10-Q 1 a10-12797_110q.htm 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, 2010.

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 5, 2010 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).

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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 (£).

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INDEX

PART I — FINANCIAL INFORMATION

Item 1	Condensed Consolidated Balance Sheets — June 30, 2010 (unaudited) and December 31, 2009	3

	Condensed Consolidated Statements of Operations — for the three months ended June 30, 2010 (unaudited) and 2009 (unaudited)	4

	Condensed Consolidated Statements of Operations — for the six months ended June 30, 2010 (unaudited) and 2009 (unaudited)	5

	Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Loss — for the six months ended June 30, 2010 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows — for the six months ended June 30, 2010 (unaudited) and 2009 (unaudited)	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3	Quantitative and Qualitative Disclosure About Market Risk	27

Item 4T	Controls & Procedures	27

PART II — OTHER INFORMATION

Item 1	Legal Proceedings	28

Item 1A	Risk Factors	28

Item 2	Unregistered Sale of Equity Securities and Use of Proceeds	29

Item 3	Defaults Upon Senior Securities	29

Item 4	[Removed and Reserved]	29

Item 5	Other Information	29

Item 6	Exhibits	29

SIGNATURES		30

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

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MGT CAPITAL INVESTMENTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	June 30, 2010			December 31, 2009
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	13,330		$	22,165
Accounts receivable	55			97
Other receivables — related party	292			105
Prepaid expenses and other current assets	613			620
Deferred consideration for sale of assets	754			—
Loans receivable — related party — current	1,888			398
Total current assets	16,932			23,385

Property and equipment, at cost, net	245			290
Investments, at cost	—			224
Security deposits	180			219
Loans receivable — related party — long term	—			159
Total assets	$	17,357		$	24,277

Liabilities
Current liabilities:
Accounts payable	$	443		$	916
Accrued expenses	1,052			1,214
Deferred revenue	95			114
Total current liabilities	1,590			2,244

Commitments and contingencies

Stockholders’ equity
Common stock, $0.001 par value: 75,000,000 shares authorized; 38,900,383 shares issued and 32,550,590 shares outstanding	39			39
Additional paid in capital	300,569			299,878
Accumulated other comprehensive loss	(5,274		)	(4,549		)
Accumulated deficit	(269,847		)	(265,827		)
	25,487			29,541
Treasury stock, at cost, 6,349,793 shares of common stock	(18,912		)	(18,912		)
Total stockholders’ equity	6,575			10,629
Non-controlling interest	9,192			11,404
Total equity	15,767			22,033

Total liabilities and equity	$	17,357		$	24,277

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

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MGT CAPITAL INVESTMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

	Three months ended June 30,
	2010			2009

Revenues	$	264		$	40
Cost of revenue	114			—
Gross profit	150			40

Operating expenses
Selling, general and administrative expenses	2,386			4,009
Research and development cost	517			871
	2,903			4,880

Operating loss	(2,753		)	(4,840		)

Interest and other income / (expense), net	34			(213		)

Net loss from continuing operations before income tax	(2,719		)	(5,053		)

Income tax expense	(3		)	—

Net loss from continuing operations before non-controlling interest	(2,722		)	(5,053		)

Discontinued operations
Net loss from operations of Medicexchange, net of income taxes	—			(444		)
	—			(444		)

Net loss before non-controlling interest	(2,722		)	(5,497		)

Net loss attributable to non-controlling interest	836			1,652

Net loss attributable to MGT Capital Investments, Inc.	$	(1,886	)	$	(3,845	)

Per share data:

Basic and diluted loss per share from continuing operations	$	(0.06	)	$	(0.11	)
Basic and diluted loss per share from discontinued operations	—			(0.01		)
	$	(0.06	)	$	(0.12	)

Weighted average number of common shares outstanding	32,550,590			32,550,590

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

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MGT CAPITAL INVESTMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

	Six months ended June 30,
	2010			2009

Revenues	$	326		$	101
Cost of revenue	114			—
Gross profit	212			101

Operating expenses
Selling, general and administrative expenses	5,213			7,422
Research and development cost	913			1,330
Impairment of goodwill	—			12,157
	6,126			20,909

Operating loss	(5,914		)	(20,808		)

Interest and other income / (expense), net	27			(911		)

Net loss from continuing operations before income tax	(5,887		)	(21,719		)

Income tax benefit	167			—

Net loss from continuing operations before non-controlling interest	(5,720		)	(21,719		)

Discontinued operations
Net loss from operations of Medicexchange, net of income taxes	(234		)	(704		)
Gain on sale of Medicexchange, net of income taxes	149			—
	(85		)	(704		)

Net loss before non-controlling interest	(5,805		)	(22,423		)

Net loss attributable to non-controlling interest	1,785			3,248

Net loss attributable to MGT Capital Investments, Inc.	$	(4,020	)	$	(19,175	)

Per share data:

Basic and diluted loss per share from continuing operations	$	(0.11	)	$	(0.57	)
Basic and diluted loss per share from discontinued operations	(0.01		)	(0.02		)
	$	(0.12	)	$	(0.59	)

