10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the transition period from           to          

Commission file number: 0-26886

MGT CAPITAL INVESTMENTS, INC.

(Exact name of registrant as specified in its charter)

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

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

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: 011-44-20-7605-1151

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

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

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

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

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

As of August 14, 2009 the registrant had outstanding 32,550,590 shares of common stock, $0.001 par value, (excludes 6,349,793 common shares held as treasury stock).

NOTE REGARDING FORWARD LOOKING STATEMENTS

This Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of MGT Capital Investments, Inc. and its consolidated subsidiaries (the “Company”) to differ materially from those expressed or implied by such forward-looking statements.  All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of revenue, gross profit, expenses, earnings or losses from operations, synergies or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the rate of market development and acceptance of medical imaging technology; the execution of restructuring plans; any statement concerning developments, performance or industry rankings relating to products or services; any statements regarding future economic conditions or performance; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing.  The risks, uncertainties and assumptions referred to above include the performance of contracts by suppliers, customers and partners; employee management issues; the difficulty of aligning expense levels with revenue changes; and other risks that are described herein, including but not limited to the specific risks areas discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of this report, and that are otherwise described from time to time in the Company’s Securities and Exchange Commission reports filed after this report.  The Company assumes no obligation and does not intend to update these forward-looking statements.

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

2

INDEX

PART I — FINANCIAL INFORMATION
Item 1	Condensed Consolidated Balance Sheets — June 30, 2009 (unaudited) and December 31, 2008	4
	Condensed Consolidated Statements of Operations — for the three months ended June 30, 2009 (unaudited) and 2008 (unaudited)	5
	Condensed Consolidated Statements of Operations — for the six months ended June 30, 2009 (unaudited) and 2008 (unaudited)	6
	Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Loss — June 30, 2009 (unaudited)	7
	Condensed Consolidated Statements of Cash Flows — for the six months ended June 30, 2009 (unaudited) and 2008 (unaudited)	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3	Quantitative and Qualitative Disclosure About Market Risk	38
Item 4T	Controls & Procedures	39
PART II — OTHER INFORMATION
Item 1	Legal Proceedings	39
Item 1A	Risk Factors	39
Item 2	Unregistered Sale of Equity Securities and Use of Proceeds	43
Item 3	Defaults Upon Senior Securities	43
Item 4	Submission of Matters to a Vote of Security Holders	43
Item 5	Other Information	43
Item 6	Exhibits	44
SIGNATURES		45

All financial amounts are in thousands except share and per share data.

3

MGT CAPITAL INVESTMENTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	June 30, 2009			December 31, 2008
	(unaudited)			Revised note 3
Assets
Current assets:
Cash and cash equivalents	$	30,777		$	38,294
Restricted cash	1,000			—
Marketable securities	224			1,884
Accounts receivable	35			134
Other receivables — related party	59			49
Prepaid expenses and other current assets	950			851
Convertible note	1,060			—
Total current assets	34,105			41,212
Property and equipment, at cost, net	580			706
Intangible assets, net of accumulated amortization of $167 (2008: $100)	232			299
Investments, at cost	370			776
Security deposits	296			301
Goodwill	—			12,157
Total assets	$	35,583		$	55,451
Liabilities
Current liabilities:
Accounts payable	$	1,964		$	2,877
Accrued expenses	1,616			1,386
Deferred revenue	71			77
Total current liabilities	3,651			4,340
Commitments and contingencies
Stockholders’ equity
Common stock, $0.001 par value: 75,000,000 shares authorized; 38,900,383 shares issued and 32,550,590 shares outstanding	39			39
Additional paid in capital	299,130			298,376
Accumulated other comprehensive loss	(3,941		)	(4,959		)
Accumulated deficit	(258,625		)	(239,450		)
	36,603			54,006
Treasury stock, at cost, 6,349,793 shares of common stock	(18,912		)	(18,912		)
Total stockholders’ equity	17,691			35,094
Non-controlling interest	14,241			16,017
Total equity	31,932			51,111
Total stockholders’ equity, liabilities and non-controlling interest	$	35,583		$	55,451

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

4

MGT CAPITAL INVESTMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

	Three months ended June 30,
	2009			2008
				Revised note 3
Revenues	$	47		$	85
Cost of revenue	—			(18		)
Gross profit	47			67
Operating expenses
Selling, general and administrative expenses	4,375			7,965
Research and development cost	871			632
	5,246			8,597
Operating loss	(5,199		)	(8,530		)
Interest and other (expense)/income	(298		)	637
Net loss before non-controlling interest	(5,497		)	(7,893		)
Net loss attributable to non-controlling interest	1,652			2,757
Net loss attributable to MGT Capital Investments, Inc.	$	(3,845	)	$	(5,136	)
Per share data:
Basic and diluted loss per share	$	(0.12	)	$	(0.14	)
Weighted average number of common shares outstanding	32,550,590			35,539,746

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

5

MGT CAPITAL INVESTMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

	Six  months ended June 30,
	2009			2008
				Revised note 3
Revenues	$	121		$	137
Cost of revenue	(2		)	(30		)
Gross profit	119			107
Operating expenses
Selling, general and administrative expenses	8,062			13,470
Research and development cost	1,330			1,227
Impairment of goodwill	12,157			—
	21,549			14,697
Operating loss	(21,430		)	(14,590		)
Interest and other (expense)/income	(993		)	1,145
Net loss before non-controlling interest	(22,423		)	(13,445		)
Net loss attributable to non-controlling interest	3,248			4,530
Net loss attributable to MGT Capital Investments, Inc.	$	(19,175	)	$	(8,915	)
Per share data:
Basic and diluted loss per share	$	(0.59	)	$	(0.23	)
Weighted average number of common shares outstanding	32,550,590			37,956,351

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

6

MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE
LOSS

Revised note 3

(in thousands)

				Additional		Accumulated									Total			Non-
	Common stock			paid-in		comprehensive			Accumulated			Treasury			stockholders’			controlling			Total
	Shares	Amount		capital		income/(loss)			deficit			stock			equity			interest			equity
BALANCE, DECEMBER 31, 2008	38,900	$	39	$	298,376	$	(4,959	)	$	(239,450	)	$	(18,912	)	$	35,094		$	16,017		$	51,111
Stock-based compensation	—	—		754		—			—			—			754			275			1,029
COMPREHENSIVE INCOME/(LOSS)
Net loss for the period	—	—		—		—			(19,175		)	—			(19,175		)	(3,248		)	(22,423		)
Unrealized gains on investments	—	—		—		38			—			—			38			—			38
Translation adjustment	—	—		—		980			—			—			980			1,197			2,177
Total comprehensive loss															(18,157		)	(2,051		)	(20,208		)
BALANCE, JUNE 30, 2009	38,900	$	39	$	299,130	$	(3,941	)	$	(258,625	)	$	(18,912	)	$	17,691		$	14,241		$	31,932

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

7

MGT CAPITAL INVESTMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share and per share amounts)

(unaudited)

	Six months ended June 30,
	2009			2008
				Revised note 3
Cash flows from operating activities
Net loss attributable to MGT Capital Investments, Inc.	$	(19,175	)	$	(8,915	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss attributable to non-controlling interest	(3,248		)	(4,530		)
Stock-based compensation expense	1,029			1,880
Depreciation	171			235
Amortization	67			—
Loss on impairment of goodwill	12,157			—
Loss on impairment of marketable securities deemed other than temporary	764			—
Realized loss on marketable securities	12			—
Loss on impairment of investments at cost	406			—
(Increase)/decrease in assets
Accounts receivable	107			(57		)
Accounts receivable — related party	(4		)	—
Prepaid expenses and other current assets	(107		)	(644		)
Increase/(decrease) in liabilities
Accounts payable	(1,108		)	(713		)
Accrued expenses	115			1,549
Deferred revenue	(16		)	99
Net cash used in operating activities	(8,830		)	(11,096		)
Cash flows from investing activities:
Sale of marketable securities	947			921
Purchase of marketable securities	—			(3,688		)
Purchase of cash short-term deposits	—			(1,000		)
Purchase of fixed assets	(16		)	(361		)
Purchase of investments	—			(960		)
Acquisition of Maydeal.com	—			(220		)
Deposit of restricted cash	(1,000		)	—
Investment in convertible note	(1,000		)	—
Net cash used in investing activities	(1,069		)	(5,308		)
Cash flows from financing activities:
Purchase of treasury stock (net of commissions)	—			(18,899		)
Purchase of subsidiary company stock	—			(1,251		)
Net cash used in financing activities	—			(20,150		)
Effects of exchange rates on cash	2,382			(73		)
Net change in cash and cash equivalents	(7,517		)	(36,627		)
Cash and cash equivalents, beginning of period	38,294			92,373
Cash and cash equivalents, end of period	$	30,777		$	55,746

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

8

MGT CAPITAL INVESTMENTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(unaudited)

1. Organization, basis of presentation and liquidity

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

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

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

·Medicexchange and its majority owned subsidiaries provide medical imaging professionals with a global web portal containing an online sales channel for diagnostic, treatment and surgery planning solutions.  This combined with a variety of relevant clinical papers, training materials and content gives these professionals access to information and products that they otherwise would have difficulty accessing.  The Company holds 22.5 million shares (73%) of the 30.8 million issued share capital of Medicexchange.  Medicexchange’s shares are not publicly traded.

The Company has incurred significant operating losses since inception and has just commenced generating revenue from operations.  As a result, the Company has generated negative cash flows from operations and has an accumulated deficit of $258,625 at June 30, 2009.  The Company is operating in a developing industry based on new technology and its primary source of funds to date has been through the issuance of securities.  While the Company is optimistic and believes appropriate actions are being taken, there can be no assurance that management’s efforts will be successful or that the products the Company develops and markets will be accepted by consumers.

2. Summary of significant accounting policies

Principles of consolidation

The financial statements include the accounts of our Company and our wholly and majority owned subsidiaries.  Our main operating subsidiaries are Medicsight and Medicexchange.  The functional currencies of our subsidiaries are their local currencies.  All intercompany transactions and balances have been eliminated.  All foreign currency translation gains and losses arising on consolidation were recorded in stockholders’ equity as a component of accumulated other comprehensive income (loss) in accordance with Statement of Financial Accounting Standards

9

(“SFAS”) No. 52, “Foreign Currency Translation”.   Non-controlling interest represents the minority equity investment in any of the MGT Capital Investments, Inc. group of companies, plus the minorities’ share of the net operating result and, in accordance with SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, as amended, other components of equity relating to the non-controlling interest.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the USA requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

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

Marketable securities

The Company invests some of its cash balances in short-term highly liquid available for sale marketable securities, which are carried in our balance sheet at fair value in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, with unrealized gains and losses reported in stockholders’ equity as a component of accumulated other comprehensive income (loss) - unless the Company concludes that unrealized losses represent an other-than-temporary impairment.  In that circumstance, such losses would be reflected in the consolidated statements of operations.  Realized gains and losses are included in other income/(expense).  Fair value is based upon quoted market prices for these or similar instruments.

Investments

Investments consists of equity ownership in various corporations where our investment is less than 20% of issued share capital.  The Company records these investments at historical cost, subject to any provision for impairment.

Property and equipment

Property and equipment are stated at cost.  Depreciation is calculated using the straight line method on the various asset classes over their estimated useful lives, which range from two to five years.  Leasehold improvements are depreciated over the term of the lease.

Goodwill

We account for goodwill in accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”.  Under SFAS No. 142, goodwill and intangible assets with indefinite lives are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.  The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill.  We compare the book value to the market value (market capitalization plus a control premium) for the reporting unit. If the market value exceeds the book value, goodwill is considered not impaired, and thus the second step of the impairment test is not necessary.  If our book value exceeds the market value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any.  The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of the goodwill with the book value of the goodwill.  If the carrying value of the goodwill exceeds the implied fair value of the goodwill, an impairment loss would be recognized in an amount equal to the excess.  Any loss recognized cannot exceed the carrying amount of goodwill.  After a goodwill impairment loss is recognized, the adjusted

10

carrying amount of goodwill is its new accounting basis.  Subsequent reversal of a previously recognized goodwill impairment loss is prohibited once the measurement of that loss is completed.

As of March 31, 2009 Medicsight’s share price had fallen to a level at which book value exceeded market value.  As a consequence, we carried out an impairment review at the end of the first quarter of 2009 and concluded that the goodwill was fully impaired.  See note 9.

