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** **

 

** **

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

| **x**                                                   | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
|                                                    |
| **For the quarterly period ended March 31, 2010.** |
|                                                    |
| **OR**                                                  |
|                                                    |
| **o**                                                   | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For thetransition period from          to       **

 

**Commissionfile number: 0-26886**

 

**MGT CAPITALINVESTMENTS, INC.**

(Exact name of Registrantas specified in its charter)

 

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

 

**KensingtonCentre, 66 Hammersmith Road, London W14 8UD, UNITED KINGDOM**

(Address of principalexecutive offices, including zip code)

 

Registrant’s telephonenumber, 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 May 14, 2010 the registrant had outstanding32,550,590 shares of common stock, $0.001 par value, (excludes 6,349,793 commonshares held as treasury stock).

 

 

 

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NOTE REGARDING FORWARDLOOKING 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 marketdevelopment and acceptance of medical imaging technology; the execution ofrestructuring plans; any statement concerning developments, performance orindustry rankings relating to products or services; any statements regardingfuture economic conditions or performance; any statements of expectation orbelief; and any statements of assumptions underlying any of the foregoing. Therisks, uncertainties and assumptions referred to above include the performanceof contracts by suppliers, customers and partners; employee management issues;the difficulty 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 are otherwisedescribed from time to time in the Company’s Securities and Exchange Commissionreports filed after this report. The Company assumes no obligation and does notintend to update these forward-looking statements.

 

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

 

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**INDEX**

 
| **PART I  — FINANCIAL INFORMATION** |                                                                                                                                    |
|-----------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                    | ** **                                                                                                                              | ** ** |
| Item  1                                       | Condensed  Consolidated Balance Sheets — March 31, 2010 (unaudited) and  December 31, 2009                               | 4 |
|                                          |                                                                                                                                    |   |
|                                          | Condensed Consolidated Statements of Operations — for  the three months ended March 31, 2010 (unaudited) and 2009 (unaudited) | 5 |
|                                          |                                                                                                                                    |   |
|                                          | Condensed Consolidated Statement of Stockholders’  Equity and Comprehensive Loss — March 31, 2010 (unaudited)            | 6 |
|                                          |                                                                                                                                    |   |
|                                          | Condensed Consolidated Statements of Cash Flows — for  the three months ended March 31, 2010 (unaudited) and 2009 (unaudited) | 7 |
|                                          |                                                                                                                                    |   |
|                                          | Notes to Condensed Consolidated Financial Statements                                                                                    | 8 |
|                                          |                                                                                                                                    |   |
| Item 2                                        | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                             | 18 |
|                                          |                                                                                                                                    |   |
| Item 3                                        | Quantitative  and Qualitative Disclosure About Market Risk                                                                              | 25 |
|                                          |                                                                                                                                    |   |
| Item 4T                                       | Controls &  Procedures                                                                                                         | 26 |
|                                          |                                                                                                                                    |   |
| **PART II  — OTHER INFORMATION**    |                                                                                                                                    |
| ** **                                    | ** **                                                                                                                              | ** ** |
| Item 1                                        | Legal Proceedings                                                                                                                       | 27 |
|                                          |                                                                                                                                    |   |
| Item  1A                                      | Risk  Factors                                                                                                                           | 27 |
|                                          |                                                                                                                                    |   |
| Item 2                                        | Unregistered  Sale of Equity Securities and Use of Proceeds                                                                             | 29 |
|                                          |                                                                                                                                    |   |
| Item 3                                        | Defaults  Upon Senior Securities                                                                                                        | 30 |
|                                          |                                                                                                                                    |   |
| Item 4                                        | [Removed and  Reserved]                                                                                                                 | 30 |
|                                          |                                                                                                                                    |   |
| Item 5                                        | Other Information                                                                                                                       | 30 |
|                                          |                                                                                                                                    |   |
| Item  6                                       | Exhibits                                                                                                                                | 30 |
|                                          |                                                                                                                                    |   |
| SIGNATURES                                    | 31                                                                                                                                      |

 

All financial amounts arein thousands except share and per share data.

 

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**MGTCAPITAL INVESTMENTS, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

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

 
| ** **                                                                                                                 | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                 | ** ** | **(unaudited)**          | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                 |       |                     |       |                        |       |
| Current assets:                                                                                                            |       |                     |       |                        |       |
| Cash and cash  equivalents                                                                                                 |       | $                        | 15,600     |                        | $          | 22,165 |   |
| Accounts receivable                                                                                                        |       | 91                       |       | 97                          |       |
| Other receivables —  related party                                                                                    |       | 155                      |       | 105                         |       |
| Prepaid expenses and  other current assets                                                                                 |       | 742                      |       | 620                         |       |
| Deferred consideration  for sale of assets                                                                                 |       | 1,136                    |       | —                      |       |
| Loans receivable —  related party — current                                                                      |       | 791                      |       | 398                         |       |
| Total current assets                                                                                                       |       | 18,515                   |       | 23,385                      |       |
|                                                                                                                       |       |                     |       |                        |       |
| Property and equipment,  at cost, net                                                                                      |       | 270                      |       | 290                         |       |
| Investments, at cost                                                                                                       |       | —                   |       | 224                         |       |
| Security deposits                                                                                                          |       | 371                      |       | 219                         |       |
| Loans receivable —  related party — long term                                                                    |       | 267                      |       | 159                         |       |
| Total assets                                                                                                               |       | $                        | 19,423     |                        | $          | 24,277 |   |
|                                                                                                                       |       |                     |       |                        |       |
| **Liabilities**                                                                                                            |       |                     |       |                        |       |
| Current liabilities:                                                                                                       |       |                     |       |                        |       |
| Accounts payable                                                                                                           |       | $                        | 574        |                        | $          | 916 |   |
| Accrued expenses                                                                                                           |       | 839                      |       | 1,214                       |       |
| Deferred revenue                                                                                                           |       | 101                      |       | 114                         |       |
| Total current  liabilities                                                                                                 |       | 1,514                    |       | 2,244                       |       |
|                                                                                                                       |       |                     |       |                        |       |
| Commitments and  contingencies                                                                                             |       |                     |       |                        |       |
|                                                                                                                       |       |                     |       |                        |       |
| **Stockholders’  equity**                                                                                             |       |                     |       |                        |       |
| Common stock, $0.001  par value: 75,000,000 shares authorized; 38,900,383 shares issued and  32,550,590 shares outstanding |       | 39                       |       | 39                          |       |
| Additional paid in  capital                                                                                                |       | 300,231                  |       | 299,878                     |       |
| Accumulated other  comprehensive loss                                                                                      |       | (5,424                   | )          | (4,549                      | )          |
| Accumulated deficit                                                                                                        |       | (267,962                 | )          | (265,827                    | )          |
|                                                                                                                       |       | 26,884                   |       | 29,541                      |       |
| Treasury stock, at  cost, 6,349,793 shares of common stock                                                                 |       | (18,912                  | )          | (18,912                     | )          |
| Total stockholders’  equity                                                                                           |       | 7,972                    |       | 10,629                      |       |
| Non-controlling  interest                                                                                                  |       | 9,937                    |       | 11,404                      |       |
| Total equity                                                                                                               |       | 17,909                   |       | 22,033                      |       |
|                                                                                                                       |       |                     |       |                        |       |
| Total stockholders’  equity, liabilities and minority interest                                                        |       | $                        | 19,423     |                        | $          | 24,277 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

