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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

 
| **x**                                                       | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
|                                                        |
| **For the quarterly period ended September 30, 2009.** |
|                                                        |
| **OR**                                                      |
|                                                        |
| **o**                                                       | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from         to        **

 

**Commission file number: 0-26886**

 

**MGT CAPITAL INVESTMENTS, INC.**

(Exact name ofRegistrant as specified in its charter)

 

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

 

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

(Address ofprincipal executive offices, including zip code)

 

Registrant’stelephone number, including area code: **011-44-20-7605-1151**

 

Indicate by check whether the Registrant (1) hasfiled all reports to be filed by Section 13 or 15(d) of theSecurities and Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).  Yes o  No o

 

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

 

| Large  Accelerated Filer o |   | Accelerated  filer o         |
|----------------------------|--------|------------------------------|
|                       |   |                         |
| Non-accelerated  Filer o   |   | Smaller  reporting company x |

 

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

 

As of November 12, 2009 the registrant hadoutstanding 32,550,590 shares of common stock, $0.001 par value, (excludes6,349,793 common shares held as treasury stock).

 

 

 

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NOTE REGARDINGFORWARD LOOKING STATEMENTS

 

This Form 10-Q,including “Management’s Discussion and Analysis of Financial Condition andResults of Operations” in Item 2, contains forward-looking statements thatinvolve risks and uncertainties, as well as assumptions that, if they nevermaterialize or prove incorrect, could cause the results of MGT CapitalInvestments, Inc and its consolidated subsidiaries (the “Company”) to differmaterially from those expressed or implied by such forward-looking statements.All statements other than statements of historical fact are statements thatcould be deemed forward-looking statements, including any projections ofrevenue, gross profit, expenses, earnings or losses from operations, synergiesor other financial items; any statements of the plans, strategies andobjectives of management for future operations, including the rate of market developmentand acceptance of medical imaging technology; the execution of restructuringplans; any statement concerning developments, performance or industry rankingsrelating to products or services; any statements regarding future economicconditions or performance; any statements of expectation or belief; and anystatements of assumptions underlying any of the foregoing. The risks,uncertainties and assumptions referred to above include the performance ofcontracts by suppliers, customers and partners; employee management issues; thedifficulty of aligning expense levels with revenue changes; and other risksthat are described herein, including but not limited to the specific risksareas discussed in “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” in Item 2 of this report, and that areotherwise described from time to time in the Company’s Securities and ExchangeCommission reports filed after this report. The Company assumes no obligationand does not intend to update these forward-looking statements.

 

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

 

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**INDEX**

 
| **PART I — FINANCIAL INFORMATION** |                                                                                                                                         |       |
|----------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                   | ** **                                                                                                                                   | ** ** | ** ** |
| Item  1                                      | Condensed  Consolidated Balance Sheets — September 30, 2009 (unaudited) and  December 31, 2008                                |       | 4 |
|                                         |                                                                                                                                         |       |   |
|                                         | Condensed Consolidated Statements of Operations — for  the three months ended September 30, 2009 (unaudited) and 2008  (unaudited) |       | 5 |
|                                         |                                                                                                                                         |       |   |
|                                         | Condensed Consolidated Statements of Operations — for  the nine months ended September 30, 2009 (unaudited) and 2008  (unaudited)  |       | 6 |
|                                         |                                                                                                                                         |       |   |
|                                         | Condensed Consolidated Statement of Stockholders’  Equity and Comprehensive Loss — September 30, 2009 (unaudited)             |       | 7 |
|                                         |                                                                                                                                         |       |   |
|                                         | Condensed Consolidated Statements of Cash Flows — for  the nine months ended September 30, 2009 (unaudited) and 2008  (unaudited)  |       | 8 |
|                                         |                                                                                                                                         |       |   |
|                                         | Notes to Condensed Consolidated Financial Statements                                                                                         |       | 9 |
|                                         |                                                                                                                                         |       |   |
| Item 2                                       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                  |       | 22 |
|                                         |                                                                                                                                         |       |   |
| Item 3                                       | Quantitative and  Qualitative Disclosure About Market Risk                                                                                   |       | 31 |
|                                         |                                                                                                                                         |       |   |
| Item 4T                                      | Controls &  Procedures                                                                                                              |       | 31 |
|                                         |                                                                                                                                         |       |   |
| **PART II  — OTHER INFORMATION**   |                                                                                                                                         |       |
| ** **                                   | ** **                                                                                                                                   | ** ** | ** ** |
| Item 1                                       | Legal Proceedings                                                                                                                            |       | 32 |
|                                         |                                                                                                                                         |       |   |
| Item  1A                                     | Risk  Factors                                                                                                                                |       | 32 |
|                                         |                                                                                                                                         |       |   |
| Item 2                                       | Unregistered  Sale of Equity Securities and Use of Proceeds                                                                                  |       | 34 |
|                                         |                                                                                                                                         |       |   |
| Item 3                                       | Defaults Upon  Senior Securities                                                                                                             |       | 34 |
|                                         |                                                                                                                                         |       |   |
| Item 4                                       | Submission of  Matters to a Vote of Security Holders                                                                                         |       | 34 |
|                                         |                                                                                                                                         |       |   |
| Item 5                                       | Other Information                                                                                                                            |       | 35 |
|                                         |                                                                                                                                         |       |   |
| Item  6                                      | Exhibits                                                                                                                                     |       | 36 |
|                                         |                                                                                                                                         |       |   |
| SIGNATURES                                   |                                                                                                                                         | 37         |

 

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

 

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**MGT CAPITAL INVESTMENTS, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(in thousands, except share and per share amounts)**

 
| ** **                                                                                                                 | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                 | ** ** | **(unaudited)**              | ** ** | **Revised note 3**          | ** ** |
| **Assets**                                                                                                                 |       |                         |       |                        |       |
| Current  assets:                                                                                                           |       |                         |       |                        |       |
| Cash and  cash equivalents                                                                                                 |       | $                            | 26,913     |                        | $          | 38,294 |   |
| Marketable  securities                                                                                                     |       | —                       |       | 1,884                       |       |
| Accounts  receivable                                                                                                       |       | 57                           |       | 134                         |       |
| Other receivables  – related party                                                                                    |       | 66                           |       | 49                          |       |
| Prepaid  expenses and other current assets                                                                                 |       | 835                          |       | 851                         |       |
| Convertible  note                                                                                                          |       | 2,100                        |       | —                      |       |
| Total  current assets                                                                                                      |       | 29,971                       |       | 41,212                      |       |
|                                                                                                                       |       |                         |       |                        |       |
| Property and  equipment, at cost, net                                                                                      |       | 498                          |       | 706                         |       |
| Intangible  assets, net of accumulated amortization of $200 (2008: $100)                                                   |       | 199                          |       | 299                         |       |
| Investments,  at cost                                                                                                      |       | 594                          |       | 776                         |       |
| Security  deposits                                                                                                         |       | 313                          |       | 301                         |       |
| Goodwill                                                                                                                   |       | —                       |       | 12,157                      |       |
| Total assets                                                                                                               |       | $                            | 31,575     |                        | $          | 55,451 |   |
|                                                                                                                       |       |                         |       |                        |       |
| **Liabilities**                                                                                                            |       |                         |       |                        |       |
| Current  liabilities:                                                                                                      |       |                         |       |                        |       |
| Accounts  payable                                                                                                          |       | $                            | 1,821      |                        | $          | 2,877 |   |
| Accrued  expenses                                                                                                          |       | 1,750                        |       | 1,386                       |       |
| Deferred  revenue                                                                                                          |       | 74                           |       | 77                          |       |
| Total  current liabilities                                                                                                 |       | 3,645                        |       | 4,340                       |       |
|                                                                                                                       |       |                         |       |                        |       |
| Commitments  and contingencies                                                                                             |       |                         |       |                        |       |
|                                                                                                                       |       |                         |       |                        |       |
| **Stockholders’ equity**                                                                                              |       |                         |       |                        |       |
| Common  stock, $0.001 par value: 75,000,000 shares authorized; 38,900,383 shares  issued and 32,550,590 shares outstanding |       | 39                           |       | 39                          |       |
| Additional  paid in capital                                                                                                |       | 299,510                      |       | 298,376                     |       |
| Accumulated  other comprehensive loss                                                                                      |       | (4,453                       | )          | (4,959                      | )          |
| Accumulated  deficit                                                                                                       |       | (261,220                     | )          | (239,450                    | )          |
|                                                                                                                       |       | 33,876                       |       | 54,006                      |       |
| Treasury  stock, at cost, 6,349,793 shares of common stock                                                                 |       | (18,912                      | )          | (18,912                     | )          |
| Total  stockholders’ equity                                                                                           |       | 14,964                       |       | 35,094                      |       |
| Non-controlling  interest                                                                                                  |       | 12,966                       |       | 16,017                      |       |
| Total equity                                                                                                               |       | 27,930                       |       | 51,111                      |       |
|                                                                                                                       |       |                         |       |                        |       |
| Total  stockholders’ equity, liabilities and minority interest                                                        |       | $                            | 31,575     |                        | $          | 55,451 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

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**MGT CAPITAL INVESTMENTS, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(in thousands, except share and per share amounts)**