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

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

Foreign currency translation

The accounts of the Company’s foreign subsidiaries are maintained using the local currency as the functional currency. For these subsidiaries, assets and liabilities are translated into US dollars at period-end exchange rates, and income and expense accounts are translated at average monthly exchange rates.  Net gains and losses from foreign currency translation are excluded from operating results and are accumulated as a separate component of stockholders’ equity.

Gains and losses on foreign currency transactions are reflected in selling, general and administrative expenses in the income statement.

Revenue recognition

Medicsight

The Company recognizes revenue in accordance with American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 97-2, “Software Revenue Recognition”, as amended by SOP 98-4 and SOP 98-9, as well as Technical Practice Aids issued from time to time by the AICPA, and SEC Staff Accounting Bulletin No. 104.  The Company recognizes revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement, the product has been shipped or the services have been provided to the customer, the sales price is fixed or determinable, and collectability is probable.

License fee revenue is derived from the licensing of computer software. Maintenance revenue is derived from software maintenance.  The Company’s software licenses are generally sold as part of an arrangement that includes maintenance and support.

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

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

Additionally:

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

11

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

Multiple-element arrangements — the Company enters into arrangements with resellers that include a combination of software products, maintenance and support.  For such arrangements, the Company recognizes revenue using the residual method.  The Company allocates the total arrangement fee among the various elements of the arrangement based on the fair value of each of the undelivered elements determined by vendor-specific objective evidence.  The fair value of maintenance and support services is established based on renewal rates.  In software arrangements for which the Company does not have vendor-specific objective evidence of fair value for all elements, revenue is deferred until the earlier of when vendor-specific objective evidence is determined for the undelivered elements (residual method) or when all elements for which the Company does not have vendor-specific objective evidence of fair value have been delivered.

As of June 30, 2009 we recorded $48 of deferred revenue relating to license revenue and $23 relating to support and maintenance services, compared with $42 relating to license revenue and $20 relating to support and license revenue at December 31, 2008.

Medicexchange

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

As of June 30, 2009 we recorded $nil deferred revenue relating to Medicexchange, compared with $15 at December 31, 2008.

Research and development

Costs incurred in connection with the development of software products that are intended for sale are accounted for in accordance with SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”.  Costs incurred prior to technological feasibility being established for the product are expensed as incurred.

Technological feasibility is established upon completion of a detailed program design or, in its absence, completion of a working model.  Thereafter, all software production costs can be capitalized and subsequently reported at the lower of un-amortized cost or net realizable value.  Capitalized costs are amortized based on current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product.  Amortization commences when the product is available for general release to customers.

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

For the six months ended June 30, 2009 and 2008 the Company expended $1,330 and $1,227 respectively, for research and development expenses for Medicsight CAD and its products.

Fair value of financial instruments

On January 1, 2008 the Company adopted the provisions of SFAS No. 157, “Fair Value Measurements”, for financial assets and financial liabilities.  In accordance with Financial Accounting Standards Board Staff Position (“FSP”) SFAS No. 157-2, “Effective Date of FASB Statement No. 157”, the Company applied SFAS No. 157 for non-financial assets and non-financial liabilities on January 1, 2009.  SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value measurements.

12

Income taxes

Effective January 1, 2007 the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, an interpretation of FASB Statement No. 109, “Accounting for Income Taxes” (“FIN 48”).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements and requires the impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority.  At the adoption date of January 1, 2007 and also as of June 30, 2009, the Company did not have any unrecognized tax benefits.  We do not expect that the amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.  The Company’s policy is to recognize interest and penalties related to tax matters in the income tax provision in the Consolidated Statements of Operations.  There was no interest and penalties for the six months ended June 30, 2009 and 2008.  Tax years beginning in 2004 are generally subject to examination by taxing authorities, although net operating losses from all years are subject to examinations and adjustments for at least three years following the year in which the attributes are used.

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

Loss per share

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

The computation of diluted loss per share excludes all options because they are anti-dilutive.  For the six months ended June 30, 2009 there were 13,286,250 options excluded with a weighted average exercise price of $0.89 per share.  For the six months ended June 30, 2008 there were 15,082,500 options excluded with a weighted average exercise price of $1.72 per share.

Comprehensive income (loss)

Comprehensive income (loss) as defined by SFAS No. 130, “Reporting Comprehensive Income”, includes net income (loss) and items defined as other comprehensive income (loss).  SFAS No. 130 requires that items defined as other comprehensive income (loss), such as foreign currency translation adjustments and unrealized gains and losses on certain marketable securities, be separately classified in the financial statements.  Such items are reported in the consolidated statements of stockholders’ equity as comprehensive (loss).

Segment reporting

The Company follows the provisions of SFAS No. 131, “Disclosure About Segments of an Enterprise and Related Information”.  The approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company’s reportable segments. SFAS No. 131 also requires disclosures about products and services, geographic areas and major customers.  We operate in two segments, Medicsight, a medical imaging company, and Medicexchange, a web portal for radiologists.

Stock options

The Company follows SFAS No. 123 (revised), “Share-Based Payment” , which requires that compensation cost relating to share-based payment transactions be recognized as an expense in the

13

financial statements, and that measurement of that cost be based on the estimated fair value of the equity or liability instrument issued.  SFAS No. 123(R) also requires that forfeitures be estimated and recorded over the vesting period of the instrument.

Recent accounting pronouncements

In June 2009 the Financial Accounting Standards Board (“FASB”) approved the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative non-governmental GAAP.  All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission, will be superseded by the Codification.  All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative.  The Codification does not change GAAP, but instead introduces a new structure that will combine all authoritative standards into a comprehensive, topically organized online database.  The Codification will be effective for interim or annual periods ending after September 15, 2009, and will impact the Company’s financial statement disclosures beginning with the quarter ending September 30, 2009 as all future references to authoritative accounting literature will be referenced in accordance with the Codification.  There will be no changes to the content of the Company’s financial statements or disclosures as a result of implementing the Codification.

In June 2009 the FASB issued FAS 167, “Amendments to FASB Interpretation No. 46(R)”, which changes the approach to determining the primary beneficiary of a variable interest entity (“VIE”) and requires companies to more frequently assess whether they must consolidate VIEs.  This new standard is effective for us beginning on January 1, 2010.  We are currently assessing the potential impacts, if any, on our consolidated financial statements.

On April 1, 2009 we adopted the provisions of three Staff Positions (“FSPs”) that are intended to provide additional application guidance and enhance disclosures about fair value measurements and impairments of securities.  FSP FAS 157-4 clarifies the objective and method of fair value measurement even when there has been a significant decrease in market activity for the asset being measured.  FSP FAS 115-2 and FAS 124-2 establish a new model for measuring other-than-temporary impairments for debt securities, including establishing criteria for when to recognize a write-down through earnings versus other comprehensive income.  FSP FAS 107-1 and APB 28-1 expand the fair value disclosures required for all financial instruments within the scope of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, to interim periods.  The adoption of FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2 did not have a material impact on our consolidated financial statements.  The adoption of FSP FAS 107-1 and APB 28-1 has resulted in increased disclosures in our interim periods.

On January 1, 2009 we adopted the provisions of SFAS No. 141 (Revised 2007), “Business Combinations”.  SFAS No. 141(R) significantly changes the accounting for business combinations.  Under SFAS No. 141(R), an acquiring entity is required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with only limited exceptions.  SFAS No.141(R) also includes a substantial number of new disclosure requirements.  In April 2009 the FASB issued FSP FAS 141(R)-1 which amends SFAS No. 141(R) by establishing a model to account for certain pre-acquisition contingencies.  Under the FSP, an acquirer is required to recognize at fair value an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period.  If the acquisition-date fair value cannot be determined, then the acquirer should follow the recognition criteria in SFAS No. 5, “Accounting for Contingencies”, and FASB Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss — an interpretation of FASB Statement No. 5”.  SFAS No. 141(R) and FSP FAS 141(R)-1 became effective for us beginning January 1, 2009, and will apply prospectively to business combinations completed on or after that date.

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, SFAS 165 sets forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events

14

or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.  SFAS 165 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This Statement is effective for financial statements issued for interim and annual periods ending after June 15, 2009 and it has not had a material impact on our financial reporting.

3. Non-controlling interest

On January 1, 2009 we adopted the provisions of SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51”.  SFAS No. 160 establishes accounting and reporting standards for the non-controlling interest (formerly known as minority interest) in a subsidiary (which may include variable interest entities) and for the deconsolidation of a subsidiary.  Significant changes include: balance sheet and income statement presentation and expanded disclosures; accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation; and recognition and measurement of a gain or loss when a subsidiary is deconsolidated.  For balance sheet presentation, non-controlling interests are now recorded within equity and so-called “mezzanine” display is not permitted.  In income statements, the amount of income attributable to the non-controlling interest is not a deduction that impacts net income.  As a result of these requirements, various financial statements ratios have been impacted.  The statement requires prospective application except for the presentation and disclosure requirements, which must be applied retrospectively for all periods presented.  Prior periods were reclassified to conform to the current period presentation.

4. Cash and cash equivalents

We invest our cash in short-term deposits with major banks.  At June 30, 2009 we held $30,777 in cash and cash equivalents.

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

Concentrations

The Company maintains its cash and cash equivalents at major financial institutions in Europe.  Cash held in foreign institutions is not insured by the Federal Deposit Insurance Corporation and amounted to $30,777 as of June 30, 2009 and $38,294 as of December 31, 2008.  The Company periodically evaluates the relative credit standing of financial institutions considered in its cash investment strategy.

5.  Restricted cash

$1,000 has been classified as restricted cash in line with the conditions of the second closing in the XShares Group, Inc. Securities Purchase Agreement (see note 6).

6.  Convertible note

On May 14, 2009 we executed and delivered a Convertible Promissory Note (the “Note”) in the principal amount of $1,100 with XShares Group, Inc. (“XShares”), a Delaware corporation.  We have previously invested in XShares (see note 8).  The principal amount included a fee of $100 payable to us.  All of the Note shall be converted into Series B Preferred Stock of XShares (the “Series B Shares”) at the Initial Closing (as defined below).  In the event that an Amended and Restated Certificate of Incorporation designating the rights and preferences of the Series B Shares (the “Certificate”) is not approved by a majority of the stockholders of XShares, then the entire unpaid principal sum of the Note, plus interest thereon, shall be immediately paid to the Company or converted into shares of XShares’ common stock at a price of $0.001 per share at the option of the Company.  A copy of the

15

Note is annexed as Exhibit 10.5 to our quarterly report on Form 10-Q for the three months ended March 31, 2009.

Simultaneously with executing the Note, we entered into a Securities Purchase Agreement (the “SPA”) with XShares, pursuant to which we agreed to purchase an aggregate of 73,943,662 Series B Shares at a purchase price of $0.0284 per share for at total of $2,100.  The SPA contains the standard representations and warranties for a transaction of this type and is subject to the approval by the stockholders of XShares of the Certificate.  The Series B Shares are redeemable at the option of XShares, at a price of 1.05 times the original issue price.

It is anticipated that the purchase of the Series B Shares will take place in two closings.

1.The initial closing of 38,732,394 Series B Shares will occur upon the filing of the Certificate with the Secretary of State of the State of Delaware and certain other conditions  (the “Initial Closing”).

2.The second closing of 35,211,268 Series B Shares will occur upon the later of (i) July 16, 2009 or (ii) five days following the filing of the Certificate.  A copy of the SPA and a form of the Certificate are annexed as Exhibits 10.3 and 10.4, respectively, to our quarterly report on Form 10-Q for the three months ended March 31, 2009.

The fee of $100 payable to the Company is recognized ratably over the term of the Note; this has been recognized in interest income.  We also accrue coupon interest at an annualized rate of 10% as provided for in the Note.

On August 5, 2009 an amendment to the SPA was signed (see note 17).  This, together with certain other terms and conditions, changed the date of the initial closing until December 31, 2009, unless otherwise agreed by us.

On August 6, 2009 a Second Amendment to the SPA was signed (see note 17).  This amended the terms of the second closing to allow for the investment to be made in a convertible note with a maturity date of December 31, 2009.

7.  Marketable securities

At December 31, 2008 investments in marketable securities consisted of HipCricket Inc. (“HipCricket”) and a fund managed by Bank Sarasin & Company Limited.  In the three months ended June 30, 2009 we liquidated our holdings in the fund managed by Sarasin and our investments in marketable securities at June 30, 2009 related solely to HipCricket.  Our holdings in marketable securities as of June 30, 2009 and December 31, 2008 were as follows:

	Market value		Cost		Unrealized gains		Transfer to net loss
At December 31, 2008	$	1,884	$	2,985	$	—	$	(1,101	)
At June 30, 2009	$	224	$	186	$	38	$	—

In the three months ended March 31, 2009 we accounted for all losses in net income as we considered the reductions in value to be other than temporary.  In the three months ended June 30, 2009 the rise in the fair value in our holdings in available-for-sale marketable securities has been accounted for in a component of equity and disclosed in other comprehensive income.