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**MGTCAPITAL INVESTMENTS, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

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

**(unaudited)**

 
| ** **                                                           | ** ** | **Three months ended March 31,** | ** ** |
|----------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                           | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
| ** **                                                           | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Revenues                                                             |       | $                                                    | 62         |   | $ | 61 |   |
|                                                                 |       |                                                 |       |   |   |
| Operating expenses                                                   |       |                                                 |       |   |   |
| Selling, general and  administrative expenses                        |       | 2,827                                                |       | 3,413 |   |
| Research and  development cost                                       |       | 396                                                  |       | 459 |   |
| Impairment of goodwill                                               |       | —                                               |       | 12,157 |   |
|                                                                 |       | 3,223                                                |       | 16,029 |   |
|                                                                 |       |                                                 |       |   |   |
| Operating loss                                                       |       | (3,161                                               | )          | (15,968 | ) |
|                                                                 |       |                                                 |       |   |   |
| Interest and other  income / (expense), net                          |       | (7                                                   | )          | (698 | ) |
|                                                                 |       |                                                 |       |   |   |
| Net  loss from continuing operations before income tax               |       | (3,168                                               | )          | (16,666 | ) |
|                                                                 |       |                                                 |       |   |   |
| Income  tax benefit                                                  |       | 170                                                  |       | — |   |
|                                                                 |       |                                                 |       |   |   |
| Net loss from  continuing operations before non-controlling interest |       | (2,998                                               | )          | (16,666 | ) |
|                                                                 |       |                                                 |       |   |   |
| Discontinued  operations                                             |       |                                                 |       |   |   |
| Net loss from  operations of Medicexchange, net of income taxes      |       | (234                                                 | )          | (260 | ) |
| Gain on sale of  Medicexchange, net of income taxes                  |       | 149                                                  |       | — |   |
|                                                                 |       | (85                                                  | )          | (260 | ) |
|                                                                 |       |                                                 |       |   |   |
| Net loss before  non-controlling interest                            |       | (3,083                                               | )          | (16,926 | ) |
|                                                                 |       |                                                 |       |   |   |
| Net loss attributable  to non-controlling interest                   |       | 948                                                  |       | 1,596 |   |
|                                                                 |       |                                                 |       |   |   |
| Net loss attributable  to MGT Capital Investments, Inc.         |       | $                                                    | (2,135     | ) | $ | (15,330 | ) |
|                                                                 |       |                                                 |       |   |   |
| Per share data:                                                      |       |                                                 |       |   |   |
|                                                                 |       |                                                 |       |   |   |
| Basic and diluted loss  per share from continuing operations         |       | $                                                    | (0.06      | ) | $ | (0.46 | ) |
| Basic and diluted loss  per share from discontinued operations       |       | (0.01                                                | )          | (0.01 | ) |
|                                                                 |       | $                                                    | (0.07      | ) | $ | (0.47 | ) |
|                                                                 |       |                                                 |       |   |   |
| Weighted average number  of common shares outstanding                |       | 32,550,590                                           |       | 32,550,590 |   |

 

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

 

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**MGT CAPITALINVESTMENTS, INC. AND SUBSIDIARIES**

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

**(inthousands)**

**(unaudited)**

 
| ** **                          | ** ** | **Common stock** | ** ** | **Additional********paid-in** | ** ** | **Accumulated********comprehensive** | ** ** | **Accumulated**   | ** ** | **Treasury** | ** ** | **Total********stockholders’** | ** ** | **Non-********controlling** | ** ** | **Total**    | ** ** |
|-------------------------------------|------------|-----------------------|------------|-------------------------------|------------|--------------------------------------|------------|-------------------|------------|--------------|------------|-------------------------------------|------------|-----------------------------|------------|--------------|------------|
| ** **                          | ** ** | **Shares**            | ** ** | **Amount**                    | ** ** | **capital**                          | ** ** | **income/(loss)** | ** ** | **deficit**  | ** ** | **stock**                           | ** ** | **equity**                  | ** ** | **interest** | ** ** | **equity** | ** ** |
|                                |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| BALANCE,  DECEMBER 31, 2009         |       | 38,900                |       | $                             | 39         |                                 | $          | 299,878           |       | $            | (4,549     | )                                   | $          | (265,827                    | )          | $            | (18,912    | ) | $ | 10,629 |   | $ | 11,404 |   | $ | 22,033 |   |
|                                |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| Stock-based  compensation           |       | —                |       | —                        |       | 353                                  |       | —            |       | —       |       | —                              |       | 353                         |       | 96           |       | 449 |   |
|                                |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| Disposal  of Medicexchange          |       | —                |       | —                        |       | —                               |       | —            |       | —       |       | —                              |       | —                      |       | (233         | )          | (233 | ) |
|                                |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| COMPREHENSIVE  INCOME/(LOSS)        |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
|                                |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| Net  loss / (income) for the period |       | —                |       | —                        |       | —                               |       | —            |       | (2,135       | )          | —                              |       | (2,135                      | )          | (948         | )          | (3,083 | ) |
|                                |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| Translation  adjustment             |       | —                |       | —                        |       | —                               |       | (875              | )          | —       |       | —                              |       | (875                        | )          | (382         | )          | (1,257 | ) |
|                                |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| Total  comprehensive loss           |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       | (3,010                      | )          | (1,330       | )          | (4,340 | ) |
|                                |       |                  |       |                          |       |                                 |       |              |       |         |       |                                |       |                        |       |         |       |   |   |
| BALANCE,  MARCH 31, 2010       |       | 38,900                |       | $                             | 39         |                                 | $          | 300,231           |       | $            | (5,424     | )                                   | $          | (267,962                    | )          | $            | (18,912    | ) | $ | 7,972 |   | $ | 9,937 |   | $ | 17,909 |   |

 

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

 

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**MGTCAPITAL INVESTMENTS, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