**(unaudited)**

 
| ** **                                                   | ** ** | **Three months ended September 30,** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                   | ** ** | **2009**                                                 | ** ** | **2008** | ** ** |
| ** **                                                   | ** ** | ** **                                               | ** ** | **Revised note 3** | ** ** |
| Revenues                                                     |       | $                                                        | 62         |   | $ | 120 |   |
| Cost of  revenue                                             |       | (1                                                       | )          | (86 | ) |
| Gross profit                                                 |       | 61                                                       |       | 34 |   |
|                                                         |       |                                                     |       |   |   |
| Operating  expenses                                          |       |                                                     |       |   |   |
| Selling,  general and administrative expenses                |       | 3,991                                                    |       | 4,831 |   |
| Research and  development cost                               |       | 340                                                      |       | 1,558 |   |
|                                                         |       | 4,331                                                    |       | 6,389 |   |
|                                                         |       |                                                     |       |   |   |
| Operating  loss                                              |       | (4,270                                                   | )          | (6,355 | ) |
|                                                         |       |                                                     |       |   |   |
| Interest and  other income                                   |       | 556                                                      |       | 4,465 |   |
|                                                         |       |                                                     |       |   |   |
| Net loss  before non-controlling interest                    |       | (3,714                                                   | )          | (1,890 | ) |
|                                                         |       |                                                     |       |   |   |
| Net loss  attributable to non-controlling interest           |       | 1,119                                                    |       | 590 |   |
|                                                         |       |                                                     |       |   |   |
| Net loss  attributable to MGT Capital Investments, Inc. |       | $                                                        | (2,595     | ) | $ | (1,300 | ) |
|                                                         |       |                                                     |       |   |   |
| Per share  data:                                             |       |                                                     |       |   |   |
|                                                         |       |                                                     |       |   |   |
| Basic and  diluted loss per share                            |       | $                                                        | (0.08      | ) | $ | (0.04 | ) |
|                                                         |       |                                                     |       |   |   |
| Weighted  average number of common shares outstanding        |       | 32,550,590                                               |       | 32,550,742 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

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**MGT CAPITAL INVESTMENTS, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(in thousands, except share and per share amounts)**

**(unaudited)**

 
| ** **                                                   | ** ** | **Nine months ended September 30,** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                   | ** ** | **2009**                                                | ** ** | **2008** | ** ** |
| ** **                                                   | ** ** | ** **                                              | ** ** | **Revised note 3** | ** ** |
| Revenues                                                     |       | $                                                       | 183        |   | $ | 257 |   |
| Cost of  revenue                                             |       | (3                                                      | )          | (116 | ) |
| Gross profit                                                 |       | 180                                                     |       | 141 |   |
|                                                         |       |                                                    |       |   |   |
| Operating  expenses                                          |       |                                                    |       |   |   |
| Selling,  general and administrative expenses                |       | 12,053                                                  |       | 18,301 |   |
| Research and  development cost                               |       | 1,670                                                   |       | 2,785 |   |
| Impairment  of goodwill                                      |       | 12,157                                                  |       | — |   |
|                                                         |       | 25,880                                                  |       | 21,086 |   |
|                                                         |       |                                                    |       |   |   |
| Operating  loss                                              |       | (25,700                                                 | )          | (20,945 | ) |
|                                                         |       |                                                    |       |   |   |
| Interest and  other (expense) / income                       |       | (437                                                    | )          | 5,610 |   |
|                                                         |       |                                                    |       |   |   |
| Net loss  before non-controlling interest                    |       | (26,137                                                 | )          | (15,335 | ) |
|                                                         |       |                                                    |       |   |   |
| Net loss  attributable to non-controlling interest           |       | 4,367                                                   |       | 5,120 |   |
|                                                         |       |                                                    |       |   |   |
| Net loss  attributable to MGT Capital Investments, Inc. |       | $                                                       | (21,770    | ) | $ | (10,215 | ) |
|                                                         |       |                                                    |       |   |   |
| Per share  data:                                             |       |                                                    |       |   |   |
|                                                         |       |                                                    |       |   |   |
| Basic and  diluted loss per share                            |       | $                                                       | (0.67      | ) | $ | (0.28 | ) |
|                                                         |       |                                                    |       |   |   |
| Weighted  average number of common shares outstanding        |       | 32,550,590                                              |       | 36,712,780 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

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**MGT CAPITALINVESTMENTS, INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS**

**Revised note3**

**(inthousands)**

 
| ** **                  | ** ** | **Common stock** | ** ** | **Additional********paid-in** | ** ** | **Accumulated********comprehensive** | ** ** | **Accumulated**   | ** ** | **Treasury** | ** ** | **Total********stockholders’** | ** ** | **Non-********controlling** | ** ** | **Total**    | ** ** |
|-----------------------------|------------|-----------------------|------------|-------------------------------|------------|--------------------------------------|------------|-------------------|------------|--------------|------------|-------------------------------------|------------|-----------------------------|------------|--------------|------------|
| ** **                  | ** ** | **Shares**            | ** ** | **Amount**                    | ** ** | **capital**                          | ** ** | **income/(loss)** | ** ** | **deficit**  | ** ** | **stock**                           | ** ** | **equity**                  | ** ** | **interest** | ** ** | **equity** | ** ** |
|                        |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| BALANCE, DECEMBER 31, 2008  |       | 38,900                |       | $                             | 39         |                                 | $          | 298,376           |       | $            | (4,959     | )                                   | $          | (239,450                    | )          | $            | (18,912    | ) | $ | 35,094 |   | $ | 16,017 |   | $ | 51,111 |   |
|                        |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| Stock-based compensation    |       | —                |       | —                        |       | 1,134                                |       | —            |       | —       |       | —                              |       | 1,134                       |       | 393          |       | 1,527 |   |
| COMPREHENSIVE INCOME/(LOSS) |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
|                        |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| Net loss for the period     |       | —                |       | —                        |       | —                               |       | —            |       | (21,770      | )          | —                              |       | (21,770                     | )          | (4,367       | )          | (26,137 | ) |
|                        |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| Translation adjustment      |       | —                |       | —                        |       | —                               |       | 506               |       | —       |       | —                              |       | 506                         |       | 923          |       | 1,429 |   |
|                        |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| Total comprehensive loss    |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       | (21,264                     | )          | (3,444       | )          | (24,708 | ) |
|                        |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| BALANCE, SEPTEMBER 30, 2009 |       | 38,900                |       | $                             | 39         |                                 | $          | 299,510           |       | $            | (4,453     | )                                   | $          | (261,220                    | )          | $            | (18,912    | ) | $ | 14,964 |   | $ | 12,966 |   | $ | 27,930 |   |

 

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

 

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**MGT CAPITAL INVESTMENTS, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(in thousands, except share and per share amounts)**

**(unaudited)**

 
| ** **                                                                   | ** ** | **Nine months ended September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2009**                                                | ** ** | **2008** | ** ** |
|                                                                         |       |                                                    |       |   |   |
| Cash flows  from operating activities                                        |       |                                                    |       |   |   |
| Net loss  before non-controlling interest                                    |       | $                                                       | (26,137    | ) | $ | (15,335 | ) |
|                                                                         |       |                                                    |       |   |   |
| Adjustments  to reconcile net loss to net cash used in operating activities: |       |                                                    |       |   |   |
| Stock-based  compensation expense                                            |       | 1,527                                                   |       | 2,622 |   |
| Depreciation                                                                 |       | 263                                                     |       | 363 |   |
| Amortization                                                                 |       | 100                                                     |       | 72 |   |
| Loss on  impairment of goodwill                                              |       | 12,157                                                  |       | — |   |
| Loss on  impairment of marketable securities                                 |       | 738                                                     |       | — |   |
| Loss on  impairment of investments at cost                                   |       | 406                                                     |       | — |   |
| (Increase)/decrease  in assets                                               |       |                                                    |       |   |   |
| Accounts  receivable                                                         |       | 87                                                      |       | (31 | ) |
| Accounts  receivable – related party                                    |       | (13                                                     | )          | 6 |   |
| Prepaid  expenses and other current assets                                   |       | (43                                                     | )          | (769 | ) |
| Increase/(decrease)  in liabilities                                          |       |                                                    |       |   |   |
| Accounts  payable                                                            |       | (1,232                                                  | )          | (1,323 | ) |
| Accrued  expenses                                                            |       | 278                                                     |       | 868 |   |
| Deferred  revenue                                                            |       | (10                                                     | )          | 22 |   |
| Net cash  used in operating activities                                       |       | (11,879                                                 | )          | (13,505 | ) |
|                                                                         |       |                                                    |       |   |   |
| Cash flows  from investing activities:                                       |       |                                                    |       |   |   |
| Sale of  marketable securities                                               |       | 946                                                     |       | 1,555 |   |
| Purchase of  marketable securities                                           |       | —                                                  |       | (3,688 | ) |
| Purchase of  cash short-term deposits                                        |       | —                                                  |       | (1,000 | ) |
| Redemption  of cash short-term deposits                                      |       | —                                                  |       | 1,000 |   |
| Purchase of  fixed assets                                                    |       | (23                                                     | )          | (424 | ) |
| Purchase of  investments                                                     |       | —                                                  |       | (960 | ) |
| Acquisition  of Maydeal.com                                                  |       | —                                                  |       | (220 | ) |
| Investment  in convertible notes                                             |       | (2,000                                                  | )          | — |   |
| Net cash  used in investing activities                                       |       | (1,077                                                  | )          | (3,737 | ) |
|                                                                         |       |                                                    |       |   |   |
| Cash flows  from financing activities:                                       |       |                                                    |       |   |   |
| Purchase of  treasury stock (net of commissions)                             |       | —                                                  |       | (18,912 | ) |
| Purchase of  subsidiary company stock                                        |       | —                                                  |       | (1,251 | ) |
| Net cash  used in financing activities                                       |       | —                                                  |       | (20,163 | ) |
|                                                                         |       |                                                    |       |   |   |
| Effects of  exchange rates on cash and cash equivalents                      |       | 1,575                                                   |       | (4,150 | ) |
| Net change  in cash and cash equivalents                                     |       | (11,381                                                 | )          | (41,555 | ) |
| Cash and  cash equivalents, beginning of period                              |       | 38,294                                                  |       | 92,373 |   |
| Cash and  cash equivalents, end of period                                    |       | $                                                       | 26,913     |   | $ | 50,818 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements

 

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**MGT CAPITAL INVESTMENTS, INC.**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(in thousands, except share and per share amounts)**

**(unaudited)**

 

**1. Organization, basis ofpresentation and liquidity**

 

Theaccompanying unaudited condensed consolidated financial statements of MGTCapital Investments, Inc. have been prepared in accordance with generallyaccepted accounting principles for interim financial information and with theinstructions to Form 10-Q and Rule 8-03 of Regulation S-X.  Accordingly, they do not include all of theinformation and notes required by accounting principles generally accepted inthe United States of America. In the opinion of management, all adjustments,consisting only of normal recurring adjustments, have been included.  Operating results for the nine months ended September 30,2009 are not necessarily indicative of the results that may be expectedfor any subsequent quarter or for the year ending December 31, 2009.  These condensed consolidated financialstatements should be read in conjunction with the consolidated financialstatements and notes thereto included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2008.  The condensed consolidatedfinancial statements include the accounts of the Company and its majority ownedsubsidiaries.  All intercompany accountsand transactions have been eliminated.