Valuation of investments held at fair value

On January 1, 2008 the Company adopted the provisions of SFAS No. 157, “Fair Value Measurements”, for financial assets and financial liabilities.  SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.  Effective January 1, 2009 the Company adopted the provisions of SFAS No. 157 related to other nonfinancial assets and liabilities, in accordance with Financial Accounting Standards Board Staff Position (“FSP”) SFAS No. 157-2, “Effective Date of FASB Statement No. 157”.

16

The adoption of SFAS No. 157 also requires the Company to attribute our investments using the fair value hierarchy defined in the statement.  The hierarchy consists of the following three levels with associated definitions:

Level 1 inputs are unadjusted, quoted prices in active markets for identical assets or liabilities

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

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

We have valued HipCricket using its closing price on the AIM market of the London Stock Exchange as of June 30, 2009.  Due to the low number of market transactions for HipCricket each transaction can potentially and has historically had a significant effect on the share price.  It is for this reason we deem these to be a Level 2 input in the fair value hierarchy.  However, we still believe that this is the best price at which to determine the current value.

The following table analyzes our investments holdings using the fair value hierarchy.

	Level 1		Level 2	Total
HipCricket Inc.	$	—	224	$	224

The following table analyzes the losses incurred on the investments during the six months ended June 30, 2009

	Loss on impairment deemed other than temporary			Unrealized gains	Realized losses		Total
HipCricket Inc.	$	(739	)	38	—		$	(701	)
Other marketable securities	(25		)	—	(12	)	(37		)
Total	$	(764	)	38	(12	)	$	(738	)

8.Investments at cost

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

Eurindia Limited

In 2000 MGT invested in Eurindia Limited (“Eurindia”), a UK company that invested in IT start-up companies.  MGT has a 6% holding in Eurindia and accounts for this investment on a cost basis.

We carried out an impairment review of our holdings in Eurindia Limited as of December 31, 2008.  Eurindia Limited’s management had informed us that they intended to pay a liquidating dividend of between 30 cents and 50 cents per share in the first half of 2009.  We assumed the dividend to be the lower of these two values and impaired our holding to the value of 30 cents per share.  As of June 30, 2009 the investment had not been liquidated.

17

Eurindia Limited’s management has informed us that it now intends to liquidate the investment by means of an IPO.  Due to the turbulence in financial markets, however, and specifically the weakness of the market for IPOs, we are currently not able to accurately ascertain the potential value of the investment on an IPO or the timescale in which it might be realized.  As a consequence we have fully impaired our investment and recognized an impairment loss of $176 in net loss.  We consider the amount of this impairment to be a Level 3 input under the SFAS No. 157 fair value hierarchy, since it is based on significant unobservable inputs.

XShares Group

In 2007 the Company invested $960 in Series C preferred shares of XShares Group, Inc. (“XShares”), an investment advisor that creates, issues and supports exchange traded funds with a particular healthcare specialty.  In the year ended December 31, 2008 the Company invested an additional $2,040 in shares of XShares bringing the total invested to $3,000.  We account for these investments on a cost basis as our total holdings are less than 20%.  In Fiscal 2008 we reviewed the carrying value of our investment in XShares.  XShares was in the process of attempting to raise funds to drive the business forward.  As of December 31, 2008 we impaired this investment to $600.  As of June 30, 2009 the fund-raising was partially complete and, after reviewing our holding, we impaired the investment to $370, which we believe approximates fair value.

We estimated this impairment based on management’s review and discussion of the strategy and business plan of XShares and review of draft Fiscal 2008 financial accounts prepared by an independent accountant.  These inputs are subject to management’s judgment and we have therefore deemed them to be Level 3 inputs in the fair value hierarchy.  The value of our investment has been reduced as previously invested cash has been used to fund business operations and as yet the business is not generating sufficient cash.  However, we have reviewed XShares’ business plan and we have adjusted our investment to a level we believe reflects the future market valuation and with no active market we believe this is the best method with which to determine the value of our investment.

In the three months ended June 30, 2009 we invested $1,000 in a convertible note with a principal of $1,100 and have reserved $1,000 for a further investment in XShares.

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

	January 1, 2009		Purchases	Impairment losses included in earnings		June 30, 2009		Change in impairment losses relating to instruments still held at June 30, 2009
Eurindia Limited	$	176	—	(176	)	$	—	$	(176	)
XShares Group, Inc.	600		—	(230	)	370		(230		)
	$	776	—	(406	)	$	370	$	(406	)

9. Goodwill

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

At December 31, 2008 our goodwill totaled $12.2 million, which was entirely related to our shareholding in Medicsight plc.  We assess the impairment of goodwill of our reporting units annually, or more often if events or changes in circumstances indicate that the carrying value may not be recoverable.  This assessment is based upon an analysis of both the market value and discounted anticipated future cash flow of the reporting unit.

18

The shares of Medicsight plc are traded on the AIM Market of the London Stock Exchange.  We consider this to be a Level 1 input in the fair value hierarchy as defined in SFAS No. 157, as this is an unadjusted quoted price in an active market.

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

In addition, estimates of discounted cash flows would involve assumptions on a business with limited revenue history and developing revenue models, which increase the risk of differences between the projected and actual performance.  Significant differences between these estimates and actual cash flows could materially affect our future financial results.  We consider these to be Level 3 inputs in the fair value hierarchy as defined in SFAS No. 157, “Fair Value Measurements”, as this is an unobservable input with little or no market activity that require significant management judgment.

We conducted our annual impairment test of goodwill as of December 31, 2008 in accordance with SFAS No. 142.  As a result of this test we determined that no adjustment to the carrying value of goodwill was required.

In the three months ended March 31, 2009, the market value of Medicsight plc, as traded on the AIM Market of the London Stock Exchange, declined from $53.0 million to $13.2 million.  Following this decline in value we conducted an impairment test of goodwill as of March 31, 2009 in accordance with SFAS No. 142.  Due to the uncertainties involved in using the unobservable inputs to estimate future cash flows, we used market price, Level 1 inputs, as the primary basis of our impairment review.  As a result of this test we determined that the carrying amount of Medicsight plc exceeded its fair value and recorded an impairment loss of $12,157 during the quarter ended March 31, 2009.

10. Interest and other income/(expense)

We had the following interest and other income amounts:

	Three months ended June 30,					Six months ended June 30,
	2009			2008		2009			2008
Impairment loss on Eurindia	$	(176	)	$	—	$	(176	)	$	—
Impairment loss on HipCricket	—			—		(739		)	—
Impairment loss on XShares	(230		)	—		(230		)	—
Loss on other marketable securities	(12		)	—		(37		)	—
Interest income	120			637		189			1,145
Total	$	(298	)	$	637	$	(993	)	$	1,145

The loss on marketable securities relates to losses considered other than temporary on our holdings in HipCricket and other marketable securities in the three months ended March 31, 2009 and realized losses on other marketable securities in the three months ended June 30, 2009.

11. Comprehensive income (loss)

Comprehensive income (loss), as defined by SFAS No. 130, “Reporting Comprehensive Income”, includes net income (loss) and items defined as other comprehensive income.  SFAS No. 130 requires that items defined as other comprehensive income (loss), such as foreign currency translation adjustments and unrealized gains and losses on certain marketable securities, be separately classified in

19

the financial statements.  Such items are reported in the consolidated statements of stockholders’ equity as comprehensive income (loss) as follows:

	Three months ended June 30,						Six months ended June 30,
	2009			2008			2009			2008
Net loss as reported	$	(5,497	)	$	(7,893	)	$	(22,423	)	$	(13,445	)
Unrealized foreign exchange gain (loss)	3,588			(205		)	2,177			(73		)
Unrealized gain (loss) on marketable securities	38			(232		)	38			(101		)
Comprehensive loss	$	(1,871	)	$	(8,330	)	$	(20,208	)	$	(13,619	)
Comprehensive loss attributable to non-controlling interest	225			2,757			2,051			4,530
Comprehensive loss attributable to MGT Capital Investments, Inc.	$	(1,646	)	$	(5,573	)	$	(18,157	)	$	(9,089	)

The unrealized foreign exchange loss predominantly relates to the movement, in the three and six month periods ended June 30, 2009, on the difference between Medicsight’s net assets translated at the period end rate and reserves translated at historical rates.

The total accumulated other comprehensive loss as of June 30, 2009 is the result of net foreign currency translation losses and unrealized gains on marketable securities.

12. Segment reporting

Under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group in deciding how to allocate resources and in assessing performance.  Our chief operating decision-making group is composed of the Chief Executive Officer and members of senior management.  Our reportable operating segments are Medicsight and Medicexchange.

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

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

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

	Medicsight plc			Medicsight plc		Medicsight plc			Medicexchange			Corporate and other			Total
	(IFRS)			GAAP Adj’ts		(US GAAP)			(US GAAP)			(US GAAP)			(US GAAP)
Six months ended June 30, 2009
Net revenue to external customers	$	101		$	—	$	101		$	20		$	—		$	121
Operating loss	(7,286		)	107		(7,179		)	(622		)	(13,629		)	(21,430		)
Assets	24,477			—		24,477			2,069			9,037			35,583
Six months ended June 30, 2008
Net revenue to external customers	$	88		$	—	$	88		$	49		$	—		$	137
Operating loss	(9,629		)	40		(9,589		)	(2,101		)	(2,900		)	(14,590		)
Assets	45,161			—		45,161			3,525			29,687			78,373

20

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

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

13. Stock-based compensation

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

MGT stock option plan

On December 5, 2007 we approved the 2007 MGT stock option plan and granted options for 1,975,000 shares under this plan.  At June 30, 2009 there were 1,975,000 options outstanding and 658,333 of the options issued were exercisable.  Options issued under this plan vest in equal one-thirds after employees have been employed for 12, 24 and 36 months from the date of grant.

Medicsight stock option plans

We have eleven stock option plans in Medicsight, whose shares were listed on the AIM Market of the London Stock Exchange on September 21, 2007.

Plan A - on February 26, 2003 we approved stock option plan “A” and in the three month period ended March 31, 2003 we granted options for 2,971,000 shares under this plan.  At June 30, 2009 there were 119,000 options outstanding, all of which were exercisable.

Plan B - on August 15, 2005 we approved stock option plan “B” and between July 1, 2003 and March 31, 2005 we granted options for 3,420,500 shares under this plan.  At June 30, 2009 there were 196,000 options outstanding, all of which were exercisable.

Plan C - on August 15, 2005 we approved stock option plan “C” and between April 1, 2005 and June 30, 2006 we granted options for 515,000 shares under this plan.  Options issued under this plan vest in equal one-thirds after employees have been employed for 12, 24 and 36 months from date of grant.  At June 30, 2009 there were 218,333 options outstanding, all of which were exercisable.

Plan D - On July 13, 2006 we approved stock option plan “D” and granted options for 1,375,000 shares under this plan.  Options under this plan vest in equal one-thirds after employees have been employed for 12, 24 and 36 months from the date of grant.  At June 30, 2009 there were 150,000 options outstanding, all of which were exercisable.

Plan E - on February 22, 2007 we approved and granted options for 5,900,000 shares under stock option plan “E”.  Options under this plan vest in equal one-thirds after employees have been employed for 12, 24 and 36 months from the grant date.  At June 30, 2009 there were 1,252,500 options outstanding and 984,167 of the options issued were exercisable.

Plan F - on May 16, 2007 we approved and subsequently granted options for 350,000 shares under stock option plan “F”.  Options under this plan vest in equal one-thirds after employees have been employed for 12, 24 and 36 months from the grant date.  At June 30, 2009 there were 50,000 options outstanding and 33,333 of the options issued were exercisable.

Plan G - on December 18, 2007 we approved and subsequently granted options for 3,025,000 shares under stock option plan “G”.  Options under this plan vest in equal one-thirds after employees

21

have been employed for 12, 24 and 36 months from the grant date.  At June 30, 2009 there were 241,667 options outstanding and 141,667 of the options issued were exercisable.

Plan H - on June 2, 2008 we approved and subsequently granted options for 750,000 shares under stock option plan “H”.  Options under this plan vest in equal one thirds after employees have been employed for 12, 24 and 36 months from the grant date.  At June 30, 2009 there were nil options outstanding.

