As of June 30, 2016, an impairment charge for the full value of the patent was recorded, as the Company
is in no longer engaged in this business.



7







On
September 8, 2015, the Company and MGT Sports entered into an Asset Purchase Agreement with Viggle, Inc. (“Viggle”)
and Viggle’s subsidiary DDGG, pursuant to which Viggle acquired all of the assets of the DraftDay.com business (“DraftDay.com”)
from the Company and MGT Sports. In exchange for the acquisition of DraftDay.com, Viggle paid MGT Sports the following: (a) 63,467
shares of Viggle’s common stock, since renamed Function(x) Inc. (NASDAQ: FNCX) (“FNCX”), (b) a promissory
note in the amount of $234 paid on September 29, 2015, (c) a promissory note in the amount of $1,875 due March 8, 2016 (“FNCX
Note”, “the Note”), and (d) 2,550,000 shares of Common stock of DDGG (private entity). In addition, in exchange
for providing certain transitional services, DDGG issued to MGT Sports a warrant to purchase 1,500,000 shares of DDGG common stock.
Following consummation of the transaction, MGT Sports owns an 11% equity interest in DDGG, FNCX owns 49%, and Sportech, Inc. owns
39%. As a result of the transaction, the Company has presented DraftDay.com as a discontinued operation.





On
March 24, 2016, the Company entered into an Exchange Agreement (the “FNCX March 24th Agreement”) with FNCX.
The purpose of the FNCX March 24th Agreement was to exchange the FNCX Note for other equity and debt securities of
FNCX, after the Note went into default on March 8, 2016. On the effective date of the FNCX March 24th Agreement, the
Note had an outstanding principal balance of $1,875 and accrued interest in the amount of $51 (the “March 24th
Interest”). Pursuant to the FNCX March 24th Agreement, a portion consisting of $825 of the outstanding principal
of the FNCX Note was exchanged for 137,418 shares of FNCX’s Common stock, and an additional portion of $110 of the
outstanding principal was exchanged for 110 shares (the “FNCX Preferred shares”) of a newly created class of Preferred
stock, the Series D Convertible Preferred stock. The FNCX Preferred shares were subsequently converted into 18,332 shares
of FNCX’s Common stock. Finally, FNCX agreed to make a cash payment to MGT Sports for the total amount of March 24thInterest. In exchange for the forgoing, MGT Sports and the Company agreed to waive all Events of Default under the FNCX
Note prior to theeffective
date of the FNCX March 24thAgreement and to release FNCX from any rights, remedies and claims related thereto. After
giving effect to the forgoing, the remaining outstanding principal balance of the FNCX Note was $940 which continued to accrue
interest a rate of 5% per annum, and all terms of the Note remained unchanged except that the maturity date was changed to July
31, 2016.



On
June 14, 2016, theCompany
and MGT Sports entered into a Securities Exchange Agreement (the “FNCX June 14th Agreement”) with FNCX
to exchange $940 remaining outstanding principal of the FNCX Note for 132,092 shares of FNCX’s Common stock and FNCX
shall make a cash payment to MGT Sports for the total amount of interest accrued until consummation of the transaction contemplated
in the FNCX June 14th Agreement. The closing of the FNCX June 14th Agreement is conditioned on FNCX’s
shareholders’ approval of the issuance of the FNCX Common shares and satisfaction of other closing conditions set forth
in the FNCX June 14thAgreement. As of September 30, 2016, the Note was recorded on the balance sheet at $640, net
of an impairment charge of $300.



On
September 16, 2016,FNCX amended its Certificate of Incorporation to effect a reverse stock split of all issued and outstanding
shares of common stock at a ratio of 1 for 20 (the "Reverse Stock Split"). The effective date of the Reverse Stock Split
is September 16, 2016. The above common stock share amounts received from FNCX have been adjusted to reflect the Reverse Stock
Split.



On
August 16, 2016, MGT Capital Investments, Inc. (the "Company") entered into an LLC Membership Interest Purchase Agreement
(the "Purchase Agreement") with Jonathan Licata ("Licata"), pursuant to which the Company acquired a 25% interest
in Licata’s 70% membership interest (a 17.5% membership interest) in 2MQ LLC (“2MQ”). In exchange for the acquisition
of the membership interest, the Company paid Licata $115.



Two
minute Quests (2MQ) LLC is introducing a game for the iwatch and iphone.



ASC
325-20 provides guidance on investments using the cost method. ASC 325-20 notes that "the cost method is generally followed
for most investments in non-controlled corporations, in some corporate joint ventures, and to a lesser extent in unconsolidated
subsidiaries, particularly foreign.



The
Company concluded and is accounting for the 17.5% membership interest purchase using the cost basis since the interest has a non-readily
determinable fair value and because the Company carries approximately 17.5% of the equity in the venture. The purchase of the
minority membership interest was valued based on the cash paid for such investment. The Company purchased the membership interest
at a price of $115.



In
accordance with ASC 325-20, the membership interest in a private, non-controlled entity, should be carried under the cost method.
At each balance sheet date, management determines if any triggering event has occurred, causing the asset to potentially be impaired.



Management
concluded that as of September 30, 2016, the membership interest was not impaired.



On
October 19, 2016, the Company received a letter from the New York Stock Exchange (“NYSE” or the “Exchange”)
stating that the staff of NYSE Regulation has determined to commence proceedings to delist the Company’s common stock (the
“Action”). NYSE Regulation cited Section 1002(c) of the NYSE MKT LLC Company Guide as the reason for the Action. The
cited section is intended to apply when a company has sold or otherwise disposed of its principal operating assets or has ceased
to be an operating company.



The Company knows of no
facts or circumstances that would lead NYSE to take the Action. The Company has not sold or disposed of its principal operating
assets and believes that it qualifies as an operating company but the Company has decided not to pursue any appeal of the de-listing.
The Company is currently listed on the OTC Pink.



Basis
of presentation



The
accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form 10–Q and Rule 8–03 of Regulation S–X.
Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the
United States of America. However, in the opinion of the management of the Company, all adjustments necessary for a fair presentation
of the financial position and operating results have been included in these statements. These Condensed Consolidated Financial
Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s
Annual Report on Form 10–K for the fiscal year ended December 31, 2015, as filed with the SEC on April 14, 2016. Operating
results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected
for any subsequent quarters or for the year ending December 31, 2016.



Note
2. Going concern and management plans



The
accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. As of September 30, 2016, the Company had incurred
significant operating losses since inception and continues to generate losses from operations and has an accumulated deficit of
$322,204. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The condensed
consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts
or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.



Commercial
results have been limited and the Company has not generated significant revenues. The Company’s primary source of operating
funds since inception has been debt and equity financings. On October 19, 2016, the Company received a letter from the New
York Stock Exchange (“NYSE” or the “Exchange”) stating that the staff of NYSE Regulation has determined
to commence proceedings to delist the Company’s common stock (the “Action”). The delisting could have an adverse
effect on the Company’s ability to secure operating funds from debt and equity financings. The Company cannot assure
its stockholders that the Company’s revenues will be sufficient to fund its operations. If adequate funds are not available,
the Company may be required to curtail its operations significantly or to obtain funds through entering into arrangements with
collaborative partners or others that may require the Company to relinquish rights to certain of our technologies or products
that the Company would not otherwise relinquish.



At
September 30, 2016, MGT’s cash and cash equivalents were $2,113. The Company intends to raise additional capital,
either through debt or equity financings or through the continued sale of the Company’s assets or equity securities
in order to achieve its business plan objectives. Management believes that it can be successful in obtaining additional capital;
however, no assurance can be provided that the Company will be able to do so. There is no assurance that any funds raised will
be sufficient to enable the Company to attain profitable operations or continue as a going concern. To the extent that the Company
is unsuccessful, the Company may need to curtail or cease its operations and implement a plan to extend payables or reduce overhead
until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be
successful.



8







Note
3. Summary of significant accounting policies



Use
of estimates and assumptions and critical accounting estimates and assumptions



The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial
statements and the reported amounts of revenues and expenses during the reporting period(s).



Critical
accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and
judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact
of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates
and assumptions affecting the financial statements were:



(1)	Fair
value of long–lived assets: Fair value is generally determined using the asset’s expected future discounted cash
flows or market value, if readily determinable. If long–lived assets are determined to be recoverable, but the newly determined
remaining estimated useful lives are shorter than originally estimated, the net book values of the long–lived assets are
depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples
of important indicators that may trigger an impairment review: (i) significant under–performance or losses of assets relative
to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the
Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall
business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant
decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates
acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.



(2)	Valuation
allowance for deferred tax assets:Management assumes that the realization of the Company’s net deferred tax assets
resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset
against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss
carry–forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred
recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations
by way of a public or private offering, among other factors.



(3)	Estimates
and assumptions used in valuation of equity instruments: Management estimates expected term of share options and similar instruments,
expected volatility of the Company’s Common shares and the method used to estimate it, expected annual rate of quarterly
dividends, and risk free rate(s) to value share options and similar instruments.



These
significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached
to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.



Management
bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the
financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources.



Management
regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes
in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those
estimates are adjusted accordingly. Actual results could differ from those estimates.



Principles
of consolidation



All
intercompany transactions and balances have been eliminated. Non–controlling interest represents the minority equity investment
in MGT subsidiaries, plus the minority investors’ share of the net operating results and other components of equity relating
to the non–controlling interest.