 

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

 

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

 

·                  Medicexchange andits majority owned subsidiaries provide medical imaging professionals with aglobal web portal containing an online sales channel for diagnostic, treatmentand surgery planning solutions.  This combined with a variety of relevantclinical papers, training materials and content gives these professionalsaccess to information and products that they otherwise would have difficultyaccessing.  The Company holds 22.5 million shares (73%) of the 30.8million issued share capital of Medicexchange.  Medicexchange’s shares arenot publicly traded.

 

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

 

**2. Summary of significant accounting policies**

 

*Principles ofconsolidation*

 

Thefinancial statements include the accounts of our Company and our wholly andmajority owned subsidiaries.  Our mainoperating subsidiaries are Medicsight and Medicexchange.  The functional currencies of our subsidiariesare their local currencies.  All intercompany transactions and balanceshave been eliminated.  All foreign currency translation gains and lossesarising on consolidation were recorded in stockholders’ equity as a componentof accumulated other comprehensive income (loss)*.*   Non-controlling interest represents the minorityequity investment in any of the MGT Capital Investments, Inc. group ofcompanies, plus the minorities’ share of the net operating result and othercomponents of equity relating to the non-controlling interest.

 

*Use ofestimates*

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the USA requires management to make estimates andassumptions that affect the amounts of assets and liabilities and disclosure ofcontingent liabilities at the date of the financial statements and the reportedamounts of revenue and expenses during the reporting period. Actual resultscould differ from those estimates.

 

*Cash andcash equivalents*

 

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

 

*Marketablesecurities*

 

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

 

*Investments*

 

Investmentsconsists of equity ownership in various corporations where our investment isless than 20% of issued share capital. The Company records these investments at historical cost, subject to anyprovision for impairment.

 

*Property andequipment*

 

Propertyand equipment are stated at cost. Depreciation is calculated using the straight line method on the variousasset classes over their estimated useful lives, which range from two to fiveyears.  Leasehold improvements aredepreciated over the term of the lease.

 

*Goodwill*

 

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

 

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

 

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

 

TheCompany evaluates the carrying value of long-lived assets for impairmentwhenever events or changes in circumstances indicate that the carrying amountof an asset may not be recoverable.  TheCompany’s assessment for impairment of an asset involves estimating theundiscounted cash flows expected to result from use of the asset and itseventual disposition.  An impairment lossrecognized is measured as the amount by which the carrying amount of the assetexceeds the fair value of the asset.

 

*Foreigncurrency translation*

 

Theaccounts of the Company’s foreign subsidiaries are maintained using the localcurrency as the functional currency. For these subsidiaries, assets andliabilities are translated into US dollars at period-end exchange rates, andincome and expense accounts are translated at average monthly exchangerates.  Net gains and losses from foreigncurrency translation are excluded from operating results and are accumulated asa separate component of stockholders’ equity.

 

Gainsand losses on foreign currency transactions are reflected in selling, generaland administrative expenses in the income statement.

 

*Revenuerecognition*

 

*Medicsight*

 

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

 

Licensefee revenue is derived from the licensing of computer software. Maintenancerevenue is derived from software maintenance. The Company’s software licenses are generally sold as part of anarrangement that includes maintenance and support.

 

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

 

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

 

Additionally:

 

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

 

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

 

Multiple-elementarrangements — the Company enters into arrangements with resellers that includea combination of software products, maintenance and support.  For such arrangements, the Company recognizesrevenue using the residual method.  TheCompany allocates the total arrangement fee among the various elements of thearrangement based on the fair value of each of the undelivered elementsdetermined by vendor-specific objective evidence of fair value.  The fair value of maintenance and supportservices is established based on renewal rates. In software arrangements for which the Company does not havevendor-specific objective evidence of fair value for all elements, revenue isdeferred until the earlier of when vendor-specific objective evidence of fairvalue is determined for the undelivered elements (residual method) or when allelements for which the Company does not have vendor-specific objective evidenceof fair value have been delivered.

 

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

 

*Medicexchange*

 

Werecognize revenue when the following revenue recognition criteria are met: persuasiveevidence of an arrangement exists, services have been rendered, the sellingprice is fixed or determinable and collectability is reasonably assured.  Deferred revenue is recorded when paymentsare received in advance of performing our service obligations.

 

Asof September 30, 2009 we recorded $nil deferred revenue relating toMedicexchange, compared with $15 at December 31, 2008.

 

*Research and development*

 

Weincur costs incurred in connection with the development of software productsthat are intended for sale.  Costsincurred prior to technological feasibility being established for the productare expensed as incurred.

 

Technologicalfeasibility is established upon completion of a detailed program design or, inits absence, completion of a working model. Thereafter, all software production costs can be capitalized andsubsequently reported at the lower of un-amortized cost or net realizablevalue.  Capitalized costs are amortizedbased on current and future revenue for each product with an annual minimumequal to the straight-line amortization over the remaining estimated economiclife of the product.  Amortizationcommences when the product is available for general release to customers.

 

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

 

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

 

*Fair value of financial instruments*

 

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

 

*Income taxes*

 

EffectiveJanuary 1, 2007 the Company adopted elements of FASB ASC 740-10 “*Income Taxes — Overall*” regarding accounting for uncertaintyin income taxes.  This clarifies theaccounting for uncertainty in income taxes recognized in financial statementsand requires the impact of a tax position to be recognized in the financial statementsif that position is more likely than not of being sustained by the taxingauthority.  At the adoption date of January 1,2007 and also as of September 30, 2009, the Company did not have anyunrecognized tax 

 

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

 

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

 

*Loss per share*

 

Basicloss per share is calculated by dividing net loss attributable to the ordinaryshareholders by the weighted average number of common shares outstanding duringthe period.  Diluted loss per share iscalculated by dividing the net loss attributable to the ordinary shareholdersby the sum of the weighted average number of common shares outstanding and thediluted potential ordinary shares.

 

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

 

*Comprehensive income (loss)*

 

Comprehensiveincome (loss) as includes net income (loss) and items defined as othercomprehensive income (loss).  Itemsdefined as other comprehensive income (loss), such as foreign currencytranslation adjustments and unrealized gains and losses on certain marketablesecurities, are separately classified in the financial statements.  Such items are reported in the consolidatedstatements of stockholders’ equity as comprehensive (loss).

 

*Segment reporting*

 

TheCompany reports the results of it operating segments.  We designate the internal organization thatis used by management for making operating decisions and assessing performanceas the source of the Company’s reportable segments. We also discloseinformation about products and services, geographic areas and majorcustomers.  We operate in two segments, Medicsight, a medical imagingcompany, and Medicexchange, a web portal for radiologists.

 

*Stock options*

 

Werecognize compensation cost relating to share-based payment transactions as anexpense in the financial statements, and measurement of the cost based on theestimated fair value of the equity or liability instrument issued.  Wealso estimate and record forfeitures over the vesting period of the instrument.

 

**Recent accounting pronouncements**

 

In June 2009 the Financial Accounting Standards Board (“FASB”)approved the FASB Accounting Standards Codification (the “Codification”) as thesingle source of authoritative non-governmental GAAP.  All existing accounting standard documents,such as FASB, American Institute of Certified Public Accountants, EmergingIssues Task Force and other related literature, excluding guidance from theSecurities and Exchange Commission, will be superseded by the Codification.  All other non-grandfathered, non-SECaccounting literature not included in the Codification will becomenon-authoritative.  The Codification doesnot change GAAP, but instead introduces a new structure that will combine allauthoritative standards into a comprehensive, topically organized onlinedatabase.  The Codification is effectivefor interim or annual periods ending after September 15, 2009, and hasimpacted the Company’s financial statement disclosures beginning with thequarter ending September 30, 2009 as all references to authoritativeaccounting literature are referenced in accordance with the Codification.  There are no changes to the content of ourconsolidated financial statements or disclosures as a result of implementingthe Codification.

 

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

 

Effective January 1, 2009, the Company adopted FASB ASC Topic 805,“*Business Combinations”*. ASC 805establishes principles and requirements for how the acquirer of a businessrecognizes and measures in its financial statements the identifiable assetsacquired, the 

 

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liabilitiesassumed, and any non-controlling interest in the acquiree. ASC 805 alsoprovides guidance for recognizing and measuring the goodwill acquired in thebusiness combination and determines what information to disclose to enableusers of the financial statements to evaluate the nature and financial effectsof the business combination.

 

Effective April 1, 2009, the Company adopted FASB ASC 820-10-65, “*Fair Value Measurements and Disclosures — Overall —Transition and Open Effective Date Information”*. ASC 820-10-65provides additional guidance for estimating fair value in accordance with ASC820-10 when the volume and level of activity for an asset or liability havesignificantly decreased. ASC 820-10-65 also includes guidance on identifyingcircumstances that indicate a transaction is not orderly. The adoption of ASC820-10-65 did not have a material impact on our consolidated financialstatements.

 

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

 

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

 

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**3. Non-controlling interest**

 

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

 

**4. Cash and cashequivalents**

 

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

 

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

 

*Concentrations*

 

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

 

**5. Convertible note**

 

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

 

Simultaneouslywith executing the Note, we entered into a Securities Purchase Agreement (the“SPA”) with XShares, pursuant to which we agreed to purchase an aggregate of73,943,662 Series B Shares at a purchase price of $0.0284 per share for a totalof $2,100.