Plan I - on December 16, 2008 we approved and subsequently granted options for 1,805,000 shares under stock option plan “I”. Options under this plan vest in equal one thirds after employees have been employed for 12, 24 and 36 months from the grant date.  At June 30, 2009 135,000 options were outstanding, none of which were exercisable.

Plan J - on May 14, 2009 we approved and subsequently granted options for 7,848,750 shares under stock option plan “J”.  Options under this plan vest in equal one sixths after employees have been employed for 6, 12, 18, 24, 30 and 36 months from the grant date.  At June 30, 2009 7,848,750 options were outstanding, none of which were exercisable.

Plan K - on May 20, 2009 we approved and subsequently granted options for 300,000 shares under stock option plan “K”.  Options under this plan vest in equal one thirds on June 30, 2009, September 30, 2009 and December 31, 2009.  At June 30, 2009 300,000 options were outstanding and 100,000 of the options were exercisable.

Medicexchange stock option plans

We have two stock option plans in Medicexchange, whose shares are not publicly traded.

Plan A - on July 20, 2006 we approved Medicexchange stock option plan “A” and granted options for 950,000 shares under this plan.  Options issued under this plan vest in equal one-thirds after employees have been employed for 12, 24 and 36 months from the date of grant.  At June 30, 2009 there were 650,000 options outstanding and 466,667 of the options issued were exercisable.

Plan B - on July 26, 2007 we approved Medicexchange stock option plan “B” and granted options for 300,000 shares under this plan.  Options issued under this plan vest equal one-thirds after employees have been employed for 12, 24 and 36 months from the date of grant.  At June 30, 2009 there were 150,000 options outstanding and 50,000 of the options issued were exercisable.

The assumptions used in the Black-Scholes option valuation model used in the calculation of grant date fair value for the above options are highly subjective and can materially affect the resulting valuation.  These assumptions are based on multiple factors including United Kingdom treasury bonds for the risk-free rate at the time of grant, expected future exercising patterns (we cannot base the estimate on the historical exercise patterns as no options have been exercised) and the volatility of the MGT stock price.

	Three months ended June 30,		Six months ended June 30,
	2009	2008	2009	2008
Dividend yield	0%	0%	0%	0%
Expected volatility	105.7%	25% - 65%	105.7%	25% - 65%
Risk-free rate	3.89%	4.65% - 5.50%	3.89%	4.65% - 5.50%
Expected life of options	6.75 years	3 years	6.75 years	3 years

The following table summarizes stock option activity for the six months ended June 30, 2009:

22

	Outstanding							Exercisable
	Number of shares		Weighted- average exercise price					Number of shares	Weighted- average exercise price
Outstanding at December 31, 2008	16,137,500		£	0.91	$	(1.31	)	5,679,166	£	0.98	$	(1.42	)
Granted	8,148,750		0.09		(0.12		)
Exercised	—		—		—
Forfeited	(11,000,000	)	0.68		(1.12		)
Outstanding at June 30, 2009	13,286,250		£	0.54	$	(0.89	)	3,117,500	£	0.98	$	(1.63	)

The following is a summary of the status of the stock options outstanding at June 30, 2009:

	Outstanding options						Exercisable options
		Remaining
	Number	contractual life (years)	Average exercise price				Number	Average exercise price
MGT Capital Investments, Inc. 2007 Plan	1,975,000	8.4			$	3.69	658,333			$	3.69
Medicsight Plan A	119,000	4.0	£	0.75	$	1.24	119,000	£	0.75	$	1.24
Medicsight Plan B	196,000	5.3	£	0.75	$	1.24	196,000	£	0.75	$	1.24
Medicsight Plan C	218,333	6.0	£	0.75	$	1.24	218,333	£	0.75	$	1.24
Medicsight Plan D	150,000	7.0	£	0.83	$	1.37	150,000	£	0.83	$	1.37
Medicsight Plan E	1,252,500	7.7	£	0.50	$	0.83	984,167	£	0.50	$	0.83
Medicsight Plan F	50,000	7.9	£	0.75	$	1.24	33,333	£	0.75	$	1.24
Medicsight Plan G	241,667	8.4	£	1.10	$	2.00	141,667	$	1.10	$	2.00
Medicsight Plan H	—	8.9		—		—	—	—		—
Medicsight Plan I	135,000	9.5	£	0.24	$	0.40	—	—		—
Medicsight Plan J	7,848,750	9.9	£	0.09	$	0.14	—		—		—
Medicsight Plan K	300,000	9.9	£	0.10	$	0.17	100,000	£	0.10	$	0.17
Medicexchange Plan A	650,000	7.3	£	0.40	$	0.66	466,667	£	0.40	$	0.66
Medicexchange Plan B	150,000	9.1	£	1.00	$	1.65	50,000	£	1.00	$	1.65

On May 14, 2009 we approved Medicsight Plan J.  Our employees were given the opportunity to forfeit all their existing options in Plans A through I and, in their place, receive in Plan J 50% of the number of forfeited options.  Under FAS 123(R) this is accounted for as a modification of the existing options, specifically a cancel and reissue.  Of the options issued in Plan J 3,032,500 were issued as new options and 4,816,250 were issued as replacements for options cancelled in existing plan.

On March 11, 2008 we modified the vesting terms for 450,000 options in Medicsight plan E, and 150,000 options in Medicexchange plan B for a former employee and allowed these options to be transferred to his estate.

The total grant date fair value for Plan J is $3,146, of which $55 relates to the modification charge for the six months to June 30, 2009.  The modification charge for the six months to June 30, 2008 was $347.

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

23

	Three months ended June 30,				Six months ended June 30,
	2009		2008		2009		2008
Selling, general and administrative	$	512	$	752	$	965	$	1,792
Research and development	36		37		64		88
Total	$	548	$	789	$	1,029	$	1,880

Of the $1,029 stock-based expense in the six months ended June 30, 2009, $275 was allocated to the non-controlling interest.

No compensation costs were capitalized.

The aggregate intrinsic value for options outstanding and exercisable at June 30, 2009 was $nil. The aggregate intrinsic value for all outstanding options was $531.

A summary of non-vested options at June 30, 2009 and the change during the six months ended June 30, 2009 is presented below:

	Number of options		Weighted average grant date fair value
Non-vested at January 1, 2009	10,458,334		£	0.35	$	(0.51	)
Granted	8,148,750		0.24		(0.40		)
Vested	(1,974,983	)	0.25		(0.41		)
Forfeited	(6,463,351	)	0.29		(0.48		)
Non-vested at June 30, 2009	10,168,750		£	0.33	$	(0.55	)

At June 30, 2009 there was $6,228 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the option plans.

Non-vested awards are expected to be recognized over a weighted average period of 1.25 years.

14. Non-controlling interest

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

	Medicsight			Medicexchange			Total
Non-controlling interest at January 1, 2009	$	15,036		$	981		$	16,017
Non-controlling share of operating losses	(3,185		)	(63		)	(3,248		)
Non-controlling share of stock-based expense	273			2			275
Non-controlling share of other comprehensive income (loss)	1,221			(24		)	1,197
Non-controlling interest at June 30, 2009	$	13,345		$	896		$	14,241

15. Related party transactions

Tim Paterson-Brown, our Chief Executive Officer, is a non-executive director of Accsys Technologies plc, which has a subsidiary company Titan Wood Limited.  Titan Wood Limited rents space in 66 Hammersmith Road.  In the six month period ended June 30, 2009 and 2008 respectively, $160 and $70 of office related costs were recharged to Titan Wood Limited.  At June 30, 2009 there was a balance receivable from Titan Wood Limited of $59 of which $59 remains unpaid as of August 7, 2009.  This is payable within 30 days under the terms of the invoice.

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

24

16. Commitments

Lease commitments and security deposit

On August 25, 2006 we executed a 10-year agreement with Pirbright Holdings Limited, to lease 8,787 square feet of office space at the Kensington Centre, 66 Hammersmith Road, London W14 8UD, United Kingdom.  Under this lease agreement our UK property rent, services and related costs are be approximately £330 ($545) per annum, paid quarterly in advance.  We have the right to terminate this agreement on the expiry of the fifth year of the lease.  Our annual rent is subject to upward only review on August 24, 2011.

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

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

Year ending December 31,
2009 (remaining six months)	$	318
2010	635
2011	245
2012	5
2013	2
Later years	—
Total minimum	$	1,205

Other commitments

In July 2008 we entered into an agreement with a partner to develop interfaces for our software.  We have committed to pay Euros 1,445 ($2,030) over an expected thirty-six month period.  As at June 30, 2009 we have paid Euros 995 ($1,397).  These payments will be recovered against future royalty payments, should the products be successfully commercialized.  These payments have been expensed to the income statement and classified as research and development.

17. Subsequent events

We evaluated subsequent events and their potential impact on our results of operations, financial position and disclosures, from the balance sheet date through August 14, 2009.

XShares

On August 5, 2009 we signed an Amendment to the Securities purchase Agreement with XShares Group, Inc.  A copy of the Amendment is attached hereto as Exhibit 10.6.

The amendment allows for:

·      The date of the first closing to be extended until December 31, 2009;

·      Our CEO, Tim Paterson-Brown, to be appointed as the Series B Preferences Shares director on the XShares board;

·      Certain additional post closing covenants; and

·      Certain additional closing conditions.

On August 6, 2009 a Second Amendment to the SPA was signed.  A copy of the Second Amendment is attached hereto as Exhibit 10.7.  This amended the terms of the second closing to allow for the investment to be made in a Convertible Note with a maturity date of December 31, 2009.  The Convertible Note is attached hereto as Exhibit 10.8.

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

25

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

This report contains forward-looking statements made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These statements may be identified by the use of words such as “anticipate”, “estimates”, “should”, “expect”, “guidance”, “project”, “intend”, “plan”, “believe” and other words and terms of similar meaning, in connection with any discussion of our financial statements, business, results of operations, liquidity and future operating or financial performance.  Please also refer to our “Note Regarding Forward Looking Statements” at the front of this Form.

Executive summary

MGT Capital Investments, Inc. achieved the following results in the six months ended June 30, 2009:

·              Revenue from license and other sales decreased 12% to $121 compared to $137 in 2008.

·              Gross profit increased 11% to $119 compared to $107 in 2008.

·              Other operating expenses, excluding the goodwill impairment, decreased 36% to $9,392 compared to $14,697 in 2008.

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

·              Net loss increased 115% to $19,175 and resulted in a loss per share of $0.59 compared to a net loss of $8,915 and net loss per share of $0.23 in 2008.

Revenue has fallen due to the decrease in revenue in Medicexchange following the slow down of medical equipment sales in China.  Medicsight’s revenue has increased slightly and, due to its higher gross profit compared to Medicexchange, has pushed up gross profit overall.

Operating costs, excluding the goodwill impairment, have decreased by $5,305 due to a focus on reducing costs and because of a reduction in headcount in Medicsight in the six months ended June 30, 2009.  A fall in the value of sterling from $1.99:£1.00 to $1.65:£1.00 contributed to the reduction in reportable costs by approximately $2,600 using the average exchange rate for the six months ended June 30, 2008 as the majority of our costs are incurred in sterling in Medicsight.

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

Our balance sheet remains strong with cash and cash equivalents and marketable securities of $31,001 compared to $40,178 as of December 31, 2008.  The movement is mainly attributable to cash used in operating activities ($9,430).

Goodwill impairment

At December 31, 2008 our goodwill totaled $12,157, which was entirely related to our shareholding in Medicsight plc.  We assess the impairment of goodwill of our reporting units annually, or more often if events or changes in circumstances indicate that the carrying value may not be

26

recoverable.  This assessment is based upon an analysis of both the market value and discounted anticipated future cash flow of the reporting unit.

The shares of Medicsight plc are traded on the AIM Market of the London Stock Exchange.  We consider this to be a Level 1 input in the fair value hierarchy as defined in SFAS No. 157, as this is an unadjusted quoted price in an active market.

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

In addition, estimates of discounted cash flows would involve assumptions on a business with limited revenue history and developing revenue models, which increase the risk of differences between the projected and actual performance.  Significant differences between these estimates and actual cash flows could materially affect our future financial results.  We consider these to be Level 3 inputs in the fair value hierarchy as defined in SFAS No. 157, as this is an unobservable input with little or no market activity that require significant management judgment.

We conducted our annual impairment test of goodwill as of December 31, 2008 in accordance with SFAS No. 142.  As a result of this test we determined that no adjustment to the carrying value of goodwill was required.