Weighted average number of common shares outstanding	32,550,590			32,550,590

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

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MGT CAPITAL INVESTMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS

(in thousands)

(unaudited)

Six months ended June 30, 2010

	Common stock			Additional paid-in		Accumulated other comprehensive			Accumulated			Treasury			Total stockholders’			Non- controlling			Total
	Shares	Amount		capital		loss			deficit			stock			equity			interest			equity

BALANCE, DECEMBER 31, 2009	38,900	$	39	$	299,878	$	(4,549	)	$	(265,827	)	$	(18,912	)	$	10,629		$	11,404		$	22,033

Stock-based compensation	—	—		691		—			—			—			691			185			876

Disposal of Medicexchange	—	—		—		—			—			—			—			(233		)	(233		)

COMPREHENSIVE LOSS

Net loss for the period	—	—		—		—			(4,020		)	—			(4,020		)	(1,785		)	(5,805		)

Translation adjustment	—	—		—		(725		)	—			—			(725		)	(379		)	(1,104		)

Total comprehensive loss															(4,745		)	(2,164		)	(6,909		)

BALANCE, JUNE 30, 2010	38,900	$	39	$	300,569	$	(5,274	)	$	(269,847	)	$	(18,912	)	$	6,575		$	9,192		$	15,767

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

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MGT CAPITAL INVESTMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share and per share amounts)

(unaudited)

	Six months ended June 30,
	2010			2009

Cash flows from operating activities
Net loss before non-controlling interest	$	(5,805	)	$	(22,423	)

Adjustments to reconcile net loss to net cash used in operating activities:
Loss from discontinued operations	234			704
Stock-based compensation expense	865			1,021
Depreciation	74			156
Accrued interest receivable	(3		)	—
Loss on impairment of goodwill	—			12,157
Loss on impairment of marketable securities	—			1,182
Gain on disposal of Medicexchange and other investments	(201		)	—
(Increase)/decrease in assets
Accounts receivable	34			101
Other receivables — related party	(194		)	(4		)
Prepaid expenses and other current assets	19			(163		)
Increase/(decrease) in liabilities
Accounts payable	(332		)	(1,222		)
Accrued expenses and other payables	(116		)	265
Deferred revenue	5			—
Net cash used in operating activities	(5,420		)	(8,226		)

Cash flows from investing activities:
Moneygate loans receivable	(1,370		)	—
Cash in Medicexchange subsidiaries disposed of	(1,101		)	—
Sale of marketable securities	—			947
Purchase of property, plant and equipment	(40		)	(13		)
Deposit of restricted cash	—			(1,000		)
Investment in convertible notes	—			(1,000		)
Receipt of deferred consideration	382			—
Net cash used in investing activities	(2,129		)	(1,066		)

Cash flows of discontinued operations
Net cash used in Medicexchange operating activities	(226		)	(607		)
Net cash used in discontinued operations	(226		)	(607		)

Effects of exchange rates on cash and cash equivalents	(1,060		)	2,382
Net change in cash and cash equivalents	(8,835		)	(7,517		)
Cash and cash equivalents, beginning of period	22,165			38,294
Cash and cash equivalents, end of period	$	13,330		$	30,777

Non cash items

In the six month period ended June 30, 2010 the Company disposed of Medicexchange and other investments. The consideration for this was $1,136 which has been deferred and is payable in installments through March 31, 2011. When received, it will be recorded in investing activities.

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

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MGT CAPITAL INVESTMENTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(unaudited)

1. Organization, basis 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, 2010 are not necessarily indicative of the results that may be expected for any subsequent quarter or for the year ending December 31, 2010. 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, 2009. 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 a controlling interest in our operating subsidiary, Medicsight plc (“Medicsight”) and a 49% holding in Moneygate Group Limited (“Moneygate”). On March 31, 2010 we disposed of our controlling interest in Medicexchange Limited (“Medicexchange”) and various other investments. We also have wholly owned subsidiaries MGT Capital Investments (UK) Limited, MGT Investments (Gibraltar) Limited, 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 to assist radiologists in the early detection and measurement of colorectal polyps and lung lesions. Medicsight currently has limited revenue and is awaiting regulatory approvals in key markets. The Company holds 86 million shares (55%) of the 155 million issued share capital of Medicsight.

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

The Company has incurred significant operating losses since inception and has recently commenced generating revenue from operations. As a result, the Company has generated negative cash flows from operations and has an accumulated deficit of $269,847 at June 30, 2010. The Company’s subsidiary Medicsight 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

We believe the critical accounting policies listed below reflect significant judgments, estimates and assumptions used in the preparation of our consolidated financial statements.

Revenue Recognition

Medicsight

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.

Software — 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.

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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”).

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.

Hardware — Revenue is derived from the sale of our MedicCO2LON product. This product is an automated CO2 insufflation device, and is generally sold as part of an arrangement that includes a one year warranty. The risk of incurring warranty related expense is mitigated by the warranty contractually agreed with the supplier. A warranty provision is therefore not required.