Reclassification
of discontinued operations



In
accordance with ASC 205–20 regarding the presentation of discontinued operations the assets, liabilities and activity
of the DraftDay.com business have been reclassified as a discontinued operation for all periods presented.



9







DraftDay.com’s
losses for the three and nine months ended September 30, 2015 are included in “Loss from discontinued operations”
in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss.



Summarized
financial information for DraftDay.com’s operations for the three and nine months ended September 30, 2016 and 2015 are
presented below:



|                   |  | Three
    months ended September 30, |   |  | Nine
    months ended September 30, |  
|------------------ |  | ------------------------------------ | - |  | ----------------------------------- | -
|                   |  | 2016                                 |   |  | 2015                                |  
|Revenue            |  | $                                    | – |  |                                     | $
|Cost of sales      |  |                                      | – |  |                                     |  
|Gross margin       |  |                                      | – |  |                                     |  
|Operating expenses |  |                                      | – |  |                                     |  
|Net
    loss       |  | $                                    | – |  |                                     | $





Revenue
recognition



The
Company recognizes revenue when it is realized or realizable and earned. We consider revenue realized or realizable and earned
when there is persuasive evidence of an arrangement and that the product has been shipped or the services have been provided to
the customer, the sales price is fixed or determinable and collectability is probable. Our material revenue streams are related
to the delivery of intellectual property license fees and gaming fees:



| | ● | Digital
    currencies operating revenues:  The Company will derive its revenue by providing transaction verification services
    within the digital currency network of Bitcoin, commonly termed “Bitcoin mining.” In consideration for these services
    the Company will receive digital currency, Bitcoins (“BTC,” “coins”). The coins are recorded as revenue,
    using the average spot price of Bitcoin on the date of receipt. The coins are recorded on the balance sheet at their fair
    value and re-measured at each reporting date. Revaluation gains or losses, as well gains or losses on sale of BTC are recorded
    in the statement of operations.Expenses
    associated with running the Bitcoin mining business, such as equipment deprecation, rent and electricity cost are recorded
    as cost of revenues.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Licensing–
    License fee revenue is derived from the licensing of intellectual property. Revenue from license fees is recognized when notification
    of shipment to the end user has occurred, there are no significant Company obligations with regard to implementation and the
    Company’s services are not considered essential to the functionality of other elements of the arrangement.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Gaming–
    Gaming revenue is derived from entry fees charged in contests minus prizes paid out in contests.
| | - | ------------------------------------------------------------------------------------------------------------



Loss
per share



Basic
loss per share is calculated by dividing net loss applicable to Common shareholders by the weighted average number of Common shares
outstanding during the period. Diluted loss per share is calculated by dividing the net loss attributable to Common shareholders
by the sum of the weighted average number of Common shares outstanding plus potential dilutive Common shares outstanding during
the period. Potential dilutive securities, comprised of the convertible Preferred Stock, unvested restricted shares and stock
options, are not reflected in diluted net loss per share because such shares are anti–dilutive.



The computation of diluted
loss per share for the three and nine months ended September 30, 2016, excludes 1,000,000 unvested restricted shares and 560,000
shares issuable under warrants, as they are anti–dilutive due to the Company’s net loss. The computation of diluted
loss per share for the three and nine months ended September 30, 2015, excluded 10,451 shares in connection to the Convertible
Preferred stock, 9,000 unvested restricted shares and
1,020,825 shares issuable under warrants, as they were anti–dilutive due to the Company’s net loss.



Recent
accounting pronouncements



In
April 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016–09, “Compensation – Stock Compensation” (topic 718). The FASB issued this update to
improve the accounting for employee share–based payments and affect all organizations that issue share–based payment
awards to their employees. Several aspects of the accounting for share–based payment award transactions are simplified,
including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on
the statement of cash flows. The updated guidance is effective for annual periods beginning after December 15, 2016, including
interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating the
impact of the new standard.



In
February 2016, FASB issued ASU No. 2016–02 “Leases” (topic 842), which creates new accounting and reporting
guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities
on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified
as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and
cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also
requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows
arising from leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim
periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective
approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements.



10







Note
4. Investments



Equity
security investments available for sale, at market value, reflect unrealized appreciation and depreciation, as a result of temporary
changes in market value during the period, in shareholders’ equity, net of income taxes in “accumulated other comprehensive
loss” in the condensed consolidated balance sheets. For non–publicly traded securities, market prices are determined
through the use of pricing models that evaluate securities. For publicly traded securities, market value is based on quoted market
prices or valuation models that use observable market inputs.



Investments
available for sale



|                       |  |  | September
    30, 2016 |     |  | December
    31, 2015 |  
|---------------------- |  |  | ---------------------- | --- |  | --------------------- | -
|FNCX
    Common shares |  |  | $                      | 100 |  |                       | $







For
non–public, non–controlled investments in equity securities, the Company uses the cost–method of accounting.



Investments
at cost



|                                      |  | September
    30, 2016 |       |  | December
    31, 2015 |  
|------------------------------------- |  | ---------------------- | ----- |  | --------------------- | -
|                                      |  |                        |       |  |                       |  
|DDGG Common shares                    |  | $                      | 816   |  |                       | $
|DDGG stock purchase warrants received |  |                        | 288   |  |                       |  
|Round House                           |  |                        | 150   |  |                       |  
|2MQ investment in LLC                 |  |                        | 115   |  |                       |  
|Total                                 |  | $                      | 1,369 |  |                       | $



During
the three months ended September 30, 2016, the Company recognized an impairment charge of $276 related to its investment in DDGG.



Note
5. Goodwill and intangible assets



Goodwill
represents the difference between purchase cost and the fair value of net assets acquired in business acquisitions. Indefinite
lived intangible assets, representing trademarks and trade names, are not amortized unless their useful life is determined to
be finite. Long–lived intangible assets are subject to amortization using the straight–line method. Goodwill and indefinite
lived intangible assets are tested for impairment annually as of December 31, and more often if a triggering event occurs, by
comparing the fair value of each reporting unit to its carrying value. The Company concluded that a triggering event had occurred
based on the overall deterioration of the market capitalization of the Company and evaluated the goodwill for possible impairment.
After the evaluation as of September 30, 2016, management concluded that a full impairment existed based on the Company’s
current efforts to capitalize and execute its business plan relating to the asset.



The
Company’s intangible assets for continuing operations consisted of the following:



|                       |  | Goodwill |       
|---------------------- |  | -------- | ------
|January
    1, 2016    |  | $        | 1,496 
|Impairment             |  |          | (1,496
|September
    30, 2016 |  | $        | –     



|                       |  | Intangible
    assets |     
|---------------------- |  | --------------------- | ----
|January
    1, 2016    |  | $                     | 730 
|Impairment             |  |                       | (673
|Amortization           |  |                       | (57 
|September
    30, 2016 |  | $                     | –   



For the three months ended
September 30, 2016 and 2015, the Company recorded amortization expense of $0 and $55, respectively. For the nine months ended
September 30, 2016 and 2015, the Company recorded amortization expense of $57 and $227,
respectively. During the three months ended June 30, 2016, the Company recognized an impairment charge of $1,496 related to the
goodwill and $673 related to the intangible assets.



Note
6. Notes receivable





On
March 24, 2016, the Company entered into an Exchange Agreement (the “FNCX March 24th Agreement”) with FNCX.
The purpose of the FNCX March 24th Agreement was to exchange the FNCX Note for other equity and debt securities of
FNCX, after the Note went into default on March 8, 2016. On the effective date of the FNCX March 24th Agreement, the
Note had an outstanding principal balance of $1,875 and accrued interest in the amount of $51 (the “March 24thInterest”). Pursuant to the FNCX March 24th Agreement, a portion consisting of $825 of the outstanding
principal of the FNCX Note was exchanged for 137,418 shares of
FNCX’s Common stock, and an additional portion of $110 of the outstanding principal was exchanged for 110 shares (the “FNCX
Preferred shares”) of a newly created class of Preferred stock, the Series D Convertible Preferred stock. The FNCX Preferred
shares were subsequently converted into 18,332 shares
of FNCX’s Common stock. Finally, FNCX agreed
to make a cash payment to MGT Sports for the total amount of March 24th Interest. In exchange for the forgoing, MGT
Sports and the Company agreed to waive all Events of Default under the FNCX Note prior to the effective date of the FNCX March
24th Agreement and to release FNCX from any rights, remedies and claims related thereto. After giving effect to the
forgoing, the remaining outstanding principal balance of the FNCX Note was $940 which continued to accrue interest a rate of 5%
per annum, and all terms of the Note remained unchanged except that the maturity date was changed to July 31, 2016.



On
June 14, 2016, the Company and MGT Sports entered into a Securities Exchange Agreement (the “FNCX June 14th Agreement”)
with FNCX to exchange $940 remaining outstanding principal of the FNCX Note for 132,097   shares of FNCX’s
Common stock and FNCX shall make a cash payment to MGT Sports for the total amount of interest accrued until consummation of the
transaction contemplated in the FNCX June 14th Agreement, which is estimated to be completed by December 31, 2016.