 

On August 5,2009 we signed an Amendment to the SPA with XShares which, among otherconditions, extended the date of the first closing to December 31, 2009. A copyof the Amendment is attached as Exhibit 10.6 to our quarterly report on Form10-Q for the three months ended June 30, 2009.

 

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

 

On the signingof the Second Amendment our CEO, Tim Paterson-Brown, was appointed the Series BDirector of XShares. As of this date, therefore, XShares became a relatedparty.

 

**6. Marketable securities**

 

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

 

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

 

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**7.****    ****Investments at cost**

 

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

 

*Eurindia Limited*

 

In2000 MGT invested in Eurindia Limited (“Eurindia”), a UK company that investedin IT start-up companies.  MGT has a 6% holding in Eurindia and accountsfor this investment on a cost basis.

 

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

 

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

 

Asof September 30, 2009 the investment had not been liquidated.

 

*XShares Group*

 

In2007 the Company invested $960 in Series C preferred shares of XSharesGroup, Inc. (“XShares”), an investment advisor that creates, issues andsupports exchange traded funds with a particular healthcare specialty.  In the year ended December 31, 2008 theCompany invested an additional $2,040 in shares of XShares bringing the totalinvested to $3,000.  We account for theseinvestments on a cost basis as our total holdings are less than 20%.  In Fiscal 2008 we reviewed the carrying valueof our investment in XShares.  XShareswas in the process of attempting to raise funds to drive the businessforward.  As of December 31, 2008 weimpaired this investment to $600.  As of June 30, 2009 thefund-raising was partially complete and, after reviewing our holding, weimpaired the investment to $370, which we believe approximates fair value.  As of September 30, 2009 thefund-raising was continuing and, on review, we have kept XShares’ book value at$370.

 

Weestimated these impairments based on management’s review and discussion of thestrategy and business plan of XShares and review of draft Fiscal 2008 financialaccounts prepared by an independent accountant. These inputs are subject to management’s judgment and we have thereforedeemed them to be Level 3 inputs in the fair value hierarchy.  The value of our investment has been reducedas previously invested cash has been used to fund business operations and asyet the business is not generating sufficient cash.  However, we have reviewed XShares’ businessplan and we have adjusted our investment to a level we believe reflects thefuture market valuation and with no active market we believe this is the mostsuitable method with which to determine the value of our investment.

 

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

 

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

 

*HipCricket Inc.*

 

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

 

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

 
| ** **               | ** ** | **January 1, 2009** | ** ** | **Transfer from  marketable  securities** | ** ** | **Purchases** | ** ** | **Impairment  losses  included in  earnings** | ** ** | **September 30****, 2009** | ** ** | **Change in impairment  losses relating  to instruments  still held at****September 30, ****2009** | ** ** |
|--------------------------|------------|-------------------------------|------------|-------------------------------------------|------------|---------------|------------|----------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                     |       |                          |       |                                      |       |          |       |                                               |       |                                 |       |                                                                                                                                       |       |
| Eurindia Limited         |       | $                             | 176        |                                      | —     |          | —     |                                               | (176       | )                                    | $          | —                                                                                                                                     |       | $ | (176 | ) |
| XShares Group, Inc. |       | 600                           |       | —                                    |       | —        |       | (230                                               | )          | 370                                  |       | (230                                                                                                                                       | )          |
| HipCricket Inc.          |       | —                        |       | 224                                       |       | —        |       | —                                             |       | 224                                  |       | —                                                                                                                                     |       |
|                     |       | $                             | 776        |                                      | 224        |          | —     |                                               | (406       | )                                    | $          | 594                                                                                                                                        |       | $ | (406 | ) |

 

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**8. Goodwill**

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

 

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

 

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

 

Theestimate of future cash flow is based upon, among other things, certainassumptions about expected future operating performance and an appropriatediscount rate determined by our management.  Our estimates of discountedcash flows may differ from actual cash flows due to, among other things,timings of regulatory approvals, economic conditions in the healthcare ITmarket, changes to our business model or changes in operating performance.

 

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

 

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

 

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

 

**9.****Interestand other income / (expense)**

 

Wehad the following interest and other income amounts:

 
| ** **                              | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|-----------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                              | ** ** | **2009**                                             | ** ** | **2008**                                            | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                    |       |                                                 |       |                                                |       |   |   |   |   |
| Impairment loss on Eurindia             |       | $                                                    | —     |                                                | $          | — |   | $ | (176 | ) | $ | — |   |
| Impairment loss on HipCricket           |       | 38                                                   |       | —                                              |       | (701 | ) | — |   |
| Impairment loss on XShares              |       | —                                               |       | —                                              |       | (230 | ) | — |   |
| Loss on other marketable securities     |       | —                                               |       | —                                              |       | (37 | ) | — |   |
| Interest income                         |       | 117                                                  |       | 646                                                 |       | 306 |   | 1,791 |   |
| Currency gain on short term investments |       | 401                                                  |       | 3,819                                               |       | 401 |   | 3,819 |   |
| Total                                   |       | $                                                    | 556        |                                                | $          | 4,465 |   | $ | (437 | ) | $ | 5,610 |   |

 

Thegain / (loss) on marketable securities relates to losses considered other thantemporary on our holdings in HipCricket and other marketable securities andrealized losses on other marketable securities.

 

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

 

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**10. Comprehensive income(loss)**

 

Comprehensiveincome (loss) includes net income (loss) and items defined as othercomprehensive income.  Items defined as other comprehensive income, suchas foreign currency translation adjustments and unrealized gains and losses oncertain marketable securities are separately classified in the financialstatements.  Such items are reported in the consolidated statements ofstockholders’ equity as comprehensive income as follows:

 
| ** **                                                             | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                             | ** ** | **2009**                                             | ** ** | **2008**                                            | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                   |       |                                                 |       |                                                |       |   |   |   |   |
| Net loss as  reported                                                  |       | $                                                    | (3,714     | )                                                   | $          | (1,890 | ) | $ | (26,137 | ) | $ | (15,335 | ) |
| Unrealized  foreign exchange (loss) gain                               |       | (748                                                 | )          | (4,077                                              | )          | 1,429 |   | (4,150 | ) |
| Unrealized  gain (loss) on marketable securities                       |       | (38                                                  | )          | 178                                                 |       | — |   | 77 |   |
| Comprehensive  loss                                                    |       | (4,500                                               | )          | (5,789                                              | )          | (24,708 | ) | (19,408 | ) |
| Comprehensive  loss attributable to non-controlling interest           |       | 1,393                                                |       | 590                                                 |       | 3,444 |   | 5,120 |   |
| Comprehensive  loss attributable to MGT Capital Investments, Inc. |       | $                                                    | (3,107     | )                                                   | $          | (5,199 | ) | $ | (21,264 | ) | $ | (14,288 | ) |

 

Theunrealized foreign exchange loss predominantly relates to the movement, in thethree and nine month periods ended September 30, 2009, on the differencebetween Medicsight’s net assets translated at the period end rate and reservestranslated at historical rates.

 

Thetotal accumulated other comprehensive loss as of September 30, 2009 is theresult of net foreign currency translation losses.

 

**11.****Segment reporting**

 

Operatingsegments are defined as components of an enterprise about which separatefinancial information is available that is evaluated regularly by the chiefoperating decision maker, or decision-making group, in deciding how to allocateresources and in assessing performance.  Our chief operating decision-makinggroup is composed of the Chief Executive Officer and members of seniormanagement.  Our reportable operating segments are Medicsight andMedicexchange.

 

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

 

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

 

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

 
| ** **                                    | ** ** | **Medicsight  plc** | ** ** | **Medicsight  plc**       | ** ** | **Medicsight  plc** | ** ** | **Medicexchange**  | ** ** | **Corporate  and Other** | ** ** | **Total**          | ** ** |
|-----------------------------------------------|------------|---------------------|------------|---------------------------|------------|---------------------|------------|--------------------|------------|-------------------------------|------------|--------------------|------------|
| ** **                                    | ** ** | **(IFRS)**          | ** ** | **GAAP Adj’ts** | ** ** | **(US GAAP)**  | ** ** | **(US GAAP)** | ** ** | **(US GAAP)**            | ** ** | **(US GAAP)** | ** ** |
|                                          |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| **Nine months ended September 30, 2009** |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| Net revenue  to external customers            |       | $                   | 146        |                      | $          | —              |       | $                  | 146        |                          | $          | 37                 |       | $ | — |   | $ | 183 |   |
| Operating  loss                               |       | (10,183             | )          | 143                       |       | (10,040             | )          | (843               | )          | (14,817                       | )          | (25,700            | )          |
| Assets                                        |       | $                   | 21,350     |                      | $          | —              |       | $                  | 21,350     |                          | $          | 2,383              |       | $ | 7,842 |   | $ | 31,575 |   |
|                                          |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| **Nine months ended September 30, 2008** |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| Net revenue  to external customers            |       | $                   | 113        |                      | $          | —              |       | $                  | 113        |                          | $          | 144                |       | $ | — |   | $ | 257 |   |
| Operating  loss                               |       | (14,225             | )          | (263                      | )          | (14,488             | )          | (2,970             | )          | (3,487                        | )          | (20,945            | )          |
| Assets                                        |       | $                   | 39,946     |                      | $          | —              |       | $                  | 39,946     |                          | $          | 3,017              |       | $ | 29,027 |   | $ | 71,990 |   |

 

The principalGAAP adjustments are the accounting for stock options and cumulativetranslation adjustments.

 

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

 

**12. Stock-basedcompensation**

 

We have issuedstock options from MGT and our principal subsidiary companies, Medicsight andMedicexchange.