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

**(unaudited)**

 
| ** **                                                                   | ** ** | **Three months ended March 31,** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
|                                                                         |       |                                                 |       |   |   |
| Cash flows from operating  activities                                        |       |                                                 |       |   |   |
| Net loss before  non-controlling interest                                    |       | $                                                    | (3,083     | ) | $ | (16,926 | ) |
|                                                                         |       |                                                 |       |   |   |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                                                 |       |   |   |
| Loss from discontinued  operations                                           |       | 234                                                  |       | 260 |   |
| Stock-based  compensation expense                                            |       | 438                                                  |       | 485 |   |
| Depreciation                                                                 |       | 37                                                   |       | 75 |   |
| Accrued interest  receivable                                                 |       | (3                                                   | )          | — |   |
| Loss on impairment of  goodwill                                              |       | —                                               |       | 12,157 |   |
| Loss on impairment of  marketable securities                                 |       | —                                               |       | 764 |   |
| Profit on disposal of  Medicexchange and other investments                   |       | (201                                                 | )          | — |   |
| (Increase)/decrease in  assets                                               |       |                                                 |       |   |   |
| Accounts receivable                                                          |       | (4                                                   | )          | 114 |   |
| Other receivables —  related party                                      |       | (56                                                  | )          | (46 | ) |
| Prepaid expenses and  other current assets                                   |       | (323                                                 | )          | 134 |   |
| Increase/(decrease) in  liabilities                                          |       |                                                 |       |   |   |
| Accounts payable                                                             |       | (314                                                 | )          | (1,999 | ) |
| Accrued expenses                                                             |       | (354                                                 | )          | (95 | ) |
| Deferred revenue                                                             |       | 11                                                   |       | 2 |   |
| Net cash used in  operating activities                                       |       | (3,618                                               | )          | (5,075 | ) |
|                                                                         |       |                                                 |       |   |   |
| Cash flows from  investing activities:                                       |       |                                                 |       |   |   |
| Moneygate loans  receivable                                                  |       | (528                                                 | )          | — |   |
| Cash in Medicexchange  subsidiaries disposed of                              |       | (1,101                                               | )          | — |   |
| Purchase of property,  plant and equipment                                   |       | (33                                                  | )          | (14 | ) |
| Net cash used in  investing activities                                       |       | (1,662                                               | )          | (14 | ) |
|                                                                         |       |                                                 |       |   |   |
| Cashflows of  discontinued operations                                        |       |                                                 |       |   |   |
| Net cash used in  Medicexchange operating activities                         |       | (226                                                 | )          | (334 | ) |
|                                                                         |       |                                                 |       |   |   |
| Effects of exchange  rates on cash and cash equivalents                      |       | (1,059                                               | )          | (265 | ) |
| Net change in cash and  cash equivalents                                     |       | (6,565                                               | )          | (5,688 | ) |
| Cash and cash  equivalents, beginning of period                              |       | 22,165                                               |       | 38,294 |   |
| Cash and cash  equivalents, end of period                                    |       | $                                                    | 15,600     |   | $ | 32,606 |   |

 

*Non cash items*

 

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

 

The accompanyingnotes are an integral part of these condensed consolidated financial statements

 

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**MGTCAPITAL INVESTMENTS, INC.**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(inthousands, 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 three months ended March 31,2010 are not necessarily indicative of the results that may be expectedfor any subsequent quarter or for the year ending December 31, 2010.  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, 2009.  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 a controlling interest in ouroperating subsidiary, Medicsight plc (“Medicsight”) and a 49% holding inMoneygate Group Limited (“Moneygate”).  On March 31, 2010 we disposed of our controlling interest inMedicexchange Limited (“Medicexchange”) and various other investments.  Wealso have wholly owned subsidiaries MGT Capital Investments (UK) Limited, MGTInvestments (Gibraltar) Limited, and Medicsight Nominees Limited.

 

·                  Medicsight and its wholly owned subsidiaries is amedical imaging software development company listed on the AIM Market of theLondon Stock Exchange (Ticker symbol “MDST”) that develops and commercializesenterprise-wide Computer-Aided Detection (“CAD”) applications which analyzeComputer Tomography (“CT”) scans to assist radiologists in the early detectionand measurement of colorectal polyps and lung lesions.  Medicsightcurrently has limited revenue and is awaiting regulatory approvals in keymarkets.  The Company holds 86 millionshares (55%) of the 155 million issued share capital of Medicsight.

 

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

 

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 $267,962at March 31, 2010.  The Company isoperating 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**

 

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

 

*RevenueRecognition*

 

*Medicsight*

 

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

 

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

 

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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.

 

*Equity-basedcompensation*

 

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

 

Thefair value of each option award is estimated on the date of grant using theBlack-Scholes option valuation model. The Black-Scholes option valuation model requires the development ofassumptions that are input into the model. These assumptions are the expected stock volatility, the risk-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.

 

*Researchand development*

 

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

 

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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 the Medicsightproducts.

 

*Fairvalue of financial instruments*

 

OnJanuary 1, 2008 the Company adopted certain provisions of FASB ASC 820, “FairValue Measurements and Disclosures” for financial assets and financialliabilities and on January 1, 2009 for non-financial assets andnon-financial liabilities.  Thisestablishes a framework for measuring fair value and expands disclosure aboutfair value measurements.  Applying fairvalue measurements to our financial instruments requires management’s judgment,especially when using Level 2 and Level 3 inputs.

 

*Financialinstruments*

 

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

 

*Investments*

 

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

 

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

 

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

 

**Recent accounting pronouncements**

 

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

 

In October 2009 theFinancial Accounting Standards Board (“FASB”) FASB issued an update toAccounting Standards Codification (“ASC”) Topic 985, Software, with regards tocertain revenue arrangements that include software elements.  The update is effective for revenue arrangementsentered into on or after June 15, 2010. We do notexpect the adoption of this update to have a material impact on ourfinancial position or results of operations.

 

In December 2009 theFASB issued an updated to ASC Topic 810, Consolidations, with regards toimprovements to financial reporting by enterprises involved with variableinterest entities.    The adoption of this update has nothad a material impact on our financial position or results of operations.

 

**3. Divestment of investments and discontinuedactivities**

 

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

 

The investments disposed ofand the related consideration is as follows:

 

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

 

Eurindia and the XSharesconvertible notes and equity investment had been fully impaired so theconsideration received represents the profit on disposal recorded in theConsolidated Statement of Operations. HipCricket was recorded in the financial statements at $224 meaning aloss on disposal of $19 was recorded.

 

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

 

**4. Cash and cash equivalents**

 

We invest our cash inshort-term deposits with major banks.  At March 31, 2010 we held$15,600 in cash and cash equivalents.

 

Cash and cash equivalentsconsist of cash and temporary investments with maturities of 90 days or lesswhen 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 $15,600 as of March 31, 2010 and$22,165 as of December 31, 2009.  The Company periodically evaluatesthe relative credit standing of financial institutions considered in its cashinvestment strategy.

 

**5. Loans receivable — related party**

 

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

 

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

 

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

 

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

 

**6.********Investments at cost**

 

We account for investments in non-marketablesecurities under the cost method of accounting where we own less than a 20%interest in each of the companies and we do not have significant influence overthe entity.  We continually review eachinvestment 

 

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toassess for other-than-temporary decreases in value.