On
September 16, 2016, FNCX amended its Certificate of Incorporation to effect a reverse stock split of all issued and outstanding
shares of common stock at a ratio of 1 for 20 (the "Reverse Stock Split"). The effective date of the Reverse Stock Split
is September 16, 2016. The above common stock share amounts received from FNCX have been adjusted to reflect the Reverse Stock
Split.



On
September 30, 2016 and December 31, 2015, the Company carried the Note from FNCX in the net amount of $640 and $1,575, respectively.





During
the nine months ended September 30, 2016, the Company purchased a 5% promissory note
with a principal of $45, maturing on July 18, 2016. Management expects to collect or convert the note into equity of the promisor
by the end of 2016, the Company is carrying the note as a long–term asset, despite its current maturity.



Note
7. Notes Payable





On
August 2, 2016 (the “Closing Date”), the Company entered into a Securities Purchase Agreement (the
“SPA”) with selected accredited investors (each an “Investor” and collectively, the
“Investors”). Pursuant to the terms of the Purchase Agreement, the Company sold $2,300in
unsecured promissory notes (“Notes) in a private placement (the “Offering”). The Notes mature on September
30, 2019 or such other date as set forth in the Notes. The Notes bear interest at a rate of twelve per cent (12%) per annum,
to be paid quarterly in arrears, with the first payment due on September 30, 2016 to be calculated on a pro–rata basis.
In addition, for each one thousand dollars invested by an Investor, the Investor shall receive two detachable Warrants
(“Warrant”), each of which is exercisable for one hundred (100) shares of the Company’s common stock: Each
Warrant has anexercise price of $3.31 per
share, and is exercisable for a period of thirty–six (36) months from the date of issuance.



The
Company estimated the relative fair value of these warrants on the date of grant, using the Black-Scholes option-pricing model
with the following weighted-average assumptions:



|Expected option life (year) |  |  | 3.00   |  
|--------------------------- |  |  | ------ | -
|                            |  |  |        |  
|Expected volatility         |  |  | 131.75 | %
|                            |  |  |        |  
|Risk-free interest rate     |  |  | 0.85   | %
|                            |  |  |        |  
|Dividend yield              |  |  | 0.00   | %





The
relative fair value of these warrants granted, estimated on the date of grant, was $761, which was recorded as a discount
to the notes payable. The Company amortizes the discount over the term of the notes.





Note 8. Series A Convertible Preferred stock



During the nine months ended June 30, 2016the
Company converted 10,838 shares of Series A Convertible Preferred stock into 10,838 shares of Common stock. For the nine months
ended September 30, 2016 and 2015, respectively, the Company issued 160 and 458 of dividend shares to the preferred stock holders.
As of September 30, 2016 and December 31, 2015 there were 0 and 10,608 Series A Convertible Preferred shares outstanding.







11









Note
9. Stock incentive plan and stock–based compensation



Stock
incentive plan



The
Company’s board of directors established the 2012 Stock Incentive Plan (the “Plan”) on April 15, 2012, and the
Company’s shareholders ratified the Plan at the annual meeting of the Company’s stockholders on May 30, 2012. The
Company has 415,000 shares of Common Stock that are reserved to grant Options, Stock Awards and Performance Shares (collectively
the “Awards”) to “Participants” under the Plan. The Plan is administered by the board of directors or
the Compensation Committee of the board of directors, which determines the individuals to whom awards shall be granted as well
as the type, terms and conditions of each award, the option price and the duration of each award.



At
the annual meeting of the stockholders of MGT held on September 27, 2013, stockholders approved an amendment to the Plan (the
“Amended and Restated Plan”) to increase the amount of shares of Common stock that may be issued under the Amended
and Restated Plan to 1,335,000 shares from 415,000 shares, an increase of 920,000 shares and to add a reload feature.



At
the annual meeting of the stockholders of MGT held on December 31, 2015, stockholders approved an amendment to the Plan (the “Amended
and Restated Plan”) to increase the amount of shares of Common stock that may be issued under the Amended and Restated Plan
to 3,000,000 shares from 1,335,000 shares, an increase of 1,665,000 shares.



The Company’s
board of directors established the 2016 Equity Incentive Plan (the “Plan”) on August 15, 2016, and the Company’s
shareholders ratified the Plan at the annual meeting of the Company’s stockholders on September 8, 2016. No grants have
been made to date under the 2016 Plan but the Company received stockholder approval to issue 6,000,000 options. The 2,000,000
shares
of restricted stock that were approved under the Plan were deemed vested to an officer of the Company on the date of his employment
agreement, July 7, 2016. The stock was valued at its fair market value of $4.37 per share or an aggregate value of $8,740. These
shares were issued subsequent to September 30, 2016. The maximum number of shares of common stock that may be issued under the
2016 Plan shall initially be 18,000,000.



The
purpose of the Plan is to provide an incentive to attract and retain directors, officers, consultants, advisors and employees
whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons
into the Company’s development and financial success.



The
2016 Plan is administered by the Company’s Nomination and Compensation Committee, consisting of at least two directors who
qualify as “independent directors” under the rules of the NASDAQ Stock Market, “non–employee directors”
under Rule 16b–3 of the Securities Exchange Act of 1934, as amended, and as “outside directors” under Section
162(m) of the Code.



Common
Stock and options granted under the Plan vest as determined by the Company’s Compensation and Nominations Committee and
expire over varying terms, but not more than seven years from date of grant. In the case of an Incentive Stock Option that is
granted to a 10% shareholder on the date of grant, such Option shall not be exercisable after the expiration of five years from
the date of grant. No option grants were issued during the nine months ended September 30, 2016, and 2015.



Issuance
of restricted shares – directors, officers and employees



|                                 |  | Number
    of shares |           |   | Weighted
    average grant date fair value |  
|-------------------------------- |  | -------------------- | --------- | - | ------------------------------------------ | -
|Non–vested at December 31, 2015  |  |                      | –         |   |                                            | $
|Granted                          |  |                      | 3,051,000 |   |                                            |  
|Vested                           |  |                      | (51,000   | ) |                                            |  
|Forfeited                        |  |                      | –         |   |                                            |  
|Non–vested at September 30, 2016 |  |                      | 3,000,000 |   |                                            | $





For
the three months ended September 30, 2016 and 2015, the Company has recorded $9,075 and $18, respectively, in employee
and director stock–based compensation expense, which is a component of selling, general and administrative expense in the
condensed consolidated statement of operations. For the nine months ended September 30, 2016 and 2015, the Company has recorded
$9,323 and $82, respectively, in employee
and director stock–based compensation expense, which is a component of selling, general and administrative expense in the
condensed consolidated statement of operations.



In
the three and nine months ended September 30, 2016 and 2015, the Company did not allocate any stock–based compensation expense
to non–controlling interest.



Unrecognized
compensation cost





As
of September 30, 2016, unrecognized compensation costs related to non–vested stock–based compensation arrangements
was $2,514 (2015: $3),and
is expected to be recognized over a weighted average period of 2 years (2015: 0.40 years).





Stock–based
compensation – non–employees



For
the nine months ended September 30, 2016 the Company granted and issued a total of 755,000 shares to non–employees for services
rendered. The shares were recorded at $1,215 using the closing market value on respective dates of issuance.



Warrants



In
May 2016, the Company entered into Warrant Modification Agreements (the “$3 Warrant Modification Agreements”) with
holders of 517,796 of Common Stock Purchase Warrants issued in connection with the Company’s private placement offering
dated May 24, 2012. The warrants entitled its holders to purchase the Company’s Common stock at an exercise price of $3
per Company share for a period of five years from the date of issuance (the “$3 Warrants”). Under the terms of the
$3 Warrant Modification Agreements, the exercise price of the $3 Warrants was reduced to $0.25 per share. During the three months
ended June 30, 2016, the Company issued 517,796 shares of Common stock for gross proceeds of $129 in connection with exercise
of the $3 Warrants and recorded a Warrant modification expense of $431 related to the $3 Warrant Modification Agreements.



Also in May 2016, the Company entered into agreements with the holders of 2,800,000 Common Stock Purchase
Warrants issued in connection with the Company’s private placement offering dated October 8, 2015 (the “2015 Warrants”).
Pursuant to its terms, each 2015 Warrant entitled the holder to purchase two shares of Company’s Common stock at a price
of $0.25 per share on the earlier of: (i) one year from the date of issue, or (ii) the occurrence of certain corporate events,
including a private or public financing in which the Company receives gross proceeds of at least $7,500; a spinoff; one or more
acquisitions or sales by the Company of certain assets approved by the stockholders of the Company; or a merger, consolidation,
recapitalization, or reorganization approved by the stockholders of the Company (each, a “Qualifying Transaction”).
In the absence of a Qualifying Transaction, the Company allowed holders of the 2015 Warrants to accelerate exercise, if the holder
agreed to pay an exercise price of greater than $0.25 per share. All 2015 Warrants were exercised under this agreement, with the
Company issuing a total of 5,600,000 shares of Common stock for gross proceeds of $2,298, or approximately $0.41 per share. Due
to the gain, no income statement impact was recorded as a result of the above exercises.



In August 2016, the Company entered into agreements with the holders of 4,600 Common Stock Purchase Warrants
issued in connection with the Company’s Securities Purchase Agreement offering dated August 2, 2016. Pursuant to its terms,
each holder received two detachable Warrants (“Warrant”), for each one thousand dollars invested, each of which is
exercisable for one hundred (100) shares of the Company’s common stock: Each Warrant has an exercise price of $3.31 per share,
and is exercisable for a period of thirty–six (36) months from the date of issuance.