In the period between December 31, 2008 and March 31, 2009, the market value of Medicsight plc, as traded on the AIM Market of the London Stock Exchange, declined from $53.0 million to $13.2 million.  Following this decline in value we conducted an impairment test of goodwill as of March 31, 2009 in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”.  Due to the uncertainties involved in using the unobservable inputs to estimate future cash flows, we used market price, Level 1 inputs as the basis of our impairment review.  As a result of this test we determined that the carrying amount of Medicsight plc exceeded its fair value and recorded an impairment loss of $12,157 during the quarter ended March 31, 2009.

Critical accounting policies and estimates

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

We believe the following policies to be the most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain.

Revenue recognition

Medicsight

We recognize revenue in accordance with American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 97-2, “Software Revenue Recognition”, as amended by SOP 98-4 and SOP 98-9, as well as Technical Practice Aids issued from time to time by the AICPA, and SEC Staff Accounting Bulletin No. 104.  We recognize revenue when it is realized or realizable and earned.  We consider revenue realized or realizable and earned when we have persuasive evidence of an arrangement, the product has been shipped or the services have been provided to the customer, the sales price is fixed or determinable and collectability is probable.

27

License fee revenue is derived from the licensing of computer software.  Maintenance revenue is derived from software maintenance.  Our software licenses are generally sold as part of an arrangement that includes maintenance and support.

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

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

Additionally:

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

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

Multiple-element arrangements — We enter into arrangements with Resellers that include a combination of software products, maintenance and support.  For such arrangements, we recognize revenue using the residual method.  We allocate the total arrangement fee among the various elements of the arrangement based on the fair value of each of the undelivered elements determined by vendor-specific objective evidence.  The fair value of maintenance and support services is evidence of fair value for all elements, revenue is deferred until the earlier of when vendor-specific objective evidence is determined for the undelivered elements (residual method) or when all elements for which we do not have vendor-specific objective evidence of fair value have been delivered.

Medicexchange

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

Goodwill

We account for goodwill in accordance with the provisions of SFAS No. 142.  Under SFAS No. 142, goodwill and intangible assets with indefinite lives are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.  The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill.  We compare the book value to the market value (market capitalization plus a control premium) for the reporting unit.  If the market value exceeds the book value, goodwill is considered not impaired, and thus the second step of the impairment test is not necessary.  If our book value exceeds the market value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any.  The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of the goodwill with the book value of the goodwill.  If the carrying value of the goodwill exceeds the implied fair value of the goodwill, an impairment loss would be recognized in an amount equal to the excess.  Any loss recognized cannot exceed the carrying amount of goodwill.  After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill is its new accounting basis.  Subsequent reversal of a previously recognized goodwill impairment loss is prohibited once the measurement of that loss is completed.

28

Equity-based compensation

We recognize compensation expense for all equity-based payments in accordance with SFAS No. 123(R).  Under the fair value recognition provisions of SFAS No. 123(R), we recognize equity-based compensation net of an estimated forfeiture rate and recognize compensation cost only for those shares expected to vest over the requisite service period of the award.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model.  The Black-Scholes option valuation model requires the development of assumptions that are input into the model.  These assumptions are the expected stock volatility, the risk-free interest rate, the option’s expected life and the dividend yield on the underlying stock. Expected volatility is calculated based on the historical volatility of our common stock over the expected option life and other appropriate factors.  Risk-free interest rates are calculated based on continuously compounded risk-free rates for the appropriate term.  The dividend yield is assumed to be zero as we have never paid or declared any cash dividends on our common stock and do not intend to pay dividends on our common stock in the foreseeable future.  The expected forfeiture rate is estimated based on historical experience.

Determining the appropriate fair value model and calculating the fair value of equity-based payment awards require the input of the subjective assumptions described above.  The assumptions used in calculating the fair value of equity-based payment awards represent management’s best estimates, which involve inherent uncertainties and the application of management judgment.  As a result, if factors change and we use different assumptions, our equity-based compensation expense could be materially different in the future.  In addition, we are required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest.  If our actual forfeiture rate is materially different from our estimate, the equity-based compensation expense could be significantly different from what we have recorded in the current period.

Research and development

Costs incurred in connection with the development of software products that are intended for sale are accounted for in accordance with SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”.  Costs incurred prior to technological feasibility being established for the product are expensed as incurred.  Technological feasibility is established upon completion of a detail program design or, in its absence, completion of a working model.  Thereafter, all software production costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value.  Capitalized costs are amortized based on current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product.  Amortization commences when the product is available for general release to customers.

We concluded that capitalizing such expenditures on completion of a working model was inappropriate because we did not incur any material software production costs and therefore have decided to expense all research and development costs.  Our research and development costs are comprised of staff, consultancy and other costs expensed on the Medicsight products.

Fair value of financial instruments

On January 1, 2008 we adopted the provisions of SFAS No. 157, “Fair Value Measurements”, for financial assets and financial liabilities.  Applying fair value measurements to our financial instruments requires management’s judgment, especially when using Level 2 and Level 3 inputs as defined in SFAS No. 157’s fair value hierarchy.

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

We evaluate the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Our assessment for impairment of an asset involves estimating the undiscounted cash flows expected to result from use of the asset and its eventual disposition.  An impairment loss recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

29

Calculating the estimated fair value of an asset involves significant judgments and a variety of assumptions.  Judgments that we make concerning the value of its intangible assets include assessing time and cost involved for development, time to market, and risks of regulatory failure or obsolescence (due to market, environmental or technological advances for example).  For calculating fair value based on discounted cash flows, we forecast future operating results and future cash flows, which include long-term forecasts of revenue growth, gross profits and capital expenditures.

Results of operations

Revenue and gross profit

We have generated revenues of $121 and gross profit of $119 for the six months ended June 30, 2009, compared to $137 and $107 for the six months ended June 30, 2008.  Medicsight increased revenues in the period and Medicexchange’s decreased.

Medicsight has sold licenses in Europe where it has regulatory approvals.

Medicexchange generated revenue from advertising sales in China and the USA.

Operating expenses

Our research and development expense for the six months ended June 30, 2009 was $1,330 compared to $1,227 for the six months ended June 30, 2008.  Our research and development costs were comprised of staff, staff related consultancy, stock options and product development software costs expensed on the research and development of Medicsight’s products.

Our selling, general and administrative expenses for the six months ended June 30, 2009 were $8,062 compared to $13,470 for six months ended June 30, 2008, with the significant items being:

·People related costs have decreased by $2,761 (40%) due to a reduced head count in both Medicexchange and Medicsight, a lower provision for bonus costs, reduced recruitment costs and the effect of the fall in the value of sterling against the dollar;

·Stock option charges have decreased by $851 (45%) in the first half of 2009 due to the effect of modifications made to plans in the first half of 2008, pushing up the cost in that period, and the fall in the value of sterling against the dollar; and

·A strengthening of the dollar against sterling has reduced all elements of selling, general and administrative expenses by approximately $2,600 in the six months ended June 30, 2009 compared to the six months ended June 30, 2008.

At the end of the quarter ended March 31, 2009 we implemented a redundancy program in Medicsight to reduce costs.  As a consequence, we expect people related costs to continue to decrease.

Following an impairment review in the three months to March 31 2009, we fully impaired $12,157 of goodwill relating to Medicsight.  There was no impairment charge in the three months to June 30, 2009 or in the six months to June 30, 2008.  As explained in the executive summary, we based our fair value measurements on the market price of Medicsight shares listed on the AIM Market of the London Stock Exchange as of March 31, 2009.

Interest and other (expense) income was an expense of $993 in the six months to June 30, 2009 compared to income of $1,145 in the same period in the prior year.  The expense was made up of impairment losses in Eurindia ($176) and HipCricket ($739) which were incurred in the three months to March 31, 2009 and impairment losses on XShares ($230) incurred in the three months to June 30, 2009.  There were also realized losses on other investments ($37) and interest income of $189 spread over the six months to June 30, 2009.  The interest income consisted of bank interest and a portion of the arrangement fee and interest from the XShares convertible note.

30

Interest and other income/(expense) in the six months ended June 30, 2008 was an income figure as opposed to an expense in the six months to June 30, 2009 due to the higher levels of cash held, higher interest rates and investment gains rather than impairments.

Income tax

Our effective tax rate for the six months ended June 30, 2009 is 0%.  The difference in our effective tax rate from the federal statutory rate is primarily due to a 100% valuation allowance provided for all deferred tax assets.

Net loss and net loss per share

Net loss attributable to equity holders of MGT Capital Investments, Inc. was $3,845 for the three months ended June 30, 2009 compared to a net loss of $5,136 for the three months ended June 30, 2008.  Net loss per share for the three months ended June 30, 2009 was $0.12 (based on weighted average shares outstanding of 32,550,590), compared to $0.14 for the three months ended June 30, 2008 (based on weighted average shares outstanding of 35,539,746).

Net loss attributable to equity holders of MGT Capital Investments, Inc. was $19,175 for the six months ended June 30, 2009 compared to a net loss of $8,915 for the six months ended June 30, 2008.  Net loss per share for the six months ended June 30, 2009 was $0.59 (based on weighted average shares outstanding of 32,550,590), compared to $0.23 for the six months ended June 30, 2008 (based on weighted average shares outstanding of 37,956,351).

The increase in net loss between the six months ended June 30, 2008 and the six months ended June 30, 2009 was predominantly due to the goodwill impairment in the three months to March 31, 2009.

Operational currency

Our main operating currency is UK sterling.  Our results of operations are affected by changes in the $:£ rates used to translate the operational result.  For six months ended June 30, 2009 the average rate was $1.65: £1.00 and for six months ended June 30, 2008 the rate was $1.99:£1.00, a decrease of 17%.

Operating results by business segment

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

Medicsight

	Three months ended June 30,
	2009			2008
Revenue	$	40		$	54
Selling, general and administration costs	2,814			4,984
Research and development	871			632
Operating expense	(3,685		)	(5,616		)
Stock-based compensation (included in operating expenses)	301			495
Operating loss	(3,645		)	(5,562		)
Interest and other income	15			424

31

	Six months ended June 30,
	2009			2008
Revenue	$	101		$	88
Selling, general and administration costs	5,950			8,450
Research and development	1,330			1,227
Operating expense	(7,280		)	(9,677		)
Stock-based compensation (included in operating expenses)	611			1,201
Operating loss	(7,179		)	(9,589		)
Interest and other income	54			736

	June 30, 2009		December 31, 2008
Cash	$	22,709	$	26,624
Net assets	21,519		25,302

In the three months ended June 30, 2009 sales of our CAD products fell compared to the same period in the prior year and the first quarter of 2009 due to delays by some partners in the integration of our ColonCAD 4.0 product with their visualization technologies.  We are currently working to resolve this.  In June 2008 we released our new MedicRead 3.0 standalone visualization and CAD software and expect this to contribute to revenue in the next two quarters.

At the end of the first quarter of 2009 we streamlined Medicsight’s operations and reduced staff numbers to forty-five in order to reduce our operating costs and cash flow.   This, together with the fall in the value of sterling, has resulted in the reduction in operating expenses in the six months ended June 30, 2009.

Research and development is made up of staff, staff related consultancy, stock options and product development software costs expensed on the research and development of Medicsight’s products.    This has increased compared to the comparative periods in 2008 due to development of our MedicRead software.  In the third and fourth quarters of 2009 we expect our research and development costs to decrease as a result of reduced headcount and the timing of certain stages of MedicRead’s development.

In local currency terms, bonus charges fell as we believe that, after the redundancy program in Medicsight, any potential year end performance related bonuses would, in total, be lower than in the previous year.

In the three months ended June 30, 2009 we approved Medicsight Plan J.  Our employees were given the opportunity to forfeit all their existing options in Plans A through I and, in their place, receive in Plan J 50% of the number of forfeited options.  Under FAS 123(R) this is accounted for as a modification of the existing options, specifically a cancel and reissue.  Of the options issued in Plan J 3,032,500 were issued as new options and 4,816,250 were issued as replacements for options cancelled in existing plan.

In the three months ended June 30, 2009 the stock option charge fell as we made modifications to certain options in the six months ended June 30, 2008 and the charge has not been repeated in the six months ended June 30, 2009.  The modification charge for this amounts $55, which is expensed over 3 years.

Interest and other income was generated by returns on the investment of the proceeds from the IPO in June 2007.  Interest income has fallen in the first two quarters of 2009 compared to the same period in 2008 as the level of cash invested was lower, combined with lower investment returns due to significantly lower interest rates.  We believe that continuing low interest rates, combined with lower cash balances, will mean a lower level of interest and other income during Fiscal 2009 compared to Fiscal 2008.