 

*Eurindia Limited*

 

In 2000 MGT invested in Eurindia Limited (“Eurindia”),a UK company that invested in IT start-up companies.  MGT had a 6% holdingin Eurindia and accounted for this investment on a cost basis.  As at December 31, 2009 this investmenthad been fully impaired.  On March 31,2010 we disposed of all of our holding in Eurindia for $1 leading to a profiton sale of $1 (see note 3).

 

*XShares Group*

 

In 2007 and 2008 we invested $3,000 in Series Cpreferred shares of XShares Group, Inc. (“XShares”), an investment advisorthat creates, issues and supports exchange traded funds with a particularhealthcare specialty.  In the year ended December 31,2009 the Company also issued $2,000 in XShares convertible notes with aprincipal of $2,100.  As at December 31,2009 the equity investment and the convertible notes had been fully impaired.On March 31, 2010 we disposed of all of our equity holdings in XShares for$1 and the convertible notes for $1, leading to a profit on sale of $2 (seenote 3).

 

*HipCricket Inc.*

 

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

 

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

 
| ** **               | ** ** | **January 1, 2010** | ** ** | **Sales** | ** ** | **Profit / (loss)  on sale  included in  earnings** | ** ** | **March 31****, 2010** | ** ** | **Change in impairment  losses relating  to instruments  still held at****March 31, ****2010** | ** ** |
|--------------------------|------------|-------------------------------|------------|-----------|------------|----------------------------------------------------------|------------|----------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------|------------|
|                     |       |                          |       |      |       |                                                     |       |                             |       |                                                                                                                                   |       |
| Eurindia Limited         |       | $                             | —     |      | (1         | )                                                        | 1          |                             | $          | —                                                                                                                                 |       | $ | — |   |
| XShares Group, Inc. |       | —                        |       | (1        | )          | 1                                                        |       | —                           |       | —                                                                                                                                 |       |
| HipCricket Inc.          |       | 224                           |       | (205      | )          | (19                                                      | )          | —                           |       | —                                                                                                                                 |       |
|                     |       | $                             | 224        |      | (207       | )                                                        | (17        | )                                | $          | —                                                                                                                                 |       | $ | — |   |

 

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

 

Wehad the following interest and other income amounts from continuing operations:

 
| ** **                                 | ** ** | **Three months ended  March 31,** | ** ** |
|--------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                 | ** ** | **2010**                                         | ** ** | **2009** | ** ** |
|                                       |       |                                             |       |   |   |
| Loss  on sale of HipCricket                |       | $                                                | (19        | ) | $ | — |   |
| Gain  on sale of XShares convertible notes |       | 1                                                |       | — |   |
| Gain  on sale of XShares equity            |       | 1                                                |       | — |   |
| Gain  on sale of Eurindia                  |       | 1                                                |       | — |   |
| Interest  income                           |       | 9                                                |       | 66 |   |
| Impairment  loss on marketable securities  |       | —                                           |       | (764 | ) |
| Total                                      |       | $                                                | (7         | ) | $ | (698 | ) |

 

**8. Comprehensive income (loss)**

 

Comprehensive income(loss) includes net income (loss) and items defined as other comprehensiveincome.  Items defined as other comprehensive income, such as foreigncurrency translation adjustments and unrealized gains and losses on certainmarketable securities are separately classified in the financialstatements.  Such items are reported in the consolidated statements ofstockholders’ equity as comprehensive income as follows:

 

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| ** **                                                             | ** ** | **Three months ended  March 31,** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                             | ** ** | **2010**                                         | ** ** | **2009** | ** ** |
|                                                                   |       |                                             |       |   |   |
| Net loss before  noncontrolling interest                               |       | $                                                | (3,083     | ) | $ | (16,926 | ) |
| Unrealized foreign  exchange (loss) gain                               |       | (1,257                                           | )          | (1,411 | ) |
| Comprehensive loss                                                     |       | (4,340                                           | )          | (18,337 | ) |
| Comprehensive loss  attributable to non-controlling interest           |       | 1,330                                            |       | 1,826 |   |
| Comprehensive loss  attributable to MGT Capital Investments, Inc. |       | $                                                | (3,010     | ) | $ | (16,511 | ) |

 

Thetotal accumulated other comprehensive loss as of March 31, 2010 is theresult of net foreign currency translation losses.

 

**9.****Reconciliation ofMedicsight’s results and US GAAP consolidated results**

 

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** | ** ** | **Discontinued  operations** | ** ** | **Corporate  and Other** | ** ** | **Total**          | ** ** |
|---------------------------------------------|------------|---------------------|------------|---------------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|--------------------|------------|
| ** **                                  | ** ** | **(IFRS)**          | ** ** | **GAAP Adj’ts** | ** ** | **(US GAAP)**  | ** ** | **(US GAAP)**           | ** ** | **(US GAAP)**            | ** ** | **(US GAAP)** | ** ** |
|                                        |       |                |       |                      |       |                |       |                         |       |                          |       |               |       |
| **Three  months ended March 31, 2010** |       |                |       |                      |       |                |       |                         |       |                          |       |               |       |
| Net revenue to external  customers          |       | $                   | 62         |                      | $          | —              |       | $                            | 62         |                          | $          | —             |       | $ | — |   | $ | 62 |   |
| Operating loss                              |       | (2,004              | )          | (238                      | )          | (2,242              | )          | —                       |       | (919                          | )          | (3,161             | )          |
| Assets                                      |       | $                   | 14,773     |                      | $          | —              |       | $                            | 14,773     |                          | $          | —             |       | $ | 4,650 |   | $ | 19,423 |   |
|                                        |       |                |       |                      |       |                |       | —                       |       |                          |       |               |       |
| **Three  months ended March 31, 2009** |       |                |       |                      |       |                |       |                         |       |                          |       |               |       |
| Net revenue to external  customers          |       | $                   | 61         |                      | $          | —              |       | $                            | 61         |                          | $          | —             |       | $ | — |   | $ | 61 |   |
| Operating loss                              |       | (3,504              | )          | (30                       | )          | (3,534              | )          | —                       |       | (12,434                       | )          | (15,968            | )          |
| Assets                                      |       | $                   | 24,329     |                      | $          | —              |       | $                            | 24,329     |                          | $          | 2,621              |       | $ | 9,515 |   | $ | 36,465 |   |

 

The principal GAAPadjustments are the accounting for stock options and cumulative translationadjustments.

 

The main operations and fixed assets of Medicsight arein the United Kingdom.

 

**10 . Stock-based compensation**

 

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

 

*MGTstock option plan*

 

On December 5, 2007we approved the 2007 MGT stock option plan and granted options for 1,975,000shares under this plan.  At March 31, 2010 there were 1,975,000options outstanding and 1,316,673 of the options issued were exercisable. Options issued under this plan vest in equal one-thirds after employees havebeen employed for 12, 24 and 36 months from the date of grant.