During
the nine months ended September 30, 2016 the Company issued a total of 6,117,796 shares of Common stock in connection with exercise
of warrants, resulting in gross proceeds of $2,427.



The following table
summarizes information about shares issuable under warrants outstanding at September 30, 2016:



|                          |  | Warrant
                                                             shares
        outstanding |           |  | Weightedaverageexercise price |  
|------------------------- |  | ----------------------------------------------------------------------------------------------- | --------- |  | ----------------------------- | -
|At
    January 1, 2015    |  |                                                                                                 | 1,020,825 |  |                               | $
|Issued                    |  |                                                                                                 | 5,600,000 |  |                               |  
|Exercised                 |  |                                                                                                 | –         |  |                               |  
|Expired                   |  |                                                                                                 | –         |  |                               |  
|At
    December 31, 2015  |  |                                                                                                 | 6,620,825 |  |                               | $
|Issued                    |  |                                                                                                 | 460,000   |  |                               |  
|Exercised                 |  |                                                                                                 | 6,520,825 |  |                               |  
|Expired                   |  |                                                                                                 | –         |  |                               |  
|At
    September 30, 2016 |  |                                                                                                 | 560,000   |  |                               | $



As of September 30, 2016 the Company had 560,000 shares issuable under warrants outstanding at a weighted
average exercise price of $3.39 and an intrinsic value of $0. All issued warrants are exercisable and expire through 2018. 460,000
shares issuable under warrants have been converted subsequent to September 30, 2016.



On September 29, 2016,
the Company agreed to rescind that certain Subscription Agreement dated September 1, 2016 (the “Agreement”) with an
investor (“Investor”) pursuant to which, the Investor agreed to purchase in a private placement, subject to certain
conditions, an aggregate of four hundred fifty thousand (450,000) restricted shares of the Company’s common stock, par value
$0.001 (“Shares”) at a purchase price of three dollars ($3.00) per Share, for aggregate proceeds of one million three
hundred fifty thousand dollars ($1,350).



Also on September 29,
2016, the Company agreed to cancel and rescind that certain Note and Warrant Exchange Agreement dated September 1, 2016 (the “Exchange
Agreement”) entered into with a holder (“Holder”) of certain 12% unsecured promissory notes in the amount of
one million six hundred fifty thousand dollars ($1,650), including accrued interest (the “Notes”) previously
issued by the Company, whereby the Holder agreed to exchange certain Notes and warrants received with the Notes for an aggregate
of eight hundred fifty thousand (850,000) restricted shares of the Company’s common stock.



The rescission of the
Agreement and the Exchange Agreement were predicated on the recent communication received from NYSE MKT indicating that it would not
approve the listing on the exchange of the 43.8 million shares that the Company is required to issue in order to complete the
closing of the transaction with D-Vasive Inc., a Wyoming corporation.



12







Note
10. Non–controlling interest



At
September 30, 2016 the Company’s non–controlling interest was as follows:



|                                      |  | MGT
    Gaming |      |   | M2P
    Americas |   |     | Total | 
|------------------------------------- |  | -------------- | ---- | - | ---------------- | - | --- | ----- | 
|At January 1, 2016                    |  | $              | 28   |   |                  | $ | (23 | )     | 
|Non–controlling
    share of net loss |  |                | (318 | ) |                  |   | (1  | )     | 
|At
    September 30, 2016             |  | $              | (290 | ) |                  | $ | (24 | )     | 



Note
11. Operating leases, commitments and security deposit



Operating
leases



In
August 2014, the Company entered into a lease modification agreement, extending its existing office lease in Harrison, NY for
a period of one year. Total rent payments over the 12–month period were $73 and the lease expired on November 30, 2015.
A refundable rental deposit of $39 was held in a restricted cash account as of December 31, 2015, which was released in January
2016.





On
October 26, 2015, the Company entered into an Office License Agreement commencing December 1, 2015. The term expires on November
30, 2016 and carries a monthly fee of $4, with one month (January) rent free. The Company paid a refundable service retainer of
$6 and a non–refundable set up fee of $1.



On August 9,
2016, the Company entered into a Sublease Agreement for an office lease in Durham, North Carolina. The lease commences thirty
days after landlord consent (August 22, 2016) and expires on January 31, 2020. Monthly rent will be $6 for the first
12–month period, $7 for the second 12–month period, $7 for the third 12–month period and $7 per month for
the remaining months until expiration of the lease. A security deposit of $13 was required upon execution of the
sublease.



Total
lease rental expense for the three months ended September 30, 2016 and 2015, was $32 and
$27, respectively. Total lease rental expense for the nine months ended September 30, 2016 and 2015, was $53 and $69, respectively.



Commitments



On
July 7, 2016, the Company entered into an employment agreement with Robert B. Ladd, to act as its President and Chief Operating
Officer. The terms of his agreement were reviewed and approved by the Company’s Nominations and Compensation Committee.
Under the terms of the agreement, Mr. Ladd will, serve as President and Chief Operating Officer and for services rendered; Mr.
Ladd shall receive a salary of $240 per year and is eligible for a cash and/or equity bonus as determined by the Nomination
and Compensation Committee. Further, Mr. Ladd is entitled to receive up to 2,000,000 shares of the Company’s common stock,
1/3 of which shall vest within 12 months from the execution of the agreement, another 1/3 within 18 months, and the remaining
1/3 within 24 months from the execution of the agreement. Lastly, the agreement also provides for certain rights granted to Mr.
Ladd in the event of his death, permanent incapacity, voluntary termination or discharge for cause.



Contingent upon the closing conditions to the D-Vasive APA, the Company agreed to enter into an employment
agreement with John McAfee pursuant to which Mr. McAfee will join the Company as Executive Chairman of the Board of Directors and
Chief Executive Officer of the Company at the closing of the transaction contemplated in the D-Vasive APA. It is currently contemplated
that Mr. McAfee will have a base annual salary of $1.00 per day; payable at such times as the Company customarily pays is other
senior level employees. In addition, Mr. McAfee will be granted Executive options (the “Options”) to purchase an aggregate
of six million (6,000,000) shares of the Company’s common stock (the “Option Shares”), which shall be exercisable
for a period of five (5) years as follows:



| | ● | options
                                         to purchase 1,000,000 shares of the Company’s Common Stock at a per–share
                                         price of the higher of $0.25 or the closing price of the Company’s Common Stock
                                         as quoted on the OTC Pink as of the date of the full execution hereof;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                    
| | ● | options
    to purchase 2,000,000 shares of the Company’s Common Stock at a purchase price of $0.50 per share; and                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                    
| | ● | options
    to purchase 3,000,000 shares of the Company’s Common Stock at a purchase price of $1.00 per share.                                                                                                                                                                                                                                                     





Mr.
McAfee will also be eligible to earn a cash and/or equity bonus as the Compensation Committee may determine, from time to time,
based on meeting performance objectives and bonus criteria to be mutually identified by Mr. McAfee and the Nomination and Compensation
Committee. Such objectives and criteria may be based on a favorable sale or merger of the Company, in additional to operating
metrics.



During
the three months ended September 30, 2016,
the Company purchased 200 bitcoin mining machines from Bitmain Technologies Limited for $311 and power supplies from Hash The
Planet (“HTP”) for $27. TheCompany
also entered a 12-month agreement with HTP to host, power, connect, monitor and service the machines for $136. The hosting data
center in located in Cashmere, WA. MGT launched its bitcoin mining operations and earned its first BTC on September 3, 2016.



Legal



On
September 1, 2016, MGT Capital Investments, Inc. and John McAfee filed an action in the U.S. District Court, Southern District
of New York, seeking a declaration that the use of or reference to the personal name of John McAfee and/or McAfee in its business,
and specifically in the context of renaming MGT Capital Investments, Inc., of which McAfee is the Executive Chairman, to “John
McAfee Global Technologies, Inc.,” does not infringe upon Intel’s trademark rights or breach any agreement between
the parties.  Intel has submitted an Amended Answer and Counterclaims alleging Lanham Act and federal/state trademark violations
and common law unfair competition relating to the same factual circumstances.  MGT filed a Reply to Counterclaims on November
3, 2016, and a case management plan and scheduling order was filed on October 28, 2016.



A number of law firms have issued press releases announcing that they are investigating claims on behalf of
shareholders of the Company regarding potential violations of the Exchange Act. To the Company’s knowledge, as of the date
of this Current Report, no actions or claims have been filed by against the Company alleging violations of the Exchange Act.



Note
12. Segment reporting



Operating
segments are defined as components of an enterprise about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision–making group in deciding how to allocate resources and in assessing
performance. The Company’s chief operating decision–making group is composed of the Chief Executive Officer. The Company
operates in two segments, Gaming and Intellectual Property. Certain corporate expenses are not allocated to segments.