MedicCO2LON is sold exclusively through our distribution partner MEDRAD Inc. Revenue is recognized as goods and orders are satisfied and goods are delivered to our distribution partner. We generally offer terms which require payments with 45 days from invoicing.

Equity-based compensation

We recognize compensation expense for all equity-based payments. Under fair value recognition provisions, 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

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

Financial instruments

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

Investments

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

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.

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.

Recent accounting pronouncements

In October 2009 the Financial Accounting Standards Board (“FASB”) FASB issued an update to Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition, with regards to multiple-deliverable arrangements. The update is effective for revenue arrangements entered into in fiscal years beginning on or after June 15, 2010. We do not expect the adoption of this update to have a material impact on our financial position or results of operations.

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

In December 2009 the FASB issued an update to ASC Topic 810, Consolidations, with regards to improvements to financial reporting by enterprises involved with variable interest entities. The adoption of this update has not had a material impact on our financial position or results of operations.

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In April 2010 the FASB issued an update to ASC Topic 605, Milestone Method of Revenue Recognition, relating to research and development projects. The amendments in the ASU are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. We do not expect the adoption of this update to have a material impact on our financial position or results of operations.

3. Divestment of investments and discontinued activities

On March 31, 2010 the Company sold its stock in Medicexchange and various non-core investments to an unrelated third party in return for consideration of £750 ($1,136). This consideration is deferred and will be paid in installments through March 2011. As of June 30, 2010 £250 ($382) had been received in accordance with the sale agreement.

The investments disposed of and the related consideration is as follows:

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

Eurindia and the XShares convertible notes and equity investment had been fully impaired so the consideration received represents the gain on sale recorded in the Consolidated Statement of Operations. HipCricket was recorded in the financial statements at $224 meaning a loss on sales of $19 was recorded (see note 7).

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

4. Cash and cash equivalents

We invest our cash in short-term deposits with major banks. At June 30, 2010 we held $13,330 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 $13,330 as of June 30, 2010 and $22,165 as of December 31, 2009. The Company periodically evaluates the relative credit standing of financial institutions considered in its cash investment strategy.

5. Loans receivable — related party

In Fiscal 2009 we purchased 49% of Moneygate and provided loan facilities of £250 ($377) for working capital and £2,000 ($3,015) for acquisitions. In the six months ended June 30, 2010 we increased the working capital facility as acquisitions have been delayed and Moneygate still requires cash to fund its operations.

As of June 30, 2010 £675 ($1,017) had been advanced for working capital and £572 ($871) for acquisitions. The funds advanced for the acquisition facility have been used to complete the acquisition of a small IFA Company, legal fees, due diligence fees and signing on payments to support organic growth of numbers of advisors.

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facility. The acquisition facility pays interest at a rate of 5% per annum. Interest of £6 ($9) has been accrued for in the six months ended June 30, 2010. The working capital facility is a non-interest bearing loan (see note 14).

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

6. Investments at cost

We account for investments in non-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 had a 6% holding in Eurindia and accounted for this investment on a cost basis. As at December 31, 2009 this investment had been fully impaired. On March 31, 2010 we disposed of all of our holding in Eurindia for $1 leading to a gain on sale of $1 (see note 3).

XShares Group

In 2007 and 2008 we invested $3,000 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, 2009 the Company also invested $2,000 in XShares convertible notes with a principal of $2,100. As at December 31, 2009 the equity investment and the convertible notes were fully impaired. On March 31, 2010 we disposed of all of our equity holdings in XShares for $1 and the convertible notes for $1, leading to a gain on sale of $2 (see note 3).

HipCricket Inc.

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

The following table presents the changes in Level 3 instruments for the six months ended June 30, 2010.

	January 1, 2010		Sales		Profit / (loss) on sale included in earnings		June 30, 2010		Change in impairment losses relating to instruments still held at June 30, 2010

Eurindia Limited	$	—	(1	)	1		$	—	$	—
XShares Group, Inc.	—		(1	)	1		—		—
HipCricket Inc.	224		(205	)	(19	)	—		—
	$	224	(207	)	(17	)	$	—	$	—

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7. Interest and other income / (expense)

We had the following interest and other income amounts from continuing operations:

	Three months ended June 30,					Six months ended June 30,
	2010		2009			2010			2009

Loss on sale of HipCricket	$	—	$	—		$	(19	)	$	—
Gain on sale of XShares convertible notes	—		—			1			—
Gain on sale of XShares equity	—		—			1			—
Gain on sale of Eurindia	—		—			1			—
Impairment Loss on Eurindia	—		(176		)	—			(176		)
Impairment Loss on HipCricket	—		—			—			(739		)
Impairment Loss on XShares	—		(230		)	—			(230		)
Interest income	34		205			43			271
Loss on other marketable securities	—		(12		)	—			(37		)
Total	$	34	$	(213	)	$	27		$	(911	)

8. Comprehensive income (loss)

Comprehensive income (loss) includes net income (loss) and items defined as other comprehensive income. Items defined as other comprehensive income