 

*Medicsightstock option plans*

 

We have twelve StockOption Plans in Medicsight, whose shares were listed on the AIM Market of theLondon Stock Exchange on September 21, 2007.

 

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PlanA - on February 26, 2003 we approved stock option plan “A” and in the threemonth period ended March 31, 2003 we granted options for 2,971,000 sharesunder this plan.  At March 31, 2010 there were 62,500 optionsoutstanding, 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 March 31, 2010 there were 172,500 options outstanding, allof 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 March 31, 2010 there were 85,000 options outstanding, all of which wereexercisable.

 

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 March 31,2010 there were no options outstanding.

 

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 March 31, 2010 therewere 941,667 options outstanding, all of which were exercisable.

 

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

 

PlanL - on January 26, 2010 we approved and subsequently granted options for100,000 shares under stock option plan “K”. 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.  At March 31, 2010 there were 100,000options outstanding, none of which were exercisable.

 

*Medicexchangestock option plans*

 

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

 

Theassumptions used in the Black-Scholes option valuation model used in the calculationof grant date fair value for the above options are highly subjective and canmaterially affect the resulting valuation. These assumptions are based on multiple factors including United Kingdomtreasury bonds for the risk-free rate at the time of grant, expected futureexercising patterns (we 

 

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cannot base the estimate onthe historical exercise patterns as no options have been exercised) and thevolatility of the MGT stock price.

 

The following assumptionswere used to estimate fair value:

 
| ** **                | ** ** | **Three  months ended  March 31** | ** ** |
|---------------------------|------------|----------------------------------------|------------|
| ** **                | ** ** | **2010**                               | ** ** | **2009** | ** ** |
|                      |       |                                   |       |   |   |
| Dividend yield            |       | 0%                                     |       | — |   |
| Expected volatility       |       | 88%                                    |       | — |   |
| Risk-free rate            |       | 3.96%                                  |       | — |   |
| Expected life of  options |       | 5.9 years                              |       | — |   |

 

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

 
| ** **                              | ** ** | **Outstanding**            | ** ** | **Exercisable**                             | ** ** |
|-----------------------------------------|------------|----------------------------|------------|---------------------------------------------|------------|
| ** **                              | ** ** | **Number of  shares** | ** ** | **Weighted-  average  exercise price** | ** ** | **Number of  shares** | ** ** | **Weighted-  average  exercise price** | ** ** |
|                                    |       |                       |       |                                        |       |   |   |   |   |   |   |   |   |
| Outstanding  at December 31, 2009  |       | 11,503,359                 |       | £                                      | 0.58       |   | $ | (0.92 | ) | 4,605,890 |   | £ | 0.94 |   | $ | (1.50 | ) |
|                                    |       |                       |       |                                        |       |   |   |   |   |   |   |   |   |
| Granted                                 |       | 100,000                    |       | £                                      | 0.09       |   | $ | (0.12 | ) |   |   |   |   |   |   |
| Exercised                               |       | —                     |       | —                                      |       |   |   |   |   |   |   |   |   |
| Forfeited                               |       | (125,627                   | )          | £                                      | 0.61       |   | $ | (0.92 | ) |   |   |   |   |   |   |
| Transferred  with sale of Medicexchange |       | (400,000                   | )          | £                                      | 0.63       |   | $ | (0.96 | ) |   |   |   |   |   |   |
|                                    |       |                       |       |                                        |       |   |   |   |   |   |   |   |   |
| Outstanding  at March 31, 2010     |       | 11,077,732                 |       | £                                      | 0.58       |   | $ | (0.90 | ) | 4,414,427 |   | £ | 0.97 |   | $ | (1.50 | ) |

 

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

 
| ** **                                    | ** ** | **Outstanding options** | ** ** | **Exercisable options**                  | ** ** |
|-----------------------------------------------|------------|------------------------------|------------|-----------------------------------------------|------------|
| ** **                                    | ** ** | **Number**                   | ** ** | **Remaining  contractual life  (years)** | ** ** | **Average  exercise price** | ** ** | **Number** | ** ** | **Average exercise  price** | ** ** |
|                                          |       |                         |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| MGT  Capital Investments, Inc. 2007 Plan |       | 1,975,000                    |       | 7.7                                           |       |   |   | $ | 3.69 |   | 1,316,673 |   |   |   | $ | 3.69 |   |
| Medicsight  Plan A                            |       | 62,500                       |       | 2.8                                           |       | £ | 0.75 |   | $ | 1.13 |   | 62,500 |   | £ | 0.75 |   | $ | 1.13 |   |
| Medicsight  Plan B                            |       | 172,500                      |       | 4.5                                           |       | £ | 0.75 |   | $ | 1.13 |   | 172,500 |   | £ | 0.75 |   | $ | 1.13 |   |
| Medicsight  Plan C                            |       | 85,000                       |       | 5.8                                           |       | £ | 0.75 |   | $ | 1.13 |   | 85,000 |   | £ | 0.75 |   | $ | 1.13 |   |
| Medicsight  Plan D                            |       | —                       |       | 6.3                                           |       | £ | 0.83 |   | $ | 1.25 |   | — |   | £ | 0.83 |   | $ | 1.25 |   |
| Medicsight  Plan E                            |       | 941,667                      |       | 6.9                                           |       | £ | 0.50 |   | $ | 0.75 |   | 941,667 |   | £ | 0.50 |   | $ | 0.75 |   |
| Medicsight  Plan F                            |       | 50,000                       |       | 7.2                                           |       | £ | 0.75 |   | $ | 1.13 |   | 33,333 |   | £ | 0.75 |   | $ | 1.13 |   |
| Medicsight  Plan G                            |       | 241,667                      |       | 7.7                                           |       | £ | 1.10 |   | $ | 1.66 |   | 191,666 |   | £ | 1.10 |   | $ | 1.66 |   |
| Medicsight  Plan H                            |       | —                       |       | 8.2                                           |       | £ | 0.69 |   | $ | 1.04 |   | — |   | £ | 0.69 |   | $ | 1.04 |   |
| Medicsight  Plan I                            |       | 108,333                      |       | 8.8                                           |       | £ | 0.24 |   | $ | 0.35 |   | 41,667 |   | £ | 0.24 |   | $ | 0.35 |   |
| Medicsight  Plan J                            |       | 7,041,065                    |       | 9.1                                           |       | £ | 0.09 |   | $ | 0.13 |   | 1,269,421 |   | £ | 0.09 |   | $ | 0.13 |   |
| Medicsight  Plan K                            |       | 300,000                      |       | 9.1                                           |       | £ | 0.10 |   | $ | 0.15 |   | 300,000 |   | £ | 0.10 |   | $ | 0.15 |   |
| Medicsight  Plan L                            |       | 100,000                      |       | 9.8                                           |       | £ | 0.09 |   | $ | 0.13 |   | — |   | £ | 0.09 |   | $ | 0.13 |   |

 

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.  Weaccounted for this as a modification of the existing options, specifically acancel and reissue.  Of the optionsissued in Plan J 3,032,500 were issued as new options and 4,816,250 were issuedas replacements for options cancelled in existing plan.  The modification charge forthe three months ended March 31, 2010 was $2.  In the three months ended March 31, 2009it was $37.