 

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*MGT stock option plan*

 

On December 5,2007 we approved the 2007 MGT stock option plan and granted options for1,975,000 shares under this plan.  At September 30, 2009 there were1,975,000 options outstanding and 658,333 of the options issued wereexercisable.  Options issued under this plan vest in equal one-thirdsafter employees have been employed for 12, 24 and 36 months from the date ofgrant.

 

*Medicsight stock option plans*

 

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

 

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

 

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

 

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

 

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

 

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

 

PlanF - on May 16, 2007 we approved and subsequently granted options for350,000 shares under stock option plan “F”.  Options under this plan vestin equal one-thirds after employees have been employed for 12, 24 and 36 monthsfrom the grant date.  At September 30, 2009 there were 50,000 optionsoutstanding and 33,333 of the options issued were exercisable.

 

PlanG - on December 18, 2007 we approved and subsequently granted options for3,025,000 shares under stock option plan “G”.  Options under this planvest in equal one-thirds after employees have been employed for 12, 24 and 36months from the grant date.  At September 30, 2009 there were 241,667options outstanding and 141,667 of the options issued were exercisable.

 

PlanH - on June 2, 2008 we approved and subsequently granted options for750,000 shares under stock option plan “H”. Options under this plan vest in equal one thirds after employees havebeen employed for 12, 24 and 36 months from the grant date.  At September 30,2009 there were no options outstanding.

 

PlanI - on December 16, 2008 we approved and subsequently granted options for1,805,000 shares under stock option plan “I”. Options under this plan vest inequal one thirds after employees have been employed for 12, 24 and 36 monthsfrom the grant date.  At September 30, 2009 125,000 options wereoutstanding, none of which were exercisable.

 

PlanJ - on May 14, 2009 we approved and subsequently granted options for7,848,750 shares under stock option plan “J”. Options under this plan vest in equal one sixths after employees havebeen employed for 6, 12, 18, 24, 30 and 36 months from the grant date.  AtSeptember 30, 2009 there were 7,643,750 options were outstanding, none ofwhich were exercisable.

 

PlanK - on May 20, 2009 we approved and subsequently granted options for300,000 shares under stock option plan “K”. Options under this plan vest in equal one thirds on June 30, 2009, September 30,2009 and December 31, 2009.  At September 30,2009 there were 300,000 options were outstanding and 200,000 of the optionswere exercisable.

 

*Medicexchange stock option plans*

 

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

 

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

 

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

 

Theassumptions used in the Black-Scholes option valuation model used in thecalculation of grant date fair value for the above options are highlysubjective and can materially affect the resulting valuation.  These assumptions are based on multiple factorsincluding United Kingdom treasury bonds for the risk-free rate at the time ofgrant, expected future exercising patterns (we cannot base the estimate on thehistorical exercise patterns as no options have been exercised) and thevolatility of the MGT stock price.

 

The followingassumptions were used to estimate fair value:

 
| ** **                | ** ** | **Nine months ended  September 30** | ** ** |
|---------------------------|------------|------------------------------------------|------------|
| ** **                | ** ** | **2009**                                 | ** ** | **2008** | ** ** |
|                      |       |                                     |       |   |   |
| Dividend  yield           |       | 0%                                       |       | 0% |   |
| Expected  volatility      |       | 105%                                     |       | 39% |   |
| Risk-free  rate           |       | 3.89%                                    |       | 5.00% |   |
| Expected  life of options |       | 6.75 years                               |       | 3.00 years |   |

 

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

 
| ** **                             | ** ** | **Outstanding**            | ** ** | **Exercisable**                             | ** ** |
|----------------------------------------|------------|----------------------------|------------|---------------------------------------------|------------|
| ** **                             | ** ** | **Number of  shares** | ** ** | **Weighted-  average  exercise price** | ** ** | **Number of  shares** | ** ** | **Weighted-  average  exercise price** | ** ** |
|                                   |       |                       |       |                                        |       |   |   |   |   |   |   |   |   |
| Outstanding at December 31, 2008  |       | 16,137,500                 |       | £                                      | 0.91       |   | $ | 1.31 |   | 5,679,166 |   | £ | 0.98 |   | $ | 1.42 |   |
|                                   |       |                       |       |                                        |       |   |   |   |   |   |   |   |   |
| Granted                                |       | 8,148,750                  |       | 0.09                                        |       | 0.13 |   |   |   |   |   |   |   |
| Exercised                              |       | —                     |       | —                                      |       | — |   |   |   |   |   |   |   |
| Forfeited                              |       | (11,889,166                | )          | 0.68                                        |       | 1.08 |   |   |   |   |   |   |   |
|                                   |       |                       |       |                                        |       |   |   |   |   |   |   |   |   |
| Outstanding at September 30, 2009 |       | 12,397,084                 |       | £                                      | 0.55       |   | $ | 0.87 |   | 2,781,670 |   | £ | 0.99 |   | $ | 1.58 |   |

 

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

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

 

OnMay 14, 2009 we approved Medicsight Plan J. Employees who were employed onMay 14, 2009 were given the opportunity to forfeit all their existingoptions in Plans A through I and, in their place, receive in Plan J 50% of thenumber of forfeited options.  We 

 

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

 

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

 

We recordedthe following amounts related to stock-based expenses in the Statement ofOperations for the following periods:

 
| ** **                           | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                           | ** ** | **2009**                                             | ** ** | **2008**                                            | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Selling,  general and administrative |       | $                                                    | 484        |                                                | $          | 700 |   | $ | 1,449 |   | $ | 2,492 |   |
|                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Research and  development            |       | 14                                                   |       | 42                                                  |       | 78 |   | 130 |   |
|                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Total                                |       | $                                                    | 498        |                                                | $          | 742 |   | $ | 1,527 |   | $ | 2,622 |   |

 

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

 

Nocompensation costs were capitalized.

 

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

 

A summary ofnon-vested options at September 30, 2009 and the change during the ninemonths ended September 30, 2009 is presented below:

 
| ** **                             | ** ** | **Number of  Options** | ** ** | **Weighted Average  Grant Date Fair  Value** | ** ** |
|----------------------------------------|------------|-----------------------------|------------|-------------------------------------------------------------|------------|
|                                   |       |                        |       |                                                        |       |   |   |
| Non-vested  at January 1, 2009    |       | 10,458,334                  |       | £                                                      | 0.35       |   | $ | 0.51 |   |
| Granted                                |       | 8,148,750                   |       | £                                                      | 0.24       |   | $ | 0.38 |   |
| Vested                                 |       | (2,308,315                  | )          | £                                                      | 0.24       |   | $ | 0.38 |   |
| Forfeited                              |       | (6,683,355                  | )          | £                                                      | 0.29       |   | $ | 0.46 |   |
| Non-vested  at September 30, 2009 |       | 9,615,414                   |       | £                                                      | 0.35       |   | $ | 0.56 |   |

 

AtSeptember 30, 2009 there was $4,351 of total unrecognizedcompensation cost related to non-vested stock-based compensation arrangementsgranted under the option plans.

 

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

 

**13.****Non-controllinginterest**

 

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

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

 

**14. Related PartyTransactions**

 

TimPaterson-Brown, our Chief Executive Officer, is a non-executive director ofAccsys Technologies plc, which has a subsidiary company Titan WoodLimited.  Titan Wood Limited rents spacein 66 Hammersmith Road.  In the ninemonth period ended September 30, 2009 and 2008 respectively, $194 and $79of office related costs were recharged to Titan Wood Limited.  At September 30, 2009 there was abalance receivable from Titan Wood Limited of $66 of which $12 remains unpaidas of November 5, 2009.  Thisis payable within 30 days under the terms of the invoice.

 

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

 

**15. Commitments**

 

*Lease Commitments andSecurity Deposit*

 

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

 

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

 

Thefollowing is a schedule of the future minimum rental payments required underoperating leases that have initial or remaining non-cancellable terms in excessof one year:

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

 

*Other commitments*

 

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

 

**16. Subsequent events**

 

We evaluated subsequent events and their potential impact on our resultsof operations, financial position and disclosures, from the balance sheet datethrough November 12, 2009.

 

On October 8, 2009 MGT Capital InvestmentsLimited, a company incorporated in England and Wales (“MGT UK”), and a whollyowned subsidiary of MGT Capital Investments, Inc., entered into anagreement (the “Subscription Agreement”, attached hereto as Exhibit 10.9)with Moneygate Group Limited, a company incorporated in England and Wales (“Moneygate”),pursuant to which MGT UK acquired 9,607,843 ordinary shares of Moneygate,representing 49% of Moneygate’s issued and outstanding share capital, for thesum of £96.08 ($155).  (The considerationstated here is not in ‘000s).  Concurrentwith the acquisition, MGT UK entered into two loan facilities withMoneygate.  The first facility provides for a twelve-month nointerest working capital loan from MGT UK to Moneygate in the amount of £250($402) (figures are stated in ‘000s) (attached hereto as Exhibit 10.10).  Thedefault rate of interest is 7% per year.  The second facilityprovides for a secured term loan facility of £2,000 ($3,208) (figures arestated in ‘000s) (attached hereto as Exhibit 10.11) from MGT UK toMoneygate to be used by Moneygate for acquisitions of financial advisorycompanies.  Such acquisitions must be approved by MGT UK in writingand such approval may not be unreasonably withheld or delayed.  The termof the second facility is the earlier of (i) three years from theeffective date of October 8, 2009, or (ii) the date upon which MGT UKceases to be a shareholder of Moneygate.  Interest accrues at therate of 5% per year on any money drawn from the AcquisitionFacility.  The default rate of interest is 7% per year.

 

There are no material relationships between the MGTCapital Investments, Inc. and Moneygate, or each of its respectiveaffiliates, and any of the parties to the Transaction Documents, other than in respect of the TransactionDocuments.