13









The
Company evaluates performance of its operating segments based on revenue and operating loss. The following table summarizes our
segment information for the three and nine months ended September 30, 2016 and 2015:





|                                                                |  | Intellectual
    property |      |   | Gaming
    - Continuing Operations |   |        | Unallocated
    corporate/other |  |   | Bitcoin
    mining |   |  | Total |     |   | Discontinued
    Operations |  
|--------------------------------------------------------------- |  | ------------------------- | ---- | - | ---------------------------------- | - | ------ | ------------------------------- |  | - | ------------------ | - |  | ----- | --- | - | --------------------------- | -
|Three months ended September 30, 2016                           |  |                           |      |   |                                    |   |        |                                 |  |   |                    |   |  |       |     |   |                             |  
|Revenue                                                         |  | $                         | –    |   |                                    | $ | –      |                                 |  | $ | –                  |   |  | $     | 53  |   |                             | $
|Cost of revenue                                                 |  |                           | –    |   |                                    |   | –      |                                 |  |   | –                  |   |  |       | (31 | ) |                             |  
|Gross margin                                                    |  |                           | –    |   |                                    |   | –      |                                 |  |   | –                  |   |  |       | 22  |   |                             |  
|Operating loss                                                  |  |                           | –    |   |                                    |   | –      |                                 |  |   | (10,844            | ) |  |       |     |   |                             |  
|Three months ended September 30, 2015                           |  |                           |      |   |                                    |   |        |                                 |  |   |                    |   |  |       |     |   |                             |  
|Revenue                                                         |  | $                         | 90   |   |                                    | $ | –      |                                 |  | $ | –                  |   |  |       |     |   |                             | $
|Cost of revenue                                                 |  |                           | (5   | ) |                                    |   | –      |                                 |  |   | –                  |   |  |       |     |   |                             |  
|Gross margin                                                    |  |                           | 85   |   |                                    |   | –      |                                 |  |   | –                  |   |  |       |     |   |                             |  
|Operating loss                                                  |  |                           | 13   |   |                                    |   | (8     | )                               |  |   | (562               | ) |  |       |     |   |                             |  
|Nine months ended September 30, 2016                            |  |                           |      |   |                                    |   |        |                                 |  |   |                    |   |  |       |     |   |                             |  
|Revenue                                                         |  | $                         | –    |   |                                    | $ | –      |                                 |  | $ | –                  |   |  | $     | 53  |   |                             | $
|Cost of revenue                                                 |  |                           | –    |   |                                    |   | –      |                                 |  |   | –                  |   |  |       | (31 | ) |                             |  
|Gross margin                                                    |  |                           | –    |   |                                    |   | –      |                                 |  |   | –                  |   |  |       | 22  |   |                             |  
|Operating loss                                                  |  |                           | –    |   |                                    |   | –      |                                 |  |   | (15,267            | ) |  |       |     |   |                             |  
|Nine months ended September 30, 2015                            |  |                           |      |   |                                    |   |        |                                 |  |   |                    |   |  |       |     |   |                             |  
|Revenue                                                         |  | $                         | 102  |   |                                    | $ | 2      |                                 |  | $ | –                  |   |  |       |     |   |                             | $
|Cost of revenue                                                 |  |                           | (5   | ) |                                    |   | –      |                                 |  |   | –                  |   |  |       |     |   |                             |  
|Gross margin                                                    |  |                           | 97   |   |                                    |   | 2      |                                 |  |   | –                  |   |  |       |     |   |                             |  
|Operating loss                                                  |  |                           | (214 | ) |                                    |   | (33    | )                               |  |   | (1,947             | ) |  |       |     |   |                             |  
|September 30, 2016                                              |  |                           |      |   |                                    |   |        |                                 |  |   |                    |   |  |       |     |   |                             |  
|Cash and cash equivalents                                       |  | $                         | –    |   |                                    | $ | –      |                                 |  | $ | 2,113              |   |  |       |     |   |                             | $
|Property and equipment                                          |  |                           | –    |   |                                    |   | –      |                                 |  |   | 328                |   |  |       |     |   |                             |  
|Intangible assets                                               |  |                           | –    |   |                                    |   | –      |                                 |  |   | –                  |   |  |       | –   |   |                             |  
|Goodwill                                                        |  |                           | –    |   |                                    |   | –      |                                 |  |   | –                  |   |  |       | –   |   |                             |  
|Additions                                                       |  |                           |      |   |                                    |   |        |                                 |  |   |                    |   |  |       |     |   |                             |  
|Property and equipment                                          |  |                           | –    |   |                                    |   | –      |                                 |  |   | –                  |   |  |       | 321 |   |                             |  
|Intangible assets                                               |  |                           | –    |   |                                    |   | –      |                                 |  |   | –                  |   |  |       | –   |   |                             |  
|Goodwill                                                        |  |                           | –    |   |                                    |   | –      |                                 |  |   | –                  |   |  |       |     |   |                             |  
|Disposals                                                       |  |                           |      |   |                                    |   |        |                                 |  |   |                    |   |  |       |     |   |                             |  
|Property and equipment                                          |  |                           | –    |   |                                    |   | –      |                                 |  |   | –                  |   |  |       |     |   |                             |  
|Intangible assets                                               |  |                           | (659 | ) |                                    |   | (14    | )                               |  |   | –                  |   |  |       |     |   |                             |  
|Goodwill                                                        |  |                           | –    |   |                                    |   | (1,496 | )                               |  |   | –                  |   |  |       |     |   |                             |  
|December 31, 2015                                               |  |                           |      |   |                                    |   |        |                                 |  |   |                    |   |  |       |     |   |                             |  
|Cash and cash equivalents (excludes $39 of restricted
    cash) |  | $                         | –    |   |                                    | $ | –      |                                 |  | $ | 359                |   |  |       |     |   |                             | $
|Property and equipment                                          |  |                           | –    |   |                                    |   | –      |                                 |  |   | 35                 |   |  |       |     |   |                             |  
|Intangible assets                                               |  |                           | 710  |   |                                    |   | 20     |                                 |  |   | –                  |   |  |       |     |   |                             |  
|Goodwill                                                        |  |                           | –    |   |                                    |   | 1,496  |                                 |  |   | –                  |   |  |       |     |   |                             |  
|Additions                                                       |  |                           |      |   |                                    |   |        |                                 |  |   |                    |   |  |       |     |   |                             |  
|Property and equipment                                          |  |                           | –    |   |                                    |   | –      |                                 |  |   | 35                 |   |  |       |     |   |                             |  
|Intangible assets                                               |  |                           | –    |   |                                    |   | –      |                                 |  |   | –                  |   |  |       |     |   |                             |  
|Goodwill                                                        |  |                           | –    |   |                                    |   | –      |                                 |  |   | –                  |   |  |       |     |   |                             |  



14







Note
13. Investment and fair value



The
authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in
an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the
principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance
describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last
unobservable, that may be used to measure fair value which are the following:



| | ● | Level
    1 – Quoted prices in active markets for identical assets or liabilities                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                     
| | ● | Level
    2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
    assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by
    observable market data or substantially the full term of the assets or liabilities
| |   |                                                                                                                                                                                                                                                                                                                                                     
| | ● | Level
    3 – Unobservable inputs that are supported by little or no market activity and that are significant to the value
    of the assets or liabilities                                                                                                                                                                                         



The
following tables provides the investments carried at fair value measured on a recurring basis as of September 30, 2016:





|                                     |  | Level
    1 |     |  | Level
    2 |   |   | Level
    3 |  |   | Total | 
|------------------------------------ |  | ----------- | --- |  | ----------- | - | - | ----------- |  | - | ----- | 
|Investments – FNCX
    Common shares |  | $           | 100 |  |             | $ | – |             |  | $ | –     | 
|Digital Currencies                   |  | $           | 53  |  |             | $ | – |             |  | $ | –     | 





The
Company uses Level 1 of the fair value hierarchy to measure the fair value of digital currencies and revalues its digital currencies
at every reporting period and recognizes gains or losses in the consolidated statements of operations that are attributable to
the change in the fair value of the digital currency.



The
following table provides the investments carried at fair value measured on a recurring basis as of December 31, 2015:



|                                     |  | Level
    1 |     |  | Level
    2 |   |   | Level
    3 |  |   | Total | 
|------------------------------------ |  | ----------- | --- |  | ----------- | - | - | ----------- |  | - | ----- | 
|Investments – FNCX
    Common shares |  | $           | 444 |  |             | $ | – |             |  | $ | –     | 





Note 14. Subsequent events



The
Company has evaluated events that occurred subsequent to September 30, 2016, and through the date of the Condensed Consolidated
Financial Statements.



On
October 19, 2016, the Company received a letter from the New York Stock Exchange (“NYSE” or the “Exchange”)
stating that the staff of NYSE Regulation has determined to commence proceedings to delist the Company’s common stock (the
“Action”). NYSE Regulation cited Section 1002(c) of the NYSE MKT LLC Company Guide as the reason for the Action. The
cited section is intended to apply when a company has sold or otherwise disposed of its principal operating assets or has ceased
to be an operating company.



The
Company knows of no facts or circumstances that would lead NYSE to take the Action. The Company has not sold or disposed of its
principal operating assets and believes that it qualifies as an operating company but the Company has decided not to pursue any
appeal of the de-listing.





On
October 24, 2016, the Company consummated the July 14, 2016 Asset Purchase Agreement (the “APA”) with Cyberdonix,
Inc. (“Cyberdonix “), an Alabama corporation and the shareholders of Cyberdonix , Inc. for the purchase of “sentinel”
hacker intrusion device, its prototypes and all underlying software and firmware thereof, the server contract and a hard case
and circuit board inventory; 5,000 hard cases (including mold for production) and 4 circuit boards by issuing 150,000 shares of
MGT common stock.