 

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

 

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| ** **                           | ** ** | **Three months ended  March 31,** | ** ** |
|--------------------------------------|------------|--------------------------------------------------|------------|
| ** **                           | ** ** | **2010**                                         | ** ** | **2009** | ** ** |
|                                 |       |                                             |       |   |   |
| Selling, general and  administrative |       | $                                                | 421        |   | $ | 457 |   |
|                                 |       |                                             |       |   |   |
| Research and  development            |       | 17                                               |       | 28 |   |
|                                 |       |                                             |       |   |   |
| Discontinued  operations             |       | 11                                               |       | (4 | ) |
|                                 |       |                                             |       |   |   |
| Total                                |       | $                                                | 449        |   | $ | 481 |   |

 

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

 

No compensation costswere capitalized.

 

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

 

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

 
| ** **                          | ** ** | **Number of  Options** | ** ** | **Weighted Average  Grant Date Fair  Value** | ** ** |
|-------------------------------------|------------|-----------------------------|------------|-------------------------------------------------------------|------------|
|                                |       |                        |       |                                                        |       |   |   |
| Non-vested at  January 1, 2010 |       | 6,897,469                   |       | £                                                      | 0.31       |   | $ | 0.48 |   |
| Granted                             |       | 100,000                     |       | £                                                      | 0.04       |   | $ | 0.07 |   |
| Vested                              |       | (263,331                    | )          | £                                                      | 0.26       |   | $ | 0.39 |   |
| Forfeited                           |       | (70,833                     | )          | £                                                      | 0.41       |   | $ | 0.63 |   |
| Non-vested at  March 31, 2010  |       | 6,663,305                   |       | £                                                      | 0.19       |   | $ | 0.30 |   |

 

AtMarch 31, 2010 there was $2,779 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 2.2 years.

 

**11.  Non-controlling interest**

 

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

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

 

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**12. Related Party Transactions**

 

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

 

InFiscal 2009 we purchased 49% of the share capital of Moneygate Group Limited (“Moneygate”).  Moneygate is a related party as we havesignificant influence over it and have representation on the board ofdirectors.  On acquisition we providedloan facilities of £250 ($377) for working capital and £2,000 ($3,150) foracquisitions.    In the three monthsended March 31, 2010 we increased the working capital facility asacquisitions have been delayed and Moneygate still requires cash to fund itsoperations.

 

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

 

The acquisition facilityis classified as non-current as it is repayable in October 2012 and theworking capital facility is classified as a current asset as it is repayable inOctober 2010.  The acquisition facilitypays interest at a rate of 5% per annum. Interest of $3 has been accrued for in the three months ended March 31, 2010.  The working capital facility does not payinterest (see note 5).

 

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

 

**13. Commitments**

 

*Lease Commitments and SecurityDeposit*

 

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 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.

 

Wealso have a satellite office in Tokyo, Japan, with a two-year rental agreementthat began in March 2010.

 

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

 

*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($1,943) over an expected thirty-six month period.  As at March 31,2010 we have paid Euros 845 ($1,136).  These payments will be recoveredagainst future royalty payments, should the products be successfullycommercialized.  These payments have been expensed to the income statementand classified as research and development.

 

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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**

 

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

 

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

 

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

 

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

 

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

 

Revenueremains limited as we await regulatory approvals in what we consider to be ourkey markets of the USA and Japan.  Withregards to regulatory approvals for Medicsight products, we received a secondrequest for Additional Information (AI) from the FDA in January 2010.   We, in conjunction with our FDA advisors,are currently preparing a response and will shortly submit this to the FDA. Wealso await a further update from the Ministry of Health, Labour and Welfare(MHLW) regulatory authorities in Japan.

 

Operatingcosts, excluding the goodwill impairment that impacted the consolidatedstatement of operations in the first quarter of Fiscal 2009, have decreased by17%.  This was predominantly due to twoheadcount reductions that Medicsight took in Fiscal 2009, the impact of whichis being fully felt in the first quarter of Fiscal 2010.  Together with reduced staff costs, a focus onreducing other expenses has reduced our discretionary spend.

 

Ourinvestment in Moneygate which is accounted for by the equity method has not yetcontributed to the statement of operations as it is currently generating netlosses.

 

Netloss from Medicexchange amounted to $234, which is accounted for indiscontinued operations together with a profit on disposal of $149, will notoccur in the future.

 

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

 

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

 

**Critical accounting policies andestimates**

 

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

 

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

 

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

 

*RevenueRecognition*

 

*Medicsight*

 

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

 

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

 

Welicense software and sell maintenance through visualization solution partnersand original equipment manufacturers.  Wereceive regular sales reporting detailing the number of licenses sold 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.

 

*Equity-basedcompensation*

 

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

 

Thefair value of each option award is estimated on the date of grant using theBlack-Scholes option valuation model. The Black-Scholes option valuation model requires the development ofassumptions that are input into the model. These assumptions are the expected stock volatility, the risk-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 

 

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result, if factors change andwe use different assumptions, our equity-based compensation expense could bematerially different in the future.  Inaddition, we are required to estimate the expected forfeiture rate and recognizeexpense only for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate,the equity-based compensation expense could be significantly different fromwhat we have recorded in the current period.

 

*Researchand development*

 

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

 

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

 

*Fairvalue of financial instruments*

 

OnJanuary 1, 2008 the Company adopted certain provisions of FASB ASC 820, “FairValue Measurements and Disclosures” for financial assets and financialliabilities and on January 1, 2009 for non-financial assets andnon-financial liabilities.  Thisestablishes a framework for measuring fair value and expands disclosure aboutfair value measurements.  Applying fairvalue measurements to our financial instruments requires management’s judgment,especially when using Level 2 and Level 3 inputs.

 

*Investments*

 

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

 

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

 

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

 

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

 

**Recent accounting pronouncements**

 

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

 

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

 

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In December 2009 theFASB issued an updated to ASC Topic 810, Consolidations, with regards toimprovements to financial reporting by enterprises involved with variableinterest entities.    The adoption of this update has nothad a material impact on our financial position or results of operations.

 

**Results ofoperations**

 

*Revenue andgross profit*

 

We have generated revenues and gross profit of $62 for the three monthsended March 31, 2010, compared to $61 for the three months ended March 31,2009.  Medicsight’s revenue was similar to the prior year as we have notyet received regulatory approvals in what we consider to be our key markets ofJapan and the USA, only selling licenses in Europe. There is currently no costof sales associated with license revenue for Medicsight.