 

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

 

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

 

Thisquarterly report on Form 10-Q contains forward-looking statements made inreliance upon the safe harbor provisions of Section 27A of the SecuritiesAct of 1933, as amended, and Section 21E of the Securities Exchange Act of1934, as amended.  These statements may be identified by the use of wordssuch as “anticipate”, “estimates”, “should”, “expect”, “guidance”, “project”, “intend”,“plan”, “believe” and other words and terms of similar meaning, in connectionwith any discussion of our financial statements, business, results ofoperations, liquidity and future operating or financial performance. Please also refer to our “Note Regarding Forward Looking Statements” at thefront of this Form.

 

**Executive summary**

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

*Goodwillimpairment*

 

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

 

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

 

Theestimate of future cash flow is based upon, among other things, certainassumptions about expected future operating performance and an appropriatediscount rate determined by our management.  Our estimates of discountedcash flows may differ from actual cash flows due to, among other things,timings of regulatory approvals, economic conditions in the healthcare ITmarket, changes to our business model or changes in operating performance.

 

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

 

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

 

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

 

**Critical accounting policies andestimates**

 

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

 

Webelieve the following policies to be the most critical to an understanding ofour financial condition and results of operations because they require us tomake estimates, assumptions and judgments about matters that are inherentlyuncertain.

 

*Revenuerecognition*

 

*Medicsight*

 

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

 

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

 

Welicense software and sell maintenance through visualization solution partnersand original equipment manufacturers.  Wereceive regular sales reporting detailing the number of licenses sold byoriginal equipment manufacturers, value-added resellers and independentdistributors (collectively, “Resellers”) to end users.  We generally offer terms that require payment30 days from invoicing.

 

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

 

Additionally:

 

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

 

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

 

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

 

*Medicexchange*

 

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

 

*Goodwill*

 

Goodwilland intangible assets with indefinite lives are reviewed for impairmentannually or more frequently if events or changes in circumstances indicate thatthe asset might be impaired.  The firststep of the goodwill impairment test, used to identify potential impairment,compares the fair value of a reporting unit with its carrying amount, includinggoodwill.  We compare the book value tothe market value 

 

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

 

*Equity-based compensation*

 

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

 

Thefair value of each option award is estimated on the date of grant using theBlack-Scholes option valuation model. The Black-Scholes option valuation model requires the development ofassumptions that are input into the model. These assumptions are the expected stock volatility, the risk-freeinterest rate, the option’s expected life and the dividend yield on theunderlying stock. Expected volatility is calculated based on the historicalvolatility of our common stock over the expected option life and otherappropriate factors.  Risk-free interestrates are calculated based on continuously compounded risk-free rates for theappropriate term.  The dividend yield isassumed to be zero as we have never paid or declared any cash dividends on ourcommon stock and do not intend to pay dividends on our common stock in theforeseeable future.  The expectedforfeiture rate is estimated based on historical experience.

 

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

 

*Research anddevelopment*

 

Weincur costs incurred in connection with the development of software productsthat are intended for sale.  Costsincurred prior to technological feasibility being established for the productare expensed as incurred.  Technologicalfeasibility is established upon completion of a detail program design or, inits absence, completion of a working model. Thereafter, all software production costs are capitalized andsubsequently reported at the lower of unamortized cost or net realizablevalue.  Capitalized costs are amortizedbased on current and future revenue for each product with an annual minimumequal to the straight-line amortization over the remaining estimated economiclife of the product.  Amortizationcommences when the product is available for general release to customers.

 

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

 

*Fair valueof financial instruments*

 

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

 

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

 

Weevaluate the carrying value of long-lived assets for impairment whenever eventsor changes in circumstances indicate that the carrying amount of an asset maynot be recoverable.  Our assessment forimpairment of an asset involves estimating the undiscounted cash flows expectedto result from use of the asset and its eventual disposition.  An impairment loss recognized is measured asthe amount by which the carrying amount of the asset exceeds the fair value ofthe asset.

 

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

 

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**Results ofoperations**

 

*Revenue andgross profit*

 

Wehave generated revenues of $183 and gross profit of $180 for the nine monthsended September 30, 2009, compared to $257 and $141 for the nine monthsended September 30, 2008.  Medicsight increased revenues in theperiod and Medicexchange’s decreased.

 

Medicsight has sold licenses in Europe where it has regulatoryapprovals.

 

Medicexchange generated revenue from advertising sales in China and theUSA.

 

*Operatingexpenses*

 

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

 

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

 

·                  People relatedcosts have decreased by $2,146 (30%) due to a reduced head count in bothMedicexchange and Medicsight, a lower provision for bonus costs, reducedrecruitment costs and the effect of the fall in the value of sterling againstthe dollar;

 

·                  Stock optioncharges have decreased by $1,096 (42%) in the nine months to September 30,2009 due to the effect of modifications made to plans in the first half of2008, pushing up the cost in that period, and the fall in the value of sterlingagainst the dollar; and

 

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

 

Atthe end of the quarter ended March 31, 2009 we implemented a redundancyprogram in Medicsight to reduce costs.  As a consequence, we expect peoplerelated costs to continue to decrease.

 

Followingan impairment review in the three months ended March 31 2009, we fullyimpaired $12,157 of goodwill relating to Medicsight.  There was no impairment charge in the ninemonths ended September 30, 2008.  Asexplained in the executive summary, we based our fair value measurements on themarket price of Medicsight shares listed on the AIM Market of the London StockExchange as of March 31, 2009.

 

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

 

Interestin the nine months ended September 30, 2008 was an income figure asopposed to an expense in the nine months ended September 30, 2009 due tothe higher levels of cash held, higher interest rates, investment gains ratherthan impairments and the timing of foreign exchange gains in a subsidiarycompany.

 

*Income tax*

 

Oureffective tax rate for the nine months ended September 30, 2009 is0%.  The difference in our effective tax rate from the federal statutoryrate is primarily due to a 100% valuation allowance provided for all deferredtax assets.

 

*Net loss andnet loss per share*

 

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

 

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

 

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

 

Theincrease in net loss between the nine months ended September 30, 2008 andthe nine months ended September 30, 2009 was predominantly due to thegoodwill impairment in the three months ended March 31, 2009.

 

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

 

*Operationalcurrency*

 

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

 

**Operatingresults by business segment**

 

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

 

**Medicsight**

 
| ** **                                                | ** ** | **Three months ended September 30,** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                | ** ** | **2009**                                  | ** ** | **2008** | ** ** |
|                                                      |       |                                      |       |   |   |
| Revenue                                                   |       | $                                         | 45         |   | $ | 25 |   |
| Selling, general and administration costs                 |       | 2,566                                     |       | 3,366 |   |
| Research and development                                  |       | 340                                       |       | 1,558 |   |
| Operating expense                                         |       | (2,906                                    | )          | (4,924 | ) |
| Stock-based compensation (included in operating expenses) |       | (254                                      | )          | (476 | ) |
| Operating loss                                            |       | (2,861                                    | )          | (4,899 | ) |
| Interest and other income                                 |       | 412                                       |       | 4,299 |   |
|                                                           |            |                                           |            |  |  |  |  |

 
| ** **                                                | ** ** | **Nine months ended September 30,** | ** ** |
|-----------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                | ** ** | **2009**                                 | ** ** | **2008** | ** ** |
|                                                      |       |                                     |       |   |   |
| Revenue                                                   |       | $                                        | 146        |   | $ | 113 |   |
| Selling, general and administration costs                 |       | 8,516                                    |       | 11,816 |   |
| Research and development                                  |       | 1,670                                    |       | 2,785 |   |
| Operating expense                                         |       | (10,186                                  | )          | (14,601 | ) |
| Stock-based compensation (included in operating expenses) |       | (865                                     | )          | (1,677 | ) |
| Operating loss                                            |       | (10,040                                  | )          | (14,488 | ) |
| Interest and other income                                 |       | 466                                      |       | 5,035 |   |
|                                                           |            |                                          |            |  |  |  |  |

 
| ** ** | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|------------|------------|------------------------------|------------|-----------------------------|------------|
|       |       |                         |       |                        |       |
| Cash       |       | $                            | 19,638     |                        | $          | 26,624 |   |
| Net assets |       | 18,667                       |       | 25,302                      |       |
|            |            |                              |            |                             |            |  |  |

 

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

 

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

 

Atthe end of the first quarter of 2009 we streamlined Medicsight’s operations andreduced staff numbers to forty-five in order to reduce our operating costs andcash flow.   This, together with thefall in the value of sterling, has resulted in the reduction in operatingexpenses in the nine months ended September 30, 2009.

 

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Researchand development is made up of staff, staff related consultancy, stock optionsand product development software costs expensed on the research and developmentof Medicsight’s products.  This hasdecreased compared to the comparative periods in 2008 due to the timing ofcertain stages of MedicRead’s development and reduced headcount.

 

Inlocal currency terms, bonus charges fell as we believe that, after the redundancyprogram in Medicsight, any potential year end performance related bonuseswould, in total, be lower than in the previous year.

 

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

 

Interestand other income was generated by returns on the investment of the proceedsfrom the IPO in June 2007.  Interest income has fallen in the firstthree quarters of 2009 compared to the same period in 2008 as the level of cashinvested was lower, combined with lower investment returns due to significantlylower interest rates.  Significantly, in the third quarter of 2008, cashheld in dollars in Medicsight produced a foreign exchange gain of $3,819compared to $401 in the three months ended September 30, 2009.