Cash and net assets were lower at June 30, 2009 compared to December 31, 2008 because of Medicsight’s net loss and also as sterling fell in value against the US dollar.

32

Medicexchange

	Three months ended June 30,
	2009			2008
Revenue from external customers	$	7		$	32
Cost of revenue	—			(19		)
Gross profit	7			13
Operating expenses	(366		)	(1,180		)
Operating loss	(359		)	(1,167		)
Stock-based compensation (included in operating expenses)	13			27

	Six months ended June 30,
	2009			2008
Revenue from external customers	$	20		$	49
Cost of profit	(2		)	(30		)
Gross margin	18			19
Operating expenses	(640		)	(2,120		)
Operating loss	(622		)	(2,101		)
Stock-based compensation (included in operating expenses)	8			152

	June 30, 2009			December 31, 2008
Cash	$	1,203		$	1,322
Net (liabilities)	(2,364		)	(1,412		)

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

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

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

Liquidity and capital resources

Working capital information

	June 30, 2009			December 31, 2008
Working capital summary
Cash, cash equivalents and marketable securities	$	31,001		$	40,178
Current assets	34,105			41,212
Current liabilities	(3,651		)	(4,340		)
Working capital surplus	$	30,454		$	36,872
Ratio of current assets to current liabilities	9.3			9.5

33

	Six months ended June 30,
	2009			2008
Cash flow summary
Cash (used for) provided by Operating activities	$	(8,830	)	$	(11,096	)
Investing activities	(1,069		)	(5,308		)
Financing activities	—			(20,150		)
Effects of exchange rates on cash and cash equivalents	2,382			(73		)
Net cash flow	$	(7,517	)	$	(36,627	)

Our cash, cash equivalents and marketable securities have decreased during 2009 predominantly because of the cash used in operating activities.  Our net cash used in operating activities differs from net loss because of various non-cash adjustments such as the transfer to non-controlling interest, stock-based compensation and impaired investments and goodwill.  Even though net loss was greater in the six months ended June 30, 2009 compared to the same period in the prior year, cash used in operating activities was lower.  This was due to lower levels of expenditure in the six months ended June 30, 2009, and the fact that net loss included the $12,157 non-cash goodwill impairment charge relating to goodwill.

Our ratio of current assets to current liabilities has remained relatively constant at 9.3.  This is a result of the $30,777 of cash held in the Company.

Valuation of investments held at fair value

At December 31, 2008 investments held at fair value consisted of HipCricket and a fund managed by Bank Sarasin & Company Limited.  In the three months ended June 30, 2009 we liquidated our holdings in this fund.

We have valued HipCricket using its closing price on the AIM market of the London Stock Exchange as of June 30, 2009.  Due to the low number of market transactions for HipCricket, each transaction potentially has, and has historically had, a significant effect on the share price.  It is for this reason we deem this to be a Level 2 input in the fair value hierarchy.  However, we still believe that this is the best price at which to determine the current value.

In the three months ended June 30, 2009 HipCricket’s fair value increased by $38; in the three months ended March 31, 2009 it was impaired by $739.  We classify this investment as available for sale and generally recognize any movement in fair value in equity and other comprehensive income.  In the three months ended March 31, 2009, however, we considered the impairment in HipCricket’s fair value to be other than temporary and recognized the movement in net loss.  In the second quarter of 2009 we recognized the increase in fair value in equity.

On liquidation of our investments in other marketable securities the realized loss on investment of $12 was recognized in net loss.

Impairment review of Eurindia Limited

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

In 2000 MGT invested in Eurindia Limited (“Eurindia”), a UK company that invested in IT start-up companies.  MGT has a 6% holding in Eurindia and accounts for this investment on a cost basis. During 2007 we received two dividends totaling $423 ($0.72 per share) which we recorded in Other Income.

We carried out an impairment review of our holdings in Eurindia as of December 31, 2008.  Eurindia’s management had informed us that it intended to pay a liquidating dividend of between 30 cents and 50 cents per share in the first half of 2009.  We assumed the dividend to be the lower of these two values and impaired our holding to the value of 30 cents per share.  As of June 30, 2009 the investment had not been liquidated.

Eurindia management has informed us that it now intends to liquidate the investment by means of an IPO.  Due to the turbulence in financial markets, however, and specifically the weakness of the market for IPOs, we are currently not able to accurately ascertain the potential value of the investment

34

on an IPO or the timescale in which it might be realized.  As a consequence we have fully impaired our investment and recognized an impairment loss of $176 in net loss.  We consider the amount of this impairment to be a Level 3 input under the SFAS No. 157 fair value hierarchy, which is a significant unobservable input.

Investment in XShares Group, Inc.

In 2007 we invested $960 in Series C preferred shares of XShares Group, Inc. (“XShares”), an investment advisor that creates, issues and supports exchange traded funds with a particular healthcare specialty.  In the year ended December 31, 2008 we invested an additional $2,040 in shares of XShares bringing the total invested to $3,000.  We account for these investments on a cost basis as our total holdings are less than 20%.  In Fiscal 2008 we reviewed the carrying value of our investment in XShares.  XShares was in the process of attempting to raise funds to drive the business forward.  As of December 31, 2008 we impaired this investment to $600.  As of June 30, 2009 the fund-raising was partially complete and, after reviewing our holding, we impaired the investment to $370, which we believe approximates fair value.

We estimated this impairment based on management’s review and discussion of the strategy and business plan of XShares and review of draft Fiscal 2008 financial accounts prepared by an independent accountant.  These inputs are subject to management’s judgment and we have therefore deemed them to be Level 3 inputs in the fair value hierarchy.  The value of our investment has been reduced as previously invested cash has been used to fund business operations and as yet the business is not generating sufficient cash.  However, we have reviewed XShares’ business plan and we have adjusted our investment to a level we believe reflects the future market valuation and with no active market we believe this is the best method with which to determine the value of our investment.

On May 14, 2009 we executed and delivered a Convertible Promissory Note (the “Note”) in the principal amount of $1,100 with XShares.  The principal amount included a fee of $100 payable to us.  All of the Note shall be converted into Series B Preferred Stock of XShares (the “Series B Shares”) at the Initial Closing (as defined below).  In the event that an Amended and Restated Certificate of Incorporation designating the rights and preferences of the Series B Shares (the “Certificate”) is not approved by a majority of the stockholders of XShares, then the entire unpaid principal sum of the Note, plus interest thereon, shall be immediately paid to the Company or converted into shares of XShares’ common stock at a price of $0.001 per share at the option of the Company.  A copy of the Note is annexed as Exhibit 10.5 to our quarterly report on Form 10-Q for the three months ended March 31, 2009.

Simultaneously with executing the Note, we entered into a Securities Purchase Agreement (the “SPA”) with XShares, pursuant to which we agreed to purchase an aggregate of 73,943,662 Series B Shares at a purchase price of $0.0284 per share for a total of $2,100.  The SPA contains the standard representations and warranties for a transaction of this type and is subject to the approval of the Certificate by the stockholders of XShares.  The Series B Shares are redeemable at the option of XShares, at a price of 1.05 times the original issue price.

It is anticipated that the purchase and sale of the Series B Shares will take place in two closings.

1.The initial closing of 38,732,394 Series B Shares will occur upon the filing of the Certificate with the Secretary of State of the State of Delaware and certain other conditions (the “Initial Closing”).

2.The second closing of 35,211,268 Series B Shares will occur upon the later of (i) July 16, 2009 or (ii) five days following the filing of the Certificate.  A copy of the SPA and a form of the Certificate are annexed as Exhibits 10.3 and 10.4, respectively, to our quarterly report on Form 10-Q for the three months ended March 31, 2009.

The fee of $100 payable to the Company is recognized ratably over the term of the Note; this has been recognized in interest income.  We also accrue coupon interest at an annualized rate of 10% as provided for in the Note.

35

On August 5, 2009 we signed an Amendment to the Securities purchase Agreement with XShares Group, Inc.  A copy of the Amendment is attached hereto as Exhibit 10.6.

The amendment allows for:

·      The date of the first closing to be extended until December 31, 2009;

·      Our CEO, Tim Paterson-Brown, to be appointed as the Series B Preferences Shares director on the XShares board;

·      Certain additional post closing covenants; and

·      Certain additional closing conditions.

On August 6, 2009 a Second amendment to the SPA was signed.  A copy of the Second Amendment is attached hereto as Exhibit 10.7.  This amended the terms of the second closing to allow for the investment to be made in a Convertible Note with a maturity date of December 31, 2009.  The Convertible Note is attached hereto as Exhibit 10.8.

Investment in Medicsight

Our condensed consolidated financial statements include the results and financial condition of our subsidiary, Medicsight.  Our holding in Medicsight is 86,000,000 shares out of Medicsight’s issued share capital of 155,524,504 shares.

As of June 30, 2009 Medicsight’s share price was £0.14 ($0.23) compared to £0.235 ($0.34), as of December 31, 2008.  This valued Medicsight at £12,040 ($19,890), compared to £20,210 ($29,262) as of December 31, 2008.

As of August 3, 2009 Medicsight’s share price was £0.13 ($0.22) valuing the Company’s investment at £11,395 ($18,825), assuming a $:£ exchange rate of 1.6520.

Risks and uncertainties related to our future capital requirements

To date we have primarily financed our operations through private placements of equity securities.  To the extent that additional capital is raised through the sale of equity or equity-related securities of the Company or its subsidiaries, the issuance of such securities could result in dilution to our stockholders.

No assurance can be given, however, that we will have access to the capital markets in the future, or that financing will be available on acceptable terms to satisfy our cash requirements to implement our business strategies.

If we are unable to access the capital markets or obtain acceptable financing, our results of operations and financial conditions could be materially and adversely affected.  We may be required to raise substantial additional funds through other means.

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

36

If adequate funds are not available to us, we may be required to curtail operations significantly or to obtain funds through entering into arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies or products that we would not otherwise relinquish.

Capital commitments

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

Under this lease agreement our UK property rent, services and related costs will be approximately £330 ($545) per annum, paid quarterly in advance.  We have the right to terminate this agreement on the expiration of the fifth year of the lease.  Our annual rent is subject to upward only review on August 24, 2011.  We have two 10-month rent-free periods: the first commencing August 25, 2006; the second commencing August 25, 2011.

We have satellite offices in Tokyo (Japan) and Beijing (China) — which are on three and two year rental agreements respectively.

In July 2008 we entered into an agreement with a partner to develop interfaces for our software.  We have committed to pay Euros 1,445 ($2,030) over an expected thirty-six month period.  As at June 30, 2009 we have paid Euros 995 ($1,397).  These payments will be recovered against future royalty payments, should the products be successfully commercialized.

The following table analyzes our contractual obligations.

	Payments due by period
Contractual obligations	Total		Less than 1 year		1-3 years		3-5 years
Operating lease obligations	$	1,205	$	635	$	568	$	2
Purchase obligations	633		633		—		—
Total	$	1,838	$	1,268	$	568	$	2

Recent accounting pronouncements

In June 2009 the Financial Accounting Standards Board (“FASB”) approved the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative non-governmental GAAP.  All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission, will be superseded by the Codification.  All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative.  The Codification does not change GAAP, but instead introduces a new structure that will combine all authoritative standards into a comprehensive, topically organized online database.  The Codification will be effective for interim or annual periods ending after September 15, 2009, and will impact the Company’s financial statement disclosures beginning with the quarter ending September 30, 2009 as all future references to authoritative accounting literature will be referenced in accordance with the Codification.  There will be no changes to the content of the Company’s financial statements or disclosures as a result of implementing the Codification.

In June 2009 the FASB issued FAS 167, “Amendments to FASB Interpretation No. 46(R)”, which changes the approach to determining the primary beneficiary of a variable interest entity (“VIE”) and requires companies to more frequently assess whether they must consolidate VIEs.  This new standard is effective for us beginning on January 1, 2010.  We are currently assessing the potential impacts, if any, on our consolidated financial statements.

On April 1, 2009 we adopted the provisions of three Staff Positions (“FSPs”) that are intended to provide additional application guidance and enhance disclosures about fair value measurements and impairments of securities.  FSP FAS 157-4 clarifies the objective and method of fair value measurement even when there has been a significant decrease in market activity for the asset being measured.  FSP FAS 115-2 and FAS 124-2 establish a new model for measuring other-than-temporary

37

impairments for debt securities, including establishing criteria for when to recognize a write-down through earnings versus other comprehensive income.  FSP FAS 107-1 and APB 28-1 expand the fair value disclosures required for all financial instruments within the scope of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, to interim periods.  The adoption of FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2 did not have a material impact on our consolidated financial statements.  The adoption of FSP FAS 107-1 and APB 28-1 has resulted in increased disclosures in our interim periods.