 

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

 

*Operatingexpenses*

 

Ourresearch and development expense for the three months ended March 31, 2010was $396 compared to $459 for the three months ended March 31, 2009.  Our research and development costs werecomprised of staff, staff related consultancy, stock options and productdevelopment software costs expensed on the research and development ofMedicsight’s products.  The fall ispredominantly due to the reduction in headcount incurred in Fiscal 2009.

 

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

 

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

 

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

 

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

 

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

 

*Interest and other (expense) and discontinuedactivities*

 

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

 

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

 

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

 

Beforetheir disposal, Medicexchange Limited and Medicexchange Inc. were consolidatedinto the MGT Consolidated Financial Statements. Consideration of $928 was allocated to Medicexchange and MGT recorded aprofit on disposal of $149.  This isnetted off against the $234 loss on Medicexchange operations giving a net lossof $85 for discontinued operations.

 

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

 

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*Income tax*

 

Oureffective tax rate for the three months ended March 31, 2010 is(8.4)%.  Medicsight received $170 as atax credit for research and development costs incurred in Fiscal 2008.  We have not provided for any research anddevelopment claims in the accounts until the claim is authorized and paid, dueto the uncertainty on the claim being accepted.   The remainder of thedifference in our effective tax rate from the federal statutory rate isprimarily due to a 100% valuation allowance provided for all deferred taxassets.

 

*Net loss andnet loss per share*

 

Netloss attributable to equity holders of MGT Capital Investments, Inc. was$2,135 for the three months ended March 31, 2010 compared to a netloss of $15,330 for the three months ended March 31, 2009.  Net loss per share for the three months endedMarch 31, 2010 was $0.06 for continuing operations and $0.01 fordiscontinued operations (based on weighted average shares outstanding of32,550,590), compared to $0.46 and $0.01 respectively for the three monthsended March 31, 2009 (based on weighted average shares outstanding of32,550,590).

 

Thedecrease in net loss between the three months ended March 31, 2010 and2009 was predominantly due to the goodwill impairment in the three months endedMarch 31, 2009.

 

*Operationalcurrency*

 

Ourmain operating currency is UK sterling.  Our results of operations areaffected by changes in the $:£ rates used to translate the operationalresult.  For three months ended March 31,2010 the average rate was $1.54: £1.00 and for three months ended March 31,2009 the rate was $1.43:£1.00, an increase of 7%.

 

**Medicsightoperating results**

 
| ** **                                                 | ** ** | **Three  months ended March 31,** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                 | ** ** | **2010**                               | ** ** | **2009** | ** ** |
|                                                       |       |                                   |       |   |   |
| Revenue                                                    |       | $                                      | 62         |   | $ | 61 |   |
| Selling,  general and administration costs                 |       | (1,908                                 | )          | (3,136 | ) |
| Research  and development                                  |       | (396                                   | )          | (459 | ) |
| Operating  expense                                         |       | (2,304                                 | )          | (3,595 | ) |
| Stock-based  compensation (included in operating expenses) |       | (209                                   | )          | (310 | ) |
| Operating  loss                                            |       | (2,242                                 | )          | (3,534 | ) |
| Interest  and other income                                 |       | 16                                     |       | 39 |   |
|                                                            |            |                                        |            |  |  |  |  |

 
| ** **  | ** ** | **March 31,  2010** | ** ** | **March 31,  2009** | ** ** |
|-------------|------------|--------------------------|------------|--------------------------|------------|
|        |       |                     |       |                     |       |
| Cash        |       | $                        | 13,762     |                     | $          | 22,348 |   |
| Net  assets |       | 13,934                   |       | 21,597                   |       |
|             |            |                          |            |                          |            |  |  |

 

Inthe three months ended March 31, 2010 sales of our CAD products were flatcompared to the comparable period in the prior year.  Licenses have been sold in Europe but we haveyet to receive approvals in the USA and Japan, which we consider to be our keymarkets.

 

Inthe three months ended March 31, 2010 Medicsight launched MedicCO2lon, itsinsufflator product.  It also signed anagreement with a global medical devices company to distribute MedicCO2lon and revenueis expected to begin in the second quarter of 2010.

 

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

 

Our operating expenses have reduced from $3,595 in 2009 to $2,304 in2010.  Due to the delays in receivingregulatory approvals in Japan and the USA Medicsight management made thedecision in Fiscal 2009 to reduce headcount and streamline 

 

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operations, butwithout jeopardising longer term research, product development or clinicalactivities. The effects of these decisions are now being reflected in thestatement of operations with a significantly lower cost base.

 

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 2009 due to the reduction inheadcount.

 

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

 

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

 

**Otherinvestments**

 

*Moneygate*

 

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

 

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

 

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

 

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

 

The acquisition facilityis classified as non-current as it is repayable in October 2012 and theworking capital facility is classified as a current asset as it is repayable inOctober 2010.  The acquisitionfacility pays interest at a rate of 5% per annum.  Interest of $3 has been accrued for in thethree months ended March 31, 2010. The working capital facility does not pay interest.

 

As Moneygate is accounted for by the equitymethod and is currently generating net losses, Moneygate’s results are notreflected in the Consolidated Statement of Operations or the ConsolidatedBalance Sheets.

 

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

 

*Eurindia Limited*

 

In 2000 MGT invested in Eurindia Limited (“Eurindia”),a UK company that invested in IT start-up companies.  MGT had a 6% holdingin Eurindia and accounted for this investment on a cost basis.  As at December 31, 2009 this investmenthad been fully impaired.  On March 31,2010 we disposed of all of our holding in Eurindia for $1.

 

*XShares Group*

 

In 2007 and 2008 we invested $3,000 in Series Cpreferred shares of XShares Group, Inc. (“XShares”), an investment advisorthat creates, issues and supports exchange traded funds with a particularhealthcare specialty.  In the year ended December 31,2009 the Company also issued $2,000 in XShares convertible notes with aprincipal of $2,100.  As at December 31,2009 the equity investment and the convertible notes had been fully impaired.On March 31, 2010 we disposed of all of our equity holdings in XShares for$1 and the convertible notes for $1 resulting in a total profit on disposal of$2.

 

*HipCricket Inc.*

 

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

 

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

 

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

 

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

 

**Liquidity and capital resources**

 

*Working capital information*

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

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

 

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

 

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

 

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

 

*Moneygate acquisition facility*

 

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

 

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*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.

 

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

 

InJuly 2008 we entered into an agreement with a partner to developinterfaces for our software.  We have committed to pay Euros 1,445($1,943) over an expected thirty-six month period.  As at March 31, 2010we have paid Euros 845 ($1,136).  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     |       | $                                         | 672        |   | $ | 345 |   | $ | 325 |   | $ | 2 |   |
| Purchase  obligations            |       | 807                                       |       | 807 |   | — |   | — |   |
|                             |       |                                      |       |   |   |   |   |   |   |
| Total                            |       | $                                         | 1,479      |   | $ | 1,152 |   | $ | 325 |   | $ | 2 |   |

 

**Recent accounting pronouncements**

 

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

 

**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 $156 change in interest income.

 

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

 

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*Foreign exchange risk*

 

Weare exposed to foreign currency exchange rate fluctuations related to theoperation of our international subsidiaries.  Our main operating currency isUK sterling.  We also have a subsidiary operations in Japan that operatesin Yen.