 

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

 

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

 

**Medicexchange**

 
| ** **                                                | ** ** | **Three months ended September 30,** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                | ** ** | **2009**                                  | ** ** | **2008** | ** ** |
|                                                      |       |                                      |       |   |   |
| Revenue from external customers                           |       | $                                         | 17         |   | $ | 95 |   |
| Cost of revenue                                           |       | (1                                        | )          | (85 | ) |
| Gross profit                                              |       | 16                                        |       | 10 |   |
| Operating expenses                                        |       | (237                                      | )          | (879 | ) |
| Operating loss                                            |       | (221                                      | )          | (869 | ) |
| Stock-based compensation (included in operating expenses) |       | 14                                        |       | 6 |   |
|                                                           |            |                                           |            |  |  |  |  |

 
| ** **                                                | ** ** | **Nine months ended September 30,** | ** ** |
|-----------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                | ** ** | **2009**                                 | ** ** | **2008** | ** ** |
|                                                      |       |                                     |       |   |   |
| Revenue from external customers                           |       | $                                        | 37         |   | $ | 144 |   |
| Cost of revenue                                           |       | (3                                       | )          | (116 | ) |
| Gross profit                                              |       | 34                                       |       | 28 |   |
| Operating expenses                                        |       | (877                                     | )          | (2,998 | ) |
| Operating loss                                            |       | (843                                     | )          | (2,970 | ) |
| Stock-based compensation (included in operating expenses) |       | (22                                      | )          | (158 | ) |
|                                                           |            |                                          |            |  |  |  |  |

 
| ** **        | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|-------------------|------------|------------------------------|------------|-----------------------------|------------|
|              |       |                         |       |                        |       |
| Cash              |       | $                            | 1,202      |                        | $          | 1,322 |   |
| Net (liabilities) |       | (2,513                       | )          | (1,412                      | )          |
|                   |            |                              |            |                             |            |  |  |

 

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

 

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

 

Stock-basedcompensation has fallen due to modifications to plans made in 2008 not beingrepeated in 2009 and the reduction in headcount meaning fewer options willvest.

 

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

 

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**Liquidity and capital resources**

 

*Working capital information*

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

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

 

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

 

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

 

*Valuation ofinvestments held at fair value*

 

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

 

Asof September 30, 2009 we therefore have no investments accounted for asmarketable securities.

 

*Impairment review of EurindiaLimited*

 

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

 

In2000 MGT invested in Eurindia Limited (“Eurindia”), a UK company that investedin IT start-up companies.  MGT has a 6% holding in Eurindia and accountsfor this investment on a cost basis. During 2007 we received two dividendstotaling $423 ($0.72 per share) which we recorded in Other Income.

 

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

 

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

 

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*Investment in XShares Group, Inc.*

 

In2007 we invested $960 in Series C preferred shares of XShares Group, Inc.(“XShares”), an investment advisor that creates, issues and supports exchangetraded funds with a particular healthcare specialty.  In the year ended December 31, 2008 weinvested an additional $2,040 in shares of XShares bringing the total investedto $3,000.  We account for theseinvestments on a cost basis as our total holdings are less than 20%.  In Fiscal 2008 we reviewed the carrying valueof our investment in XShares.  XShareswas in the process of attempting to raise funds to drive the businessforward.  As of December 31, 2008 weimpaired this investment to $600.  As of June 30, 2009 thefund-raising was partially complete and, after reviewing our holding, weimpaired the investment to $370, which we believe approximates fair value.  As of September 30, 2009 thefund-raising was continuing and, on review, we have kept XShares’ book value at$370.

 

Weestimated these impairments based on management’s review and discussion of thestrategy and business plan of XShares and review of draft Fiscal 2008 financialaccounts prepared by an independent accountant. These inputs are subject to management’s judgment and we have thereforedeemed them to be Level 3 inputs in the fair value hierarchy.  The value of our investment has been reducedas previously invested cash has been used to fund business operations and asyet the business is not generating sufficient cash.  However, we have reviewed XShares’ businessplan and we have adjusted our investment to a level we believe reflects thefuture market valuation and with no active market we believe this is the mostsuitable method with which to determine the value of our investment.

 

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

 

Simultaneouslywith executing the Note, we entered into a Securities Purchase Agreement (the “SPA”)with XShares, pursuant to which we agreed to purchase an aggregate of73,943,662 Series B Shares at a purchase price of $0.0284 per share for atotal of $2,100.

 

On August 5,2009 we signed an Amendment to the SPA with XShares which, among otherconditions, extended the date of the first closing to December 31, 2009. A copyof the Amendment is attached as Exhibit 10.6 to our quarterly report on Form10-Q for the three months ended June 30, 2009.

 

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

 

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

 

*HipCricket Inc.*

 

Wehold shares in HipCricket Inc. (“HipCricket”), a company engaged in mobilemarketing.  In the three months ended September 30,2009 HipCricket was delisted from the AIM Market and we now account for it asan investment held at cost.  Analyzingpublished financial and other information we reviewed the book value of the investmentand decided that there was no need to impair its value.

 

*Investment in Medicsight*

 

Ourcondensed consolidated financial statements include the results and financialcondition of our subsidiary, Medicsight.  Our holding in Medicsight is86,000,000 shares out of Medicsight’s issued share capital of 155,524,504shares.

 

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

 

Asof November 5, 2009 Medicsight’s share price was £0.11 ($0.18) valuing theCompany’s investment at £9,460 ($15,634), assuming a $:£ exchange rate of1.6526.

 

*Risks and uncertainties related toour future capital requirements*

 

Todate we have primarily financed our operations through private placements ofequity securities.  To the extent that additional capital is raisedthrough the sale of equity or equity-related securities of the Company or itssubsidiaries, the issuance of such securities could result in dilution to ourstockholders.

 

Noassurance can be given, however, that we will have access to the capitalmarkets in the future, or that financing will be available on acceptable termsto satisfy our cash requirements to implement our business strategies.

 

Ifwe are unable to access the capital markets or obtain acceptable financing, ourresults of operations and financial conditions could be materially andadversely affected.  We may be required to raise substantial additionalfunds through other means.

 

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

 

Ifadequate funds are not available to us, we may be required to curtailoperations significantly or to obtain funds through entering into arrangementswith collaborative partners or others that may require us to relinquish rightsto certain of our technologies or products that we would not otherwiserelinquish.

 

*Commitments*

 

OnAugust 25, 2006 we executed a 10-year agreement with Pirbright HoldingsLimited, to lease 8,787 square feet of office space at the Kensington Centre,66 Hammersmith Road, London W14 8UD, United Kingdom.

 

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

 

Wehave satellite offices in Tokyo (Japan) and Beijing (China) — which are onthree and two year rental agreements respectively.

 

InJuly 2008 we entered into an agreement with a partner to developinterfaces for our software.  We have committed to pay Euros 1,445 ($2,109)over an expected thirty-six month period.  As at September 30, 2009we have paid Euros 995 ($1,451).  These payments will be recovered againstfuture royalty payments, should the products be successfully commercialized.

 

The following table analyzes our contractual obligations.

 
| ** **                       | ** ** | **Payments due by period** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| **Contractual obligations** | ** ** | **Total**                                 | ** ** | **Less than 1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** |
| Operating lease obligations      |       | $                                         | 1,105      |   | $ | 671 |   | $ | 432 |   | $ | 2 |   |
| Purchase obligations             |       | 657                                       |       | 657 |   | — |   | — |   |
|                             |       |                                      |       |   |   |   |   |   |   |
| Total                            |       | $                                         | 1,762      |   | $ | 1,328 |   | $ | 432 |   | $ | 2 |   |

 

**Recent accounting pronouncements**

 

In June 2009 the Financial Accounting Standards Board (“FASB”)approved the FASB Accounting Standards Codification (the “Codification”) as thesingle source of authoritative non-governmental GAAP.  All existing accounting standard documents,such as FASB, American Institute of Certified Public Accountants, EmergingIssues Task Force and other related literature, excluding guidance from theSecurities and Exchange Commission, will be superseded by the Codification.  All other non-grandfathered, non-SECaccounting literature not included in the Codification will becomenon-authoritative.  The Codification doesnot change GAAP, but instead introduces a new structure that will combine allauthoritative standards into a comprehensive, topically organized onlinedatabase.  The Codification is effectivefor interim or annual periods ending after September 15, 2009, and hasimpacted the Company’s financial statement disclosures beginning with thequarter ending September 30, 2009 as all references to authoritativeaccounting literature are referenced in accordance with the Codification.  There are no changes to the content of ourconsolidated financial statements or disclosures as a result of implementingthe Codification

 

Effective January 1, 2008, the we adopted FASB ASC 820-10, “*Fair Value Measurements and Disclosures — Overall”* with respect to its financial assets andliabilities. In February 2008, the FASB issued updated guidance related tofair value measurements, which is included in the Codification in ASC820-10-55, “*Fair Value Measurements andDisclosures — Overall — Implementation Guidance and Illustrations”*.The updated guidance provided a one year deferral of the effective date of ASC820-10 for non-financial assets and non-financial liabilities, except thosethat are recognized or disclosed in the financial statements at fair value atleast annually. Therefore, the Company adopted the provisions of ASC 820-10 fornon-financial assets and non-financial liabilities effective January 1,2009, and such adoption did not have a material impact on our consolidatedfinancial statements.

 

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

 

Effective April 1, 2009, the Company adopted FASB ASC 820-10-65, “*Fair Value Measurements and Disclosures — Overall —Transition and Open Effective Date Information”*. ASC 820-10-65provides additional guidance for estimating fair value in accordance with ASC820-10 when the volume and level of activity for an asset or liability havesignificantly decreased. ASC 820-10-65 also includes guidance on identifyingcircumstances that indicate a transaction is not orderly. The adoption of ASC820-10-65 did not have a material impact on our consolidated financialstatements.

 

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

 

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

 

**Item 3.****             Quantitative and qualitativedisclosures about market risk**

 

*Interest rate risk*

 

Ourexposure to market rate risk for changes in interest rates relates primarily toour investment portfolio.  We place our investments in a mixture of cashdeposits and available-for-sale market securities.  A one percent movement in interest rate wouldresult in approximately $269 change in interest income.

 

We do not have any debt and we do not use derivative financialinstruments.

 

*Foreign exchange risk*

 

Weare exposed to foreign currency exchange rate fluctuations related to theoperation of our international subsidiaries.  Our main operating currencyis UK sterling.  We also have subsidiary operations in Japan and China whooperate in their local currencies.