On
October 24, 2016, the Company issued 150,000 shares of its common stock to a law firm for legal services.





On October 28, 2016
and on November 11, 2016, the Company entered into a Note Exchange Agreement (“Note Exchange Agreement”) and a Warrant
Exchange Agreement (the “Warrant Exchange Agreement”) with the holders (“Holders”) of certain 12% unsecured
promissory notes in the aggregate principal amount of $1,750 (the “Notes”) previously issued by the Company pursuant
to a Securities Purchase Agreement dated August 2, 2016 (the “Purchase Agreement”). Pursuant to the Note Exchange
Agreement, the Company and the Holders agreed to exchange the Notes, including accrued but unpaid interest thereon, for an 8%
Senior Unsecured Promissory Note in the aggregate principal amount of $1,750 (the “New Notes”). The New Notes are
convertible, at the option of the holder thereof, into shares of the Company’s common stock at a conversion price of $1.00
per share, subject to adjustments as set forth in the New Note.





Pursuant to the Warrant
Exchange Agreement, the Company and the Holders also agreed to exchange certain warrants to purchase three hundred and fifty thousand
(350,000) shares of common stock issued to the Holder under the Purchase Agreement for three hundred and fifty thousand (350,000)
shares of the Company’s restricted stock. These warrants have been converted but the shares have not yet been issued to
the warrant holder.



The Company has offered
to other holders of promissory notes issued under the Purchase Agreement, in the aggregate principal amount of $550, the opportunity
to exchange such notes under the same terms described above.



On November 11, 2016,
in accordance with the employment agreement entered into with Robert B. Ladd on July 7, 2016, 2,000,000 shares of the Company’s
common stock was issued.



15







Item
2. Management’s discussion and analysis of financial condition and results of operations



This
Quarterly Report on Form 10–Q contains forward–looking statements that involve risks and uncertainties, as well as
assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed
or implied by such forward–looking statements. The statements contained herein that are not purely historical are forward–looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). Forward–looking statements are often identified by the use of
words such as, but not limited to, “anticipate,” “estimates,” “should,” “expect,”
“guidance,” “project,” “intend,” “plan,” “believe” and similar expressions
or variations intended to identify forward–looking statements. These statements are based on the beliefs and assumptions
of our management based on information currently available to management. Such forward–looking statements are subject to
risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially
from future results expressed or implied by such forward–looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors”
included in our Annual Report on Form 10–K filed with the SEC on April 14, 2016, in addition to other public reports we
filed with the Securities and Exchange Commissions (“SEC”). The forward–looking statements set forth herein
speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward–looking
statements to reflect events or circumstances after the date of such statements.



Executive
summary



MGT
Capital Investments, Inc. (“MGT,” “the Company,” “we,” “us”) is a Delaware corporation,
incorporated in 2000. The Company was originally incorporated in Utah in 1977. MGT is comprised of the parent company, wholly–owned
subsidiaries MGT Cybersecurity, Inc. (“MGT Cybersecurity”), Medicsight, Inc. (“Medicsight”), MGT Sports,
Inc. (“MGT Sports”), MGT Studios, Inc. (“MGT Studios”), and majority–owned subsidiary MGT Gaming,
Inc (“MGT Gaming”). MGT Studios also owns a controlling minority interest in the subsidiary M2P Americas, Inc. Our
corporate office is located in Harrison, New York.



Cybersecurity



MGT
and its subsidiaries are in the process of acquiring a diverse portfolio of cyber security technologies. With cyber security industry
pioneer, John McAfee, at its helm, the Company is positioned to address various cyber threats through advanced protection technologies
for mobile and personal tech devices, including tablets and smart phones. The Company is currently in the process of acquiring
D–Vasive, a provider of leading edge anti–spy software, and Demonsaw, a provider of a secure and anonymous file sharing
software platform.





On
May 9, 2016 we, through our wholly owned subsidiary, MGT Cybersecurity, Inc. entered into an Asset Purchase Agreement (the “D–Vasive
APA”) to acquire certain assets related to the D–Vasive business (as defined below). D–Vasive, Inc., a Wyoming
corporation, is in the business of developing and marketing of certain privacy and anti–spy applications (the “D–Vasive
Business”). Pursuant to the terms of the D–Vasive APA, the Company has agreed to purchase assets (“D–Vasive
Assets”) integral to the D–Vasive Business, including but not limited to applications for use on mobile devices, intellectual
property, customer lists, databases, sales pipelines, proposals and project files, licenses and permits. Among the Purchased Assets
is the D–Vasive application which is designed for protection from invasive applications that seek access to personal contacts,
cameras and other information on smart phones, tablets and other mobile devices. The Company intends to change its corporate name
to “John McAfee Global Technologies, Inc.” upon closing of the D–Vasive transaction.These transactions and events have not yet taken place at the date of this filing.



On
May 26, 2016, the Company entered into an asset purchase agreement (the “Demonsaw APA”) with Demonsaw LLC, a Delaware
company (“Demonsaw”) and the shareholders of Demonsaw, for the purchase of certain technology and assets of Demonsaw.
Demonsaw is in the business of developing and marketing certain secure and anonymous information sharing applications (the “Demonsaw
Business”). Pursuant to the terms of the Demonsaw APA, the Company has agreed to purchase assets (“Demonsaw Assets”)
integral to the Demonsaw Business, including but not limited to the source code for the Demonsaw solution, intellectual property,
customer lists, databases, sales pipelines, proposals and project files, licenses and permits. Among the Demonsaw Assets is the
Demonsaw application which is designed for use in Windows and Apple operating systems. However, prior to the closing of this transaction,
the Company and Demonsaw executed an agreement to terminate the Demonsaw APA, pursuant to Section 3.4 of the Demonsaw APA. Subsequently,
D–Vasive entered into a Membership Interest Purchase Agreement (the “LLC Purchase Agreement”) with the holders
of all of Demonsaw’s outstanding membership interest, whereby D–Vasive purchased all such membership interest from
the Demonsaw members. The closing of the transaction contemplated under the LLC Purchase Agreement is contingent on, among other
things, the closing of the transaction contemplated under the APA.





Bitcoin
mining



Effective
July 25, 2016, the Company engaged in the business of providing transaction verification services within the digital currency
network of Bitcoin, commonly termed “Bitcoin mining.” In consideration for these services the Company receives digital
currency, Bitcoins (“BTC,” “coins”);



| | ● | The
    coins are recorded as revenue, using the average spot price of Bitcoin on the date of receipt;                                                                                                                             
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                    
| | ● | The
    coins are recorded on the balance sheet at their fair value and remeasured at each reporting date. Revaluation gains or losses,
    as well gains or losses on sale of BTC are recorded in the statement of operations; and
| |   |                                                                                                                                                                                                                                    
| | ● | Expenses
    associated with running the Bitcoin mining business, such as equipment deprecation, rent and electricity cost are recorded
    as cost of revenues.                                                                   



Bitcoin
mining is the process of adding transaction records to the Bitcoin’s public ledger of past transactions. Miners are awarded
Bitcoins for each block of confirmed transactions as well as a fee for each added transaction, also paid in BTC. Payments are
made directly to the Company’s Bitcoin wallet at Coinbase.



Processing
these transactions requires massive computing power and can only be carried out using expensive, specialized hardware (“Bitcoin
machines,” the “machines”). The machines have very high electricity consumption and require constant monitoring,
power and cooling management.



The
reason for the term “Bitcoin mining” is because it resembles the mining of physical commodities such as gold, for
it requires exertion and slowly makes new currency available at a rate that resembles the rate at which commodities like precious
metals are mined from the ground.



MGT’s mining
operations



During
the three months ended September 30, 2016, the
Company purchased 200 bitcoin mining machines from Bitmain Technologies Limited for $311 and power supplies from Hash The Planet
(“HTP”) for $27. TheCompany
also entered a 12-month agreement with HTP to host, power, connect, monitor and service the machines for $136. The hosting data
center in located in Cashmere, WA. MGT launched its bitcoin mining operations and earned its first BTC on September 3, 2016.



Gaming



Prior
to third quarter ending September 30, 2016, the Company and its subsidiaries were principally engaged in the business of acquiring,
developing and monetizing assets in the online and mobile gaming space as well as the social casino industry. MGT’s portfolio
includes a social casino platform Slot Champ and minority stakes in the skill–based gaming platform MGT Play and fantasy
sports operator DraftDay Gaming Group, Inc. (“DDGG”) (see September 8, 2015 development below).



In
addition, MGT Gaming owns three patents covering certain features of casino slot machines. Two of the patents were asserted against
alleged infringers in various actions in federal court in Mississippi. In July 2014, MGT Gaming dismissed its lawsuits against
WMS Gaming Inc., and in August 2015, the Company and defendants Aruze America and Penn National Gaming agreed to settle all pending
litigation and all proceedings at the U. S. Patent and Trademark Office. The Company received a payment of $90, which was recorded
as licensing revenue. In an effort to monetize its gaming patent portfolio during the nine months ended September 30, 2016, the
Company engaged Munich Innovations GmbH, the patent monetization firm that sold MGT’s medical patent portfolio to Samsung
in 2013 for $1.5 million. As of September 30, 2016, an impairment charge for the full value of the patent was recorded, as the
Company is in no longer engaged in this business.