 

Ouroperating costs in Fiscal 2010 were predominantly in UK sterling; we do notforesee any change in the remainder of 2010. A ten percent increase or decline in the US dollar exchange rate againstall foreign currencies would have created a decrease or increase in ouroperating costs in the three months ended****March 31, 2010of approximately $292.

 

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.****           ****Controlsand 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 March 31, 2010that have materially affected, or are reasonably likely to materially affect,the Company’s internal control over financial reporting.

 

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**PART II. OTHER INFORMATION**

 

**Item1.****             ****Legal proceedings**

 

None.

 

**Item1A.****       ****Risk factors**

 

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 describevarious risks and uncertainties to which we are or may become subject. Theserisks and uncertainties, together with other factors described elsewhere inthis report, have the potential to affect our business, financial condition,results of operations, cash flows, strategies or prospects in a material andadverse manner.  New risks may emerge atany time, and we cannot predict those risks or estimate the extent to whichthey may affect our financial performance. Each of the risks described belowcould adversely impact the value of our securities.  These statements, like all statements in thisreport, speak only as of the date of this report (unless another date is indicated),and we undertake no obligation to update or revise the statements in light offuture developments.

 

We cannot assure you that the Company will besuccessful in commercializing any of the Company’s products or if any of theproducts are commercialized, that they will prove to be profitable for theCompany.

 

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

 

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

 

**Company specific risks**

 

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

 

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

 

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

 

The market for the Medicsight CAD products may be slower to develop orsmaller than estimated or it may be more difficult to build the market thananticipated.  The medical community mayresist Medicsight CAD or be slower to accept it than we anticipate.  Revenues from Medicsight CAD may be delayedor costs may be higher than anticipated which may result in the Companyrequiring additional funding.  Medicsight’s principal route to market isvia commercial distribution partners. These arrangements are generally non-exclusive and have no guaranteedsales volumes or commitments.  Thepartners may be slower to sell our products than anticipated.  Any financial, operational or regulatoryrisks that affect our partners could also affect the sales of ourproducts.  In the current economicenvironment, hospitals and clinical purchasing budgets that are reliant onexternal debt finance may result in purchasing decisions being delayed.  If any of these situations were to occur thiscould have a material adverse effect on the Company’s business, financialcondition, results of operations and future prospects.

 

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

 

The Medicsight CAD system is subject to regulatory requirements in theUSA, Europe, Japan, China and our other targeted markets.  Necessary regulatory approvals may not beobtained or may be delayed.  We may incur substantial additional cost inobtaining regulatory approvals for our products in our targeted markets. Anydelays in obtaining the necessary regulatory approvals increase the risk thatour competitors’ 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.*

 

There are a number of groups and organizations, suchas software companies in the medical imaging field, MDCT scanner manufacturers,screening companies and other healthcare providers that may develop acompetitive offering to the Medicsight CAD products.  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 indeveloping such offerings or that any offerings they may 

 

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develop will not have a competitive edge over Medicsight CADproducts.  With delayed regulatoryapprovals and/or disputed clinical claims we may not have a commercial orclinical advantage over competitors’ products. Should a superior offering come to market, this could have a materialadverse effect on the Company’s business, financial condition, results ofoperations and future prospects.

 

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

 

We have incurred significant operating losses since inception and haveonly recently commenced generating revenues from operations.  As a result, we have generated negative cashflows from operations and have an accumulated deficit as of March 31, 2010.  We are operating in a developing industrybased on new technology and our primary source of funds to date has beenthrough the issuance of securities and borrowed funds.  There can be no assurance that management’sefforts will be successful or that the products we develop and market will beaccepted by consumers.  If our products are ultimately unsuccessful in themarket, this could have a material adverse effect on our business, financialcondition, results of operations and future prospects.

 

*We face financial risks as we are a developing company*

 

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

 

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

 

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

 

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

 

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

 

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

 

We expect to rapidly expand our operations and grow our sales, researchand development and administrative operations. This expansion is expected to place a significant strain on ourmanagement and will require hiring a significant number of qualifiedpersonnel.  Accordingly, recruiting andretaining such personnel in the future will be critical to our success.  There is intense competition from othercompanies, research and academic institutions, government entities and otherorganizations for qualified 

 

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personnelin the areas of our activities.  If wefail to identify, attract, retain and motivate these highly skilled personnel,we may be unable to continue our marketing and development activities, and thiscould have a material adverse effect on the Company’s business, financialcondition, results of operations and future prospects.

 

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

 

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

 

*We face risks arising from foreign currency exchange.*

 

As our main operating currency is UK sterling and its financialstatements are reported in US dollars, MGT’s assets and liabilities and resultsof operations are affected by movements in the $:£ exchange rate.  Shouldthere be large or unexpected fluctuations in the $:£ exchange rate, this couldhave a material effect on the Company’s business, financial condition, resultsof operations and future prospects.  We currently do not engage in hedgingactivities to minimize the effect of adverse movements in the exchange rate.

 

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

 

We have a number of investments and receivables held at both at marketvalue and at cost.  There is a risk that we may not be able to swiftlyrealize these investments and receivables at the fair value or cost at which theyare recorded in the financial statements.  If we are unable to quicklyrealize these investments and receivables at prices we believe to be fair, thiscould have a material effect on the Company’s business, financial condition,results of operations and future prospects.

 

**General market risks**

 

*We may not be able to access credit.*

 

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

 

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

 

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

 

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

 

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

 

**Item2.****             ****Unregistered sales ofequity securities and use of proceeds**

 

In the three months endedMarch 31, 2010 no shares of common stock were issued.

 

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**Item3.****             ****Defaults upon seniorsecurities**

 

None.

 

**Item4.****             ****[Removed and Reserved]**

 

**Item5.****             ****Other information**

 

None

 

**Item6.****             ****Exhibits**

 
| 31.1 |   | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 |
|------|--------|-------------------------------------------------------------------------------|
| 31.2 |   | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 |
| 32.1 |   | Certification pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |
| 32.2 |   | Certification pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |

 

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SIGNATURE

 

In accordance with therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|              | MGT Capital Investments, Inc. |
|-------------------|------------------------------------|
|              |                               |   |
|              |                               |   |
|              | By:                                | /s/ TIM PATERSON-BROWN |
|              |                               | Tim Paterson-Brown |
|              |                               | Chief Executive Officer |
|              |                               |   |
|              |                               |   |
|              | By:                                | /s/ ALLAN ROWLEY |
|              |                               | Allan Rowley |
|              |                               | Chief Financial Officer |
|              |                               |   |
|              |                               |   |
| May 14, 2010 |                               |   |

 

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