 

Ouroperating costs in Fiscal 2008 were predominantly in UK sterling; we do notforesee any change in the fourth quarter of 2009 or Fiscal 2010.  A ten percent increase or decline in the USdollar exchange rate against all foreign currencies would have created adecrease or increase in our operating costs in the nine months ended****September 30, 2009 of approximately$1,145.

 

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

 

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

 

We currently do not hedge against this foreign currency risk.

 

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

 

**Item 4T.            Controls and procedures**

 

*Evaluation of disclosure controls and procedures*

 

Managementof the Company, including the Chief Executive Officer and the Chief FinancialOfficer, evaluated the effectiveness of the design and operation of the Company’sdisclosure controls and procedures (as such term is defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934) as of the end of theperiod covered by this report. Based upon that evaluation, the Company’s ChiefExecutive Officer and the Chief Financial Officer concluded that the Company’sdisclosure controls and procedures were effective as of the end of the periodcovered by this report for the information required to be disclosed by theCompany in the reports it files or submits under the Securities Exchange Act of1934, as amended, to be recorded, processed, summarized and reported within thetime periods specified in the Securities and Exchange Commission’s rules andforms.

 

*Changes in internal control overfinancial reporting*

 

There have not been any changes in the Company’sinternal control over financial reporting (as such term is defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30,2009 that have materially affected, or are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

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**PART II.  OTHER INFORMATION**

 

**Item 1.              Legalproceedings**

 

None.

 

**Item 1A.         Riskfactors**

 

Discussionof our business and operations included in this quarterly report on Form 10-Qshould be read together with the risk factors set forth below.  They describe various risks and uncertaintiesto which we are or may become subject. These risks and uncertainties, together with other factors describedelsewhere in this report, have the potential to affect our business, financialcondition, results of operations, cash flows, strategies or prospects in amaterial and adverse manner.  New risks may emerge at any time, and wecannot predict those risks or estimate the extent to which they may affectfinancial performance.  Each of the risksdescribed below could adversely impact the value of our securities.  Thesestatements, like all statements in this report, speak only as of the date ofthis report (unless another date is indicated), and we undertake no obligationto update or revise the statements in light of future developments.

 

Wecannot assure you that the Company will be successful in commercializing any ofthe Company’s products and, in particular, the Medicsight products or theMedicexchange portal, or if any of the products or the portal arecommercialized, that they will prove to be profitable for the Company.

 

TheCompany has only had a limited operating history and has just commencedgenerating revenue from operations upon which an evaluation of its prospectscan be made.  The Company’s prospectsmust be considered keeping in mind the risks, expenses and difficultiesfrequently encountered in the establishment of a new business in a constantlychanging industry.  There can be noassurance that the Company will be able to achieve profitable operations in theforeseeable future if at all.

 

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

 

**Company specific risks**

 

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

 

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

 

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

 

The market for the MedicsightCAD products and Medicexchange.com may be slower to develop or smaller thanestimated or it may be more difficult to build the market thananticipated.  The medical community mayresist Medicsight CAD and the Medicexchange.com products or be slower to acceptthem than we anticipate.  Revenues fromMedicsight CAD and Medicexchange.com may be delayed or costs may be higher thananticipated which may result in the Company requiring additional funding. Medicsight’s principal route to market is via commercial distributionpartners.  These arrangements aregenerally non-exclusive and have no guaranteed sales volumes orcommitments.  The partners may be slowerto sell our products than anticipated. Any financial, operational or regulatory risks that affect our partnerscould also affect the sales of our products. In the current economic environment, hospitals and clinical purchasingbudgets that are reliant on external debt finance may result in purchasingdecisions being delayed.  If any of thesesituations were to occur this could have a material adverse effect on theCompany’s business, financial condition, results of operations and futureprospects.

 

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

 

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

 

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

 

Thereare a number of groups and organizations, such as software companies in themedical imaging field, MDCT scanner manufacturers, screening companies andother healthcare providers that may develop a competitive offering to theMedicsight CAD products and Medicexchange.com.  In addition, thesecompetitors may have significantly greater resources than MGT.  We cannot make any assurance that they willnot attempt to develop such offerings, that they will not be successful in developingsuch offerings or that any offerings they may develop will not have acompetitive edge over Medicsight CAD products and Medicexchange.com. Withdelayed 

 

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

 

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

 

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

 

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

 

MGT’scorporate structure may make it more difficult or costly to take certainactions.  We conduct our businessthrough: (a) Medicsight, a UK public company which is 55% owned by the MGTCapital Investments, Inc. and through Medicsight’s subsidiaries in theUnited Kingdom, the USA, Japan and Gibraltar; and (b) the Medicexchangesubsidiaries, in which MGT’s holdings range between 75% and 100%. Although MGT, Medicsight and Medicexchange share some directors and management,they are required to comply with corporate governance and other laws and rules applicableto public companies in the United Kingdom and the USA.  Should MGT proposeto take any action, such as a transfer or allocation of assets or liabilitiesbetween MGT and its subsidiaries, MGT would have to take into consideration thepotentially conflicting interests of MGT’s stockholders and the non-controllingstockholders.  This may deter MGT from taking such actions that mightotherwise be in the best interest of MGT or cause MGT to incur additional costsin taking such actions.  The subsidiarycompanies would not be able to pay dividends or make other distributions ofprofits or assets to MGT without making pro-rata payments or distributions tothe respective non-controlling stockholders.  Although neither the subsidiarycompanies nor MGT has plans to pay dividends or make distributions to itsshareholders, MGT’s corporate structure may deter its subsidiaries from doingso in the future.  If at any point we are ultimately unable to resolve anyof these conflicts, this could have a material adverse effect on the Company’sbusiness, financial condition, results of operations and future prospects.

 

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

 

Althoughwe have received patents and have filed patent applications with respect tocertain aspects of our technology, we generally do not rely on patentprotection with respect to our products and technologies.  Instead, we rely primarily on a combinationof trade secret and copyright law, employee and third-party non-disclosureagreements and other protective measures to protect intellectual propertyrights pertaining to our products and technologies.  Such measures may not provide meaningfulprotection of our trade secrets, know-how or other intellectual property in theevent of any unauthorized use, misappropriation or disclosure.  Others may independently develop similartechnologies or duplicate our technologies. In addition, to the extent that we apply for any patents, suchapplications may not result in issued patents or, if issued, such patents maynot be valid or of value.  Third partiescould, in the future, assert infringement or misappropriation claims against uswith respect to our current or future products and technologies, or we may needto assert claims of infringement against third parties.  Any infringement or misappropriation claim byus or against us could place significant strain on our financial resources,divert management’s attention from our business and harm our reputation.  The costs of prosecuting or defending anintellectual property claim could be substantial and could adversely affect ourbusiness, even if we are ultimately successful in prosecuting or defending anysuch claims.  If our products ortechnologies are found to infringe the rights of a third party, we could berequired to pay significant damages or license fees or cease production, any ofwhich could have a material adverse effect on our business.  If a claim isbrought against us, or we ultimately prove unsuccessful on the claims on ourmerits, this could have a material adverse effect on the Company’s business,financial condition, results of operations and future prospects.

 

*We may fail to attract and retain qualified personnel.*

 

Weexpect to rapidly expand our operations and grow our sales, research anddevelopment and administrative operations. This expansion is expected to place a significant strain on ourmanagement and will require hiring a significant number of qualified personnel.  Accordingly, recruiting and retaining suchpersonnel in the future will be critical to our success.  There is intense competition from othercompanies, research and academic institutions, government entities and otherorganizations for qualified personnel in the areas of our activities.  If we fail to identify, attract, retain andmotivate these highly skilled personnel, we may be unable to continue ourmarketing and development activities, and this could have a material adverseeffect on the Company’s business, financial condition, results of operationsand future prospects.

 

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

 

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

 

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*We face risks arising from foreigncurrency exchange.*

 

Asour main operating currency is UK sterling and its financial statements arereported in US dollars, MGT’s assets and liabilities and results of operationsare affected by movements in the $:£ exchange rate.  Should there be largeor unexpected fluctuations in the $:£ exchange rate, this could have a materialeffect on the Company’s business, financial condition, results of operations andfuture prospects.  The Company currently does not engage in hedgingactivities to minimize the effect of adverse movements in the exchange rate.

 

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

 

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

 

**General market risks**

 

*We may not be able to access credit.*

 

Weface the risk that we may not be able to access credit, either from lenders orsuppliers, or have facilities reduced or terminated.  Failure to accesscredit from any of these sources could have a material adverse effect on theCompany’s business, financial condition, results of operations and futureprospects.

 

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

 

Recent global economicconditions, including disruption of financial markets, could adversely affectus, primarily through limiting our access to capital and disrupting our clients’businesses.  In addition, continuation or worsening of general marketconditions in economies important to our businesses may adversely affect ourclients’ level of spending and ability to obtain financing, leading to us beingunable to generate the levels of sales that we require.  Current andcontinued disruption of financial markets could have a material adverse effecton the Company’s business, financial condition, results of operations andfuture prospects.

 

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

 

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

 

**Item 2.              Unregisteredsales of equity securities and use of proceeds**

 

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

 

**Item 3.              Defaultsupon senior securities**

 

None.

 

**Item 4.              Submissionof matters to a vote of security holders**

 

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

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

 

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

 

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

 

**Item 5.              Otherinformation**

 

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

 

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**Item 6.                   ****Exhibits**

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

 

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SIGNATURE

 

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

 
|                   | MGT Capital Investments, Inc. |
|------------------------|------------------------------------|
|                   |                               |   |
|                   |                               |   |
|                   | By:                                | /s/ TIM PATERSON-BROWN |
|                   |                               | Tim Paterson-Brown |
|                   |                               | Chief Executive Officer |
|                   |                               |   |
|                   |                               |   |
|                   | By:                                | /s/ ALLAN ROWLEY |
|                   |                               | Allan Rowley |
|                   |                               | Chief Financial Officer |
|                   |                               |   |
|                   |                               |   |
| November 12, 2009 |                               |   |

 

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