On
September 8, 2015, the Company and MGT Sports entered into an Asset Purchase Agreement with Viggle, Inc. (“Viggle”)
and Viggle’s subsidiary DDGG, pursuant to which Viggle acquired all of the assets of the DraftDay.com business (“DraftDay.com”)
from the Company and MGT Sports. In exchange for the acquisition of DraftDay.com, Viggle paid MGT Sports the following: (a) 63,467
shares of Viggle’s common stock, since renamed Function(x) Inc. (NASDAQ: FNCX) (“FNCX”), (b) a promissory
note in the amount of $234 paid on September 29, 2015, (c) a promissory note in the amount of $1,875 due March 8, 2016 (“FNCX
Note”, “the Note”), and (d) 2,550,000 shares of Common stock of DDGG (private entity). In addition, in exchange
for providing certain transitional services, DDGG issued to MGT Sports a warrant to purchase 1,500,000 shares of DDGG common stock.
Following consummation of the transaction, MGT Sports owns an 11% equity interest in DDGG, FNCX owns 49%, and Sportech, Inc. owns
39%. As a result of the transaction, the Company has presented DraftDay.com as a discontinued operation. During the quarter
ended September 30, 2016, the Company recorded an impairment charge against its investment in DDGG of 20% or $276.



16







On
March 24, 2016, the Company entered into an Exchange Agreement (the “FNCX March 24th Agreement”) with FNCX.
The purpose of the FNCX March 24th Agreement was to exchange the FNCX Note for other equity and debt securities of
FNCX, after the Note went into default on March 8, 2016. On the effective date of the FNCX March 24th Agreement, the
Note had an outstanding principal balance of $1,875 and accrued interest in the amount of $51 (the “March 24th
Interest”). Pursuant to the FNCX March 24th Agreement, a portion consisting of $825 of the outstanding principal
of the FNCX Note was exchanged for 137,418 shares of FNCX’s Common stock, and an additional portion of $110 of the
outstanding principal was exchanged for 110 shares (the “FNCX Preferred shares”) of a newly created class of Preferred
stock, the Series D Convertible Preferred stock. The FNCX Preferred shares were subsequently converted into 18,332 shares
of FNCX’s Common stock. Finally, FNCX agreed to make a cash payment to MGT Sports for the total amount of March 24thInterest. In exchange for the forgoing, MGT Sports and the Company agreed to waive all Events of Default under the FNCX
Note prior to the effective date of the FNCX March 24th Agreement and to release FNCX from any rights, remedies and
claims related thereto. After giving effect to the forgoing, the remaining outstanding principal balance of the FNCX Note was
$940 which continued to accrue interest a rate of 5% per annum, and all terms of the Note remained unchanged except that the maturity
date was changed to July 31, 2016.





On
June 14, 2016, the Company and MGT Sports entered into a Securities Exchange Agreement (the “FNCX June 14th Agreement”)
with FNCX to exchange $940 remaining outstanding principal of the FNCX Note for 132,092 shares of FNCX’s Common stock
and FNCX shall make a cash payment to MGT Sports for the total amount of interest accrued until consummation of the transaction
contemplated in the FNCX June 14th Agreement. The closing of the FNCX June 14th Agreement is conditioned
on FNCX’s shareholders’ approval of the issuance of the FNCX Common shares and satisfaction of other closing conditions
set forth in the FNCX June 14th Agreement. As of September 30, 2016, the Note was recorded on the balance sheet at
$640, net of reserve of $300.



On September 16, 2016,
FNCX amended its Certificate of Incorporation to effect a reverse stock split of all issued and outstanding shares of common stock
at a ratio of 1 for 20 (the "Reverse Stock Split"). The effective date of the Reverse Stock Split is September 16, 2016.
The above common stock share amounts received from FNCX have been adjusted to reflect the Reverse Stock Split.



Critical
accounting policies and estimates



The
Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (GAAP). Certain accounting policies have a significant impact on amounts reported in the financial statements.
A summary of those significant accounting policies can be found in Note 3 to the Company’s financial statements contained
in the 2015 Annual Report on Form 10–K and Part I, Note 3 contained in this Quarterly Report on Form 10–Q.



Results
of operations



The
Company currently has three operational segments, Gaming, Intellectual Property and Bitcoin Mining.



Three
months ended September 30, 2016 and 2015



The
Company achieved the following results for the three months ended September 30, 2016, and 2015:



| | ● | Revenue from
    continuing operations totaled $53 (2015: $90);                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                            
| | ● | Operating expenses
    were $10,866 (2015: $642);                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                            
| | ● | Losses of $0
    from discontinued operations (2015: $366);                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                            
| | ● | Net
                                         loss attributable to Common shareholders was $10,830 (2015: $1,321) and resulted
                                         in a basic and diluted loss per share of $0.42 (2015: $0.10). Net loss from continuing
                                         operations before non–controlling interest was $10,830 (2015: $949).







The
increase in our operating expenses during the quarter ended September 30, 2016 was primarily due to increased stock–based
compensation expense, driven by higher stock price and increased professional fees, such as legal and investor relations fees.



Intellectual
property



Selling,
general and administrative expenses for three months ended September 30, 2016 were $0 (2015: $72). During the second quarter of
2016, the Company recognized an impairment charge of $659 related to the gaming patent.



Gaming
– continuing operations



During
three months ended September 30, 2016, the Company did not incur any operating costs related to this segment (2015: $8). During
the second quarter of 2016, the Company recognized an impairment charge of $1,496 related to the goodwill and $14 related to the
intangible assets.



Gaming
– discontinued operations (DraftDay.com)



During
the three months ended September 30, 2016, the Company did not recognize any revenues or expenses for this segment. During the
three months ended September 30, 2015, the Company recognized $176 in revenues, $39 in cost of revenue and $366 in selling, general
and administrative expenses, consisting of marketing expenses, employee compensation, information technology and office related
expenses.



Unallocated
corporate / other



Selling, general and administrative expenses during the three months ended September 30, 2016 were $10,572
(2015: $562). The increase was primarily due to increased stock–based compensation expense, driven by higher stock price
and increased professional fees, such as legal and investor relations fees.



17









The
Company recorded $11in
interest income, (2015: $8), the income was related to interest earned on note receivable from Function (X) Inc. (“FNCX”).



Nine
months ended September 30, 2016 and 2015



The
Company achieved the following results for the nine months ended September 30, 2016, and 2015:





| | ● | Revenue
    from continuing operations totaled $53 (2015: $104);                                                                                                                                                                                                                                                                                                             
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                              
| | ● | Operating
    expenses were $15,289 (2015: $2,2,93);                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                              
| | ● | Losses
    of $0 from discontinued operations (2015: $924);                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                              
| | ● | Net
                                         loss attributable to Common shareholders was $18,260 (2015: $3,443) and resulted
                                         in a basic and diluted loss per share of $0.84 (2015: $0.27). Net loss from continuing
                                         operations before non–controlling interest was $18,579 (2015: $2,622).





The
increase in our operating expenses during the nine months ended September 30, 2016 was primarily due to increased stock–based
compensation expense during the second quarter of 2016, driven by higher stock price and increased professional fees, such as
legal and investor relations fees.



Intellectual
property



Selling,
general and administrative expenses for the nine months ended September 30, 2016 were $50 (2015: $311) consisting of amortization.
During the second quarter of 2016, the Company recognized an impairment charge of $659 related to the gaming patent.



Gaming
– continuing operations



Selling,
general and administrative expenses for the nine months ended September 30, 2016 were $5 (2015: $34). During the second quarter
of 2016, the Company recognized an impairment charge of $1,496 related to the goodwill and $14 related to the intangible assets.



Gaming
– discontinued operations (DraftDay.com)



During the nine months ended September 30, 2016, the Company did not recognize any revenues or expenses for
this segment. During the nine months ended September 30, 2015, the Company recognized $640 in revenues, $225 in cost of revenue
and $1,202 in selling, general and administrative expenses, consisting of marketing expenses, employee compensation, information
technology and office related expenses.



Unallocated
corporate / other



Selling,
general and administrative expenses during the nine months ended September 30, 2016 were $14,995 (2015: $1,948). The increase
was primarily due to increased stock–based compensation expense during the second quarter of 2016, driven by higher stock
price and increased professional fees, such as legal and investor relations fees.



The
Company recorded $25 in interest income, (2015: expense of $28), the income was related to interest earned on note receivable
from Function (X) Inc. (“FNCX”).



Liquidity
and capital resources



|                                   |  | September
    30, 2016 |       |   | December
    31, 2015 |  
|---------------------------------- |  | ---------------------- | ----- | - | --------------------- | -
|Working capital summary            |  |                        |       |   |                       |  
|Cash
    and cash equivalents      |  | $                      | 2,113 |   |                       | $
|Digital currencies                 |  |                        | 45    |   |                       |  
|Other current assets               |  |                        | 146   |   |                       |  
|Investments available
    for sale |  |                        | 100   |   |                       |  
|Notes receivable                   |  |                        | 640   |   |                       |  
|Current
    liabilities            |  |                        | (393  | ) |                       |  
|Working
    capital surplus        |  | $                      | 2,651 |   |                       | $



|                                                           |  | Nine
    months ended September 30, |       
|---------------------------------------------------------- |  | ----------------------------------- | ------
|                                                           |  | 2016                                |       
|Cash (used in) /
    provided by                           |  |                                     |       
|Operating
    activities                                   |  | $                                   | (3,772
|Investing activities                                       |  |                                     | 799   
|Financing activities                                       |  |                                     | 4,727 
|Discontinued operations                                    |  |                                     | –     
|Effects of exchange
    rates on cash and cash equivalents |  |                                     | –     
|Net
    change in cash and cash equivalents                |  | $                                   | 1,754 



18







On
September 30, 2016, MGT’s cash and cash equivalents were $2,113. The Company continues to exercise discipline with
respect to current expense levels. Our cash and cash equivalents have decreased during the nine months ended September 30, 2016,
primarily due to $3,772 used in operating activities, offset by $799 and $4,727 provided by investing activities and financing
activities, respectively.