On January 1, 2009 we adopted the provisions of SFAS No. 141 (Revised 2007), “Business Combinations”.  SFAS No. 141(R) significantly changes the accounting for business combinations.  Under SFAS No. 141(R), an acquiring entity is required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with only limited exceptions.  SFAS No.141(R) also includes a substantial number of new disclosure requirements.  In April 2009 the FASB issued FSP FAS 141(R)-1 which amends SFAS No. 141(R) by establishing a model to account for certain pre-acquisition contingencies.  Under the FSP, an acquirer is required to recognize at fair value an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period.  If the acquisition-date fair value cannot be determined, then the acquirer should follow the recognition criteria in SFAS No. 5, “Accounting for Contingencies”, and FASB Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss — an interpretation of FASB Statement No. 5”.  SFAS No. 141(R) and FSP FAS 141(R)-1 became effective for us beginning January 1, 2009, and will apply prospectively to business combinations completed on or after that date.

On January 1, 2009 we adopted the provisions of SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51”.  SFAS No. 160 establishes accounting and reporting standards for the non-controlling interest (formerly known as minority interest) in a subsidiary (which may include variable interest entities) and for the deconsolidation of a subsidiary.  Significant changes include: balance sheet and income statement presentation and expanded disclosures; Accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation; recognition and measurement of a gain or loss when a subsidiary is deconsolidated.  For balance sheet presentation, non-controlling interests are now recorded within equity and so-called “mezzanine” display is not permitted.  In income statements, the amount of income attributable to the non-controlling interest is not a deduction that impacts net income.  As a result of these requirements, various financial statements ratios have been impacted.  The statement requires prospective application except for the presentation and disclosure requirements, which must be applied retrospectively for all periods presented.  Prior periods were reclassified to conform to the current period presentation.

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, SFAS 165 sets forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.  SFAS 165 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This Statement is effective for financial statements issued for interim and annual periods ending after June 15, 2009 and it has not had a material impact on our financial reporting.

Item 3.    Quantitative and qualitative disclosures about market risk

Interest rate risk

Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio.  We place our investments in a mixture of cash deposits and available-for-sale market securities.  A decline in interest rate would have an adverse impact on interest income.

38

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

Foreign exchange risk

We are exposed to foreign currency exchange rate fluctuations related to the operation of our international subsidiaries.  Our main operating currency is UK sterling.  We also have subsidiary operations in Japan and China who operate in their local currencies.

Our operating costs in Fiscal 2008 were predominantly in UK sterling; we do not foresee any change in Fiscal 2009 or Fiscal 2010.  A ten percent increase or decline in the US dollar exchange rate against all foreign currencies would have created an decrease or increase in our operating costs in the six months ended June 30, 2009 of approximately $822.

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

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

We currently do not hedge against this foreign currency risk.

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

Item 4T.                      Controls and procedures

Evaluation of disclosure controls and procedures

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

Changes in internal control over financial reporting

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

PART II.  OTHER INFORMATION

Item 1.                            Legal proceedings

None.

Item 1A.                         Risk factors

Discussion of our business and operations included in this quarterly report on Form 10-Q should be read together with the risk factors set forth below.  They describe various risks and uncertainties to which we are or may become subject.  These risks and uncertainties, together with other factors described elsewhere in this report, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.  New risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect

39

financial performance.  Each of the risks described below could adversely impact the value of our securities.  These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.

We cannot assure you that MGT will be successful in commercializing any of the Group’s products and, in particular, the Medicsight products or the Medicexchange portal, or if any of the products or the portal are commercialized, that they will prove to be profitable for the Company.

MGT has only had a limited operating history and has just commenced generating revenue from operations upon which an evaluation of its prospects can be made.  MGT’s prospects must be considered keeping in mind the risks, expenses and difficulties frequently encountered in the establishment of a new business in a constantly changing industry.  There can be no assurance that MGT will be able to achieve profitable operations in the foreseeable future if at all.

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

Company specific risks

We may be unable to develop our existing or future technology.

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

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

The market for the Medicsight CAD products and Medicexchange.com may be slower to develop or smaller than estimated or it may be more difficult to build the market than anticipated.  The medical community may resist Medicsight CAD and the Medicexchange.com products or be slower to accept them than we anticipate.  Revenues from Medicsight CAD and Medicexchange.com may be delayed or costs may be higher than anticipated which may result in the Company requiring additional funding.  Medicsight’s principal route to market is via commercial distribution partners.  These arrangements are generally non-exclusive and have no guaranteed sales volumes or commitments.  The partners may be slower to sell our products than anticipated.  Any financial, operational or regulatory risks that affect our partners could also affect the sales of our products.  In the current economic environment, hospitals and clinical purchasing budgets that are reliant on external debt finance may result in purchasing decisions being delayed.  If any of these situations were to occur this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

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

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

The medical imaging market we operate in is highly competitive.

There are a number of groups and organizations, such as software companies in the medical imaging field, MDCT scanner manufacturers, screening companies and other healthcare providers that may develop a competitive offering to the Medicsight CAD products and Medicexchange.com.  In addition, these competitors may have significantly greater resources than MGT.  We cannot make any assurance that they will not attempt to develop such offerings, that they will not be successful in developing such offerings or that any offerings they may develop will not have a competitive edge over Medicsight CAD products and Medicexchange.com. With delayed regulatory approvals and/or disputed clinical claims we may not have a commercial or clinical advantage over competitors’ products.  Should a superior offering market come to market, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

40

We are a developing company with limited revenues from operations.

MGT has incurred significant operating losses since inception and has only recently commenced generating revenues from operations.  As a result, MGT has generated negative cash flows from operations and has an accumulated deficit as of June 30, 2009.  MGT is operating in a developing industry based on new technology and its primary source of funds to date has been through the issuance of securities and borrowed funds.  There can be no assurance that management’s efforts will be successful or that the products MGT develops and markets will be accepted by consumers.  If our products are ultimately unsuccessful in the market, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

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

MGT’s corporate structure may make it more difficult or costly to take certain actions.  MGT conducts its business through: (a) Medicsight, a UK public company which is 55% owned by the Company, and through Medicsight’s subsidiaries in the United Kingdom, the USA, Japan and Gibraltar; and (b) the Medicexchange subsidiaries, in which MGT’s holdings range between 75% and 100%.  Although MGT, Medicsight and Medicexchange share some directors and management, they are required to comply with corporate governance and other laws and rules applicable to public companies in the United Kingdom and the USA.  Should MGT propose to take any action, such as a transfer or allocation of assets or liabilities between MGT and its subsidiaries, MGT would have to take into consideration the potentially conflicting interests of MGT’s stockholders and the non-controlling stockholders.  This may deter MGT from taking such actions that might otherwise be in the best interest of MGT or cause MGT to incur additional costs in taking such actions.  The subsidiary companies would not be able to pay dividends or make other distributions of profits or assets to MGT without making pro-rata payments or distributions to the respective non-controlling stockholders.  Although neither the subsidiary companies nor MGT has plans to pay dividends or make distributions to its shareholders, MGT’s corporate structure may deter its subsidiaries from doing so in the future.  If at any point we are ultimately unable to resolve any of these conflicts, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

The protection of our intellectual property may be uncertain, and we may face possible claims of others.

Although we have received patents and have filed patent applications with respect to certain aspects of our technology, we generally do not rely on patent protection with respect to our products and technologies.  Instead, we rely primarily on a combination of trade secret and copyright law, employee and third-party non-disclosure agreements and other protective measures to protect intellectual property rights pertaining to our products and technologies.  Such measures may not provide meaningful protection of our trade secrets, know-how or other intellectual property in the event of any unauthorized use, misappropriation or disclosure.  Others may independently develop similar technologies or duplicate our technologies.  In addition, to the extent that we apply for any patents, such applications may not result in issued patents or, if issued, such patents may not be valid or of value.  Third parties could, in the future, assert infringement or misappropriation claims against us with respect to our current or future products and technologies, or we may need to assert claims of infringement against third parties.  Any infringement or misappropriation claim by us or against us could place significant strain on our financial resources, divert management’s attention from our business and harm our reputation.  The costs of prosecuting or defending an intellectual property claim could be substantial and could adversely affect our business, even if we are ultimately successful in prosecuting or defending any such claims.  If our products or technologies are found to infringe the rights of a third party, we could be required to pay significant damages or license fees or cease production, any of which could have a material adverse effect on our business.  If a claim is brought against us, or we ultimately prove unsuccessful on the claims on our merits, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

We may fail to attract and retain qualified personnel.

41

We expect to rapidly expand our operations and grow our sales, research and development and administrative operations.  This expansion is expected to place a significant strain on our management and will require hiring a significant number of qualified personnel.  Accordingly, recruiting and retaining such personnel in the future will be critical to our success.  There is intense competition from other companies, research and academic institutions, government entities and other organizations for qualified personnel in the areas of our activities.  If we fail to identify, attract, retain and motivate these highly skilled personnel, we may be unable to continue our marketing and development activities, and this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

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

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

We face risks arising from foreign currency exchange.

As MGT’s main operating currency is UK sterling and its financial statements are reported in US dollars, MGT’s assets and liabilities and its results of operations are affected by movements in the $:£ exchange rate.  Should there be large or unexpected fluctuations in the $:£ exchange rate, this could have a material effect on the Company’s business, financial condition, results of operations and future prospects.  The Company currently does not engage in hedging activities to minimize the effect of adverse movements in the exchange rate.

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

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

General market risks

We may not be able to access credit.

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

Recent global economic trends could adversely affect our business, liquidity and financial results.

Recent global economic conditions, including disruption of financial markets, could adversely affect us, primarily through limiting our access to capital and disrupting our clients’ businesses.  In addition, continuation or worsening of general market conditions in economies important to our businesses may adversely affect our clients’ level of spending and ability to obtain financing, leading to us being unable to generate the levels of sales that we require.  Current and continued disruption of financial markets could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

42

We may not be able to maintain effective internal controls.

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

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

In the three months ended June 30, 2009 no shares of common stock were issued.

Item 3.                            Defaults upon senior securities

None.

Item 4.                            Submission of matters to a vote of security holders

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

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

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

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

Item 5. Other information.

None.

43

Item 6.                            Exhibits

10.6	First Amendment to Securities Purchase Agreement with XShares Group, Inc.
10.7	Second Amendment to Securities Purchase Agreement with XShares Group, Inc.
10.8	Convertible Promissory Note between XShares Group, Inc. and MGT Capital Investments, Inc. date August 10, 2009.
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
32.2	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).

44

SIGNATURE

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

	MGT Capital Investments, Inc.
	By:	/s/ TIM PATERSON-BROWN
		Tim Paterson-Brown
		Chief Executive Officer
	By:	/s/ ALLAN ROWLEY
		Allan Rowley
		Chief Financial Officer
August 14, 2009

45

EX-10.6

Exhibit 10.6

FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT

This Amendment dated August 5, 2009, amends the Securities Purchase Agreement (the “Agreement”) dated as of May 13, 2009 by and between XShares Group, Inc., a Delaware corporation (the “Company”), and MGT Capital Investments, Inc., a Delaware corporation, (the “Purchaser”).

WHEREAS, the parties desire to amend certain terms and conditions of the Agreement.

Purchaser and Company agree as follows.

1.Term.  The term of this Amendment commences on the date set forth above and continues in effect coterminous with the term of the Agreement.

2.Defined Terms. Except as defined herein, all defined terms used in this Amendment have the meaning set forth in the Agreement.

3.The Note. The Maturity Date set forth in Subsection 1(a) of the Note, which Note is referred to in Subsection 1.1(a) of the Agreement is hereby changed from August 1, 2009 to December 31, 2009.

4.The Closing. Subsection 1.3(d) is hereby added as follows:

(d)Notwithstanding anything herein to the contrary, unless the Purchaser otherwise agrees, the Purchaser shall not be obligated to close hereunder (either the Initial Closing or the second closing) until December 31, 2009.

5.Board Seat. Section 4.6 is hereby modified to read as follows:

4.6 Board of Directors.

The authorized size of the Board shall be seven, and the Board shall be comprised of Joseph L. Schocken, Jeffrey L. Feldman, Robert Ponzetti, Paul Clegg, Gustavo Montero, Governor Tommy Thompson, and Tim Paterson-Brown, as the representative of the Purchaser (the “Series B Director”).