Operating
activities



Our
net cash used in operating activities differs from the net loss predominantly because of various non–cash adjustments such
as depreciation, amortization of intangibles, stock–based compensation, warrants modification expense, loss on sale of investments
and movement in working capital.



Investing
activities



During
the nine months ended September 30, 2016, the Company generated $1,805 in gross proceeds from sales of FNCX Common stock on the
open market.



During
the nine months ended September 30, 2016, the Company purchased a 5% promissory note with a principal of $45, maturing on July
18, 2016.



On
May 13, 2016, the Company acquired 6% Membership Interest in The Round House LLC (“Round House”) for cash consideration
of $150. Round House is an Alabama–based technology incubator, offering co–working space, accelerator services and
angel investment.



On
May 18, 2016, the Company acquired 112,000 Common shares of Venaxis, Inc. (“APPY”) in the open market at a cost of
$414.



On
August 16, 2016, the Company acquired 25% membership interest in 2MQ LLC, a developer and publisher of smartphone games.



Financing
activities







During
the three months ended September 30, 2016 the Company entered into a Securities Purchase Agreement (the “SPA”) with
selected accredited investors (each an “Investor” and collectively, the “Investors”). Pursuant to the
terms of the Purchase Agreement, the Company sold $2,300 in unsecured promissory notes (“Notes) in a private placement (the
“Offering”). The Notes mature on September 30, 2019 or such other date as set forth in the Notes. The Notes bear interest
at a rate of twelve per cent (12%) per annum, to be paid quarterly in arrears, with the first payment due on September 30, 2016
to be calculated on a pro–rata basis.





On October 28, 2016 and
on November 11, 2016, the Company entered into a Note Exchange Agreement (“Note Exchange Agreement”) and a Warrant
Exchange Agreement (the “Warrant Exchange Agreement”) with the holders (“Holders”) of certain 12% unsecured
promissory notes in the aggregate principal amount of $1,750 (the “Notes”) previously issued by the Company pursuant
to a Securities Purchase Agreement dated August 2, 2016 (the “Purchase Agreement”). Pursuant to the Note Exchange
Agreement, the Company and the Holders agreed to exchange the Notes, including accrued but unpaid interest thereon, for an 8%
Senior Unsecured Promissory Notes in the aggregate principal amount of $1,750 (the “New Notes”). The New Notes are
convertible, at the option of the holder thereof, into shares of the Company’s common stock at a conversion price of $1.00
per share, subject to adjustments as set forth in the New Note.





Pursuant to the Warrant
Exchange Agreement, the Company and the Holders also agreed to exchange certain warrants to purchase 350,000 shares of common stock
issued to the Holder under the Purchase Agreement for 350,000 shares of the Company’s restricted stock. These warrants have
been converted but the shares have not yet been issued to the warrant holders.



The Company has offered
to other holders of promissory notes issued under the Purchase Agreement, in the aggregate principal amount of $550, the opportunity
to exchange such notes under the same terms described above.



During
the three months ended September 30, 2016 the Company issued 6,117,296 shares of Common stock in connection with exercise of warrants,
resulting in gross proceeds of $2,427.



Risks
and uncertainties related to our future capital requirements



The
accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. As of September 30, 2016, the Company had incurred
significant operating losses since inception and continues to generate losses from operations and has an accumulated deficit of
$322,204. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The condensed
consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts
or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.



Commercial
results have been limited and the Company has not generated significant revenues. The Company’s primary source of operating
funds since inception has been debt and equity financings. The Company cannot assure its stockholders that the Company’s
revenues will be sufficient to fund its operations. If adequate funds are not available, the Company may be required to curtail
its operations significantly or to obtain funds through entering into arrangements with collaborative partners or others that
may require the Company to relinquish rights to certain of our technologies or products that the Company would not otherwise relinquish.



At
September 30, 2016, MGT’s cash and cash equivalents were $2,113. The Company intends to raise additional capital, either
through debt or equity financings or through the continued sale of the Company’s assets in order to achieve its business
plan objectives. Management believes that it can be successful in obtaining additional capital; however, no assurance can be provided
that the Company will be able to do so. There is no assurance that any funds raised will be sufficient to enable the Company to
attain profitable operations or continue as a going concern. To the extent that the Company is unsuccessful, the Company may need
to curtail or cease its operations and implement a plan to extend payables or reduce overhead until sufficient additional capital
is raised to support further operations. There can be no assurance that such a plan will be successful.





19







Off–balance
sheet arrangements



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



Item
3. Quantitative and qualitative disclosures about market risk



Not
required for smaller reporting companies.



Item
4. Controls and procedures



(a)
Evaluation of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer, who
is also our Interim Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls
and procedures (as defined in Rule 13a–15(e) or 15d–15(e) of the Exchange Act of 1934. Based on that evaluation, our
Chief Executive Officer concluded that our disclosure controls and procedures as of September 30, 2016 (the end of the period
covered by this Quarterly Report on Form 10–Q), have not been designed and are not functioning effectively to provide reasonable
assurance that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is (i)
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) that
such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate to allow
timely decisions regarding required disclosure.



(b)
Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting
that occurred during the quarter ended September 30, 2016, that have materially affected or are reasonably likely to materially
affect our internal control over financial reporting.



20







PART
II. OTHER INFORMATION



Item
1. Legal proceedings



On
September 1, 2016, MGT Capital Investments, Inc. and John McAfee filed an action in the U.S. District Court, Southern District
of New York, seeking a declaration that the use of or reference to the personal name of John McAfee and/or McAfee in its business,
and specifically in the context of renaming MGT Capital Investments, Inc., of which McAfee is the Executive Chairman, to “John
McAfee Global Technologies, Inc.,” does not infringe upon Intel’s trademark rights or breach any agreement between
the parties.  Intel has submitted an Amended Answer and Counterclaims alleging Lanham Act and federal/state trademark violations
and common law unfair competition relating to the same factual circumstances.  MGT filed a Reply to Counterclaims on November
3, 2016, and a case management plan and scheduling order was filed on October 28, 2016.



A number of law firms
have issued press releases announcing that they are investigating claims on behalf of shareholders of the Company regarding potential
violations of the Exchange Act. To the Company’s knowledge, as of the date of this Current Report, no actions or claims
have been filed by against the Company alleging violations of the Exchange Act.



Item
1–A. Risk factors



There
are no additional risk factors other than those discussed in our Annual Report Form 10–K filed April 14, 2016.



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



In
the nine months ended September 30, 2016, the Company granted and issued a total of 675,000 shares to non–employees for
services rendered.



During
the nine months ended September 30, 2016 the Company issued 10,838 shares of Common stock in connection with conversion of Series
A Convertible Preferred stock.



The
above issuances were made in reliance on an exemption from registration set forth in Section 4(2) of the Securities Act. The issuances
did not result in any proceeds to the Company.



Item
3. Defaults upon senior securities



None.



Item
4. Mine safety disclosures



Not
applicable.



Item
5. Other information



None.



Item
6. Exhibits



| | 31.1    |  | Certification
    pursuant to Section 302 of the Sarbanes–Oxley Act of 2002
| | ------- |  | ---------------------------------------------------------------------------
| |         |  |                                                                            
| | 31.2    |  | Certification
    pursuant to Section 302 of the Sarbanes–Oxley Act of 2002
| |         |  |                                                                            
| | 32.1    |  | Certification
    pursuant to Section 906 of the Sarbanes–Oxley Act of 2002
| |         |  |                                                                            
| | 32.2    |  | Certification
    pursuant to Section 906 of the Sarbanes–Oxley Act of 2002
| |         |  |                                                                            
| | 101.INS |  | XBRL
    Instance Document                                                 
| |         |  |                                                                            
| | 101.SCH |  | XBRL
    Taxonomy Extension Schema                                         
| |         |  |                                                                            
| | 101.CAL |  | XBRL
    Taxonomy Extension Calculation Linkbase Document                  
| |         |  |                                                                            
| | 101.DEF |  | XBRL
    Taxonomy Extension Definition Linkbase Document                   
| |         |  |                                                                            
| | 101.LAB |  | XBRL
    Taxonomy Extension Labels Linkbase Document                       
| |         |  |                                                                            
| | 101.PRE |  | XBRL
    Taxonomy Extension Presentation Linkbase Document                 



21







SIGNATURES



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



|                      | MGT
    CAPITAL INVESTMENTS, INC
|--------------------- | --------------------------------
|                      |                                 
|November
    14, 2016 | By:                             
|                      |                                 
|                      |                                 
|                      |                                 



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



22