6.Additional Post-Closing Covenants.  Subsections 7(g) and 7(h) are hereby added as follows:

(g)In conjunction with any Subsequent Financing, Purchaser may, at its sole discretion cause the Company to (i) convert all or any portion of the Shares into that number and type if securities issued in such Subsequent Financing, that would have been issued to Purchaser had Purchaser invested the aggregate purchase price paid pursuant to this Agreement in such Subsequent Financing; or (ii) redeem all or any portion of the Shares from proceeds of such Subsequent Financing pursuant to Section 6 of the Certificate; provided, that if Purchaser makes neither election, than Purchaser shall retain the Shares. For the purposes of Section 6 of the Certificate, Purchaser’s right to redeem set forth under this Section 7(g) shall be deemed to be a mandatory redemption under Section 6.1 of the Certificate.

(h)If the Company establishes any non-US domiciled fund, the Company shall grant Purchaser (i) an initial twenty-five percent (25%) interest in each such fund and (ii) the right to appoint a member to the board of directors of each such fund.

7.Additional Closing Condition.  Section 4.9 is hereby added as follows:

4.9.Revised Budget.  With respect to the second Closing, the Company shall have delivered, and Purchase shall approved, a revised Budget for operations of the Company through December 31, 2009.

8.Entire Agreement.  Except as amended herein, all terms and conditions of the Agreement shall remain in full force and effect.

This Amendment is incorporated in its entirety in the Agreement and both this Amendment and the Agreement

shall be read and interpreted together collectively as the “Agreement.”

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed by their respective authorized representatives.

XSHARES GROUP, INC.		MGT CAPITAL INVESTMENTS, INC.
By:	/s/ Jeffrey Feldman	By:	/s/ Tim Paterson-Brown
Its:	Chief Executive Officer	Its:	Chief Executive Officer

EX-10.7

Exhibit 10.7

SECOND AMENDMENT TO SECURITIES PURCHASE AGREEMENT

This Second Amendment dated August 6, 2009, amends the Securities Purchase Agreement (the “Agreement”) dated as of May 13, 2009, as amended, by and between XShares Group, Inc., a Delaware corporation (the “Company”), and MGT Capital Investments, Inc., a Delaware corporation, (the “Purchaser”).

WHEREAS, the parties desire to again amend certain terms and conditions of the Agreement.

Purchaser and Company agree as follows.

1.Term.  The term of this Amendment commences on the date set forth above and continues in effect coterminous with the term of the Agreement.

2.Defined Terms. Except as defined herein, all defined terms used in this Amendment have the meaning set forth in the Agreement.

3.Issuance of the Second Note. Subsection 1.1 of the Agreement is hereby as follows:.

“1.1.        Issuance of Two Convertible Promissory Notes.

(a)               The Board of Directors has duly approved the issuance of the Convertible Promissory Note (the “Original Note”), in the original principal amount of $1,100,000, made by the Company in favor of the Purchaser in the form annexed hereto as Exhibit A-1. The Board of Directors has also duly approved the issuance of the second Convertible Promissory Note (the “Second Note”), in the original principal amount of $1,000,000, made by the Company in favor of the Purchaser in the form annexed hereto as Exhibit A-2.

(b)               Subject to the terms and conditions of this Agreement, the Purchaser agrees to purchase the Original Note immediately upon execution of this Agreement, and the Company agrees to execute and deliver the Original Note to the Purchaser immediately upon receipt from the Purchaser of $1,000,000.  Subject to the terms and conditions of this Agreement, the Purchaser agrees to purchase the Second Note immediately upon execution of the Second Amendment to this Agreement, and the Company agrees to execute and deliver the Second Note to the Purchaser immediately upon receipt from the Purchaser of $1,000,000.

4.Entire Agreement.  Except as amended herein, all terms and conditions of the Agreement shall remain in full force and effect.

This Second Amendment is incorporated in its entirety in the Agreement and both this Amendment and the Agreement shall be read and interpreted together collectively as the “Agreement.”

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed by their respective authorized representatives.

XSHARES GROUP, INC.		MGT CAPITAL INVESTMENTS, INC.
By:	/s/ Jeffrey Feldman	By:	/s/ Tim Paterson-Brown
Its:	Chief Executive Officer	Its:	Chief Executive Officer

EX-10.8

Exhibit 10.8

THESE SECURITIES ARE NOT REGISTERED UNDER STATE OR FEDERAL SECURITIES LAWS, AND MAY NOT BE OFFERED, OR SOLD, PLEDGED (EXCEPT A PLEDGE PURSUANT TO THE TERMS OF WHICH ANY OFFER OR SALE UPON FORECLOSURE WOULD BE MADE IN A MANNER THAT WOULD NOT VIOLATE THE REGISTRATION PROVISIONS OF FEDERAL OR STATE SECURITIES LAWS) OR OTHERWISE DISTRIBUTED FOR VALUE, NOR MAY THESE SECURITIES BE TRANSFERRED ON THE BOOKS OF THE COMPANY, WITHOUT OPINION OF COUNSEL, CONCURRED IN BY COUNSEL FOR THE COMPANY, THAT NO VIOLATION OF SAID REGISTRATION PROVISIONS WOULD RESULT THEREFROM.

CONVERTIBLE PROMISSORY NOTE

$1,000,000.00	August 7, 2009
	New York, New York

For value received of One Million Dollars ($1,000,000), XShares Group, Inc., a Delaware corporation (the “Company”), promises to pay to MGT Capital Investments, Inc. (the “Holder”), the principal sum of One Million Dollars ($1,000,000.00). Interest shall accrue from the date of this Note on the unpaid principal amount at a rate equal to ten percent (10%) per annum, compounded annually.  This Note is being made in conjunction with the execution of that certain Securities Purchase Agreement of even date herewith (the “Purchase Agreement”) in order to provide the Company with access to amounts funded hereunder prior to the second Closing (as defined in the Purchase Agreement).  This Note is subject to the following terms and conditions.

1.Maturity.

(a)Unless converted as provided in Section 2, this Note will automatically mature and be due and payable on December 31, 2009 (the “Maturity Date”).  Subject to Sections 1(b) and 2 below, interest shall accrue on this Note but shall not be due and payable until the Maturity Date  .

(b)Notwithstanding the foregoing, the entire unpaid principal sum of this Note, together with accrued and unpaid interest thereon and interest at the rate of eighteen (18%) percent per annum going forward, shall become immediately due and payable upon the insolvency of the Company, the commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by or against the Company of a petition in bankruptcy or any petition for relief under the federal bankruptcy act or the continuation of such petition without dismissal for a period of ninety (90) days or more, the appointment of a receiver or trustee to take possession of the property or assets of the Company, the breach of any representations, warranties or covenants under the Purchase Agreement or this Note, or the failure to pay this Note on the Maturity Date.

(c)This Note may be prepaid in full at any time prior to conversion pursuant to Section 2( below), with or without notice, without penalty or premium.

2.Conversion.

(a)Conversion into Series B Preferred Stock.  The entire principal amount of this Note shall be converted into shares of the Company’s Series B Preferred Stock at the second Closing.  Accrued interest on this Note shall be converted into Accruing Dividends (as defined in the Company’s Second Amended and Restated Articles of Incorporation attached to the Purchase Agreement (the “Certificate”)) from the date hereof.

(b)Conversion prior to Second Closing.  If at any time prior to the second Closing, there shall be (a) an acquisition of the Company by another entity other than Holder or its affiliates by means of a merger, consolidation, or other transaction or series of related transactions resulting in the exchange of the outstanding shares of the Company’s capital stock such that shareholders of the Company prior to such transaction own, directly or indirectly, less than 50% of the voting power of the surviving entity, or (b) a sale or transfer of all or substantially all of the Company’s assets to any other person other than Holder or its affiliates, then, at the Holder’s option, the entire

1

unpaid principal sum of this Note, and interest thereon, shall be immediately paid to the Holder or converted into shares of the Company’s Series B Preferred Stock at a price of $0.0284 per share.

(c)Mechanics and Effect of Conversion.  No fractional shares of the Company’s capital stock will be issued upon conversion of this Note.  In lieu of any fractional share to which the Holder would otherwise be entitled, the Company will pay to the Holder in cash the amount of the unconverted principal and interest balance of this Note that would otherwise be converted into such fractional share.  Upon conversion of this Note pursuant to this Section 2, the Holder shall surrender this Note, duly endorsed, at the principal offices of the Company or any transfer agent of the Company.  At its expense, the Company will, as soon as practicable thereafter, issue and deliver to such Holder, at such principal office, a certificate or certificates for the number of shares to which such Holder is entitled upon such conversion, together with any other securities and property to which the Holder is entitled upon such conversion under the terms of this Note, including a check payable to the Holder for any cash amounts payable as described herein.  Upon conversion of this Note, the Company will be forever released from all of its obligations and liabilities under this Note with regard to that portion of the principal amount and accrued interest being converted including without limitation the obligation to pay such portion of the principal amount and accrued interest.

3.Payment.  All payments shall be made in lawful money of the United States of America at such place as the Holder hereof may from time to time designate in writing to the Company.  Payment shall be credited first to the accrued interest then due and payable and the remainder applied to principal.

4.Transfer; Successors and Assigns.  The terms and conditions of this Note shall inure to the benefit of and be binding upon the respective successors and assigns of the parties.  Notwithstanding the foregoing, the Holder may not assign, pledge, or otherwise transfer this Note, except for transfers to affiliates.  Subject to the preceding sentence, this Note may be transferred only upon surrender of the original Note for registration of transfer, duly endorsed, or accompanied by a duly executed written instrument of transfer in form satisfactory to the Company.  Thereupon, a new note for the same principal amount and interest will be issued to, and registered in the name of, the transferee.  Interest and principal are payable only to the registered holder of this Note.

5.Governing Law.  This Note and any controversy arising out of or relating to this Note shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State New York, without regard to conflict of law principles that would result in the application of any law other than the law of the State of New York.

6.Notices.  All notices and other communications given or made pursuant to this Note shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or:  (a) personal delivery to the party to be notified, (b) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (c) one (1) business day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt.  All communications shall be sent to the respective parties at their address as set forth on the signature page, or to such e-mail address, facsimile number or address as subsequently modified by written notice given in accordance with this Section 6.

7.Amendments and Waivers.  Any term of this Note may be amended only with the written consent of the Company and the Holder.  Any amendment or waiver effected in accordance with this Section 7 shall be binding upon the Company, the Holder and each transferee of the Note.

8.Shareholders, Officers and Directors Not Liable.  In no event shall any shareholder, officer or director of the Company be liable for any amounts due or payable pursuant to this Note.

9.Failure or Indulgence Not Waiver.  No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege,

2

nor shall any waiver by the Holder of any such right or rights on any one occasion be deemed a waiver of the same right or rights on any future occasion.

10.Action to Collect on Note.  If action is instituted to collect on this Note, the Company promises to pay all costs and expenses, including reasonable attorney’s fees, incurred in connection with such action.

XSHARES GROUP, INC.
By:	/s/ Jeffrey Feldman
Its:	Chief Executive Officer
Address:		XShares Group, Inc.
		420 Lexington Avenue, Suite 2550
		New York, NY 10170

ACKNOWLEDGED AND ACCEPTED:

this 7th day of August 2009

By: MGT CAPITAL INVESTMENTS, INC.,

By:	/s/ Tim Paterson Brown
Its:	Chief Executive Officer

Address:MGT Capital Investments, Inc.

Kensington Centre

66 Hammersmith Road

London W14 8UD

United Kingdom

3

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SARBANES-OXLEY ACT OF 2002

I, Tim Paterson-Brown, certify that:

1. I have reviewed this quarterly report on Form 10-Q of MGT Capital Investments, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ TIM PATERSON-BROWN
		Tim Paterson-Brown
		Chief Executive Officer
August 14, 2009

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SARBANES-OXLEY ACT OF 2002

I, Allan Rowley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of MGT Capital Investments, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ ALLAN ROWLEY
		Allan Rowley
		Chief Financial Officer
August 14, 2009

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

I, Tim Paterson-Brown, Chief Executive Officer of MGT Capital Investments, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:

(1)                               the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2009 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)                               the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	By:	/s/ TIM PATERSON-BROWN
		Tim Paterson-Brown
		Chief Executive Officer
August 14, 2009

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

I, Allan Rowley, Chief Financial Officer of MGT Capital Investments, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:

(1)                               the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2009 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)                               the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	By:	/s/ ALLAN ROWLEY
		Allan Rowley
		Chief Financial Officer
August 14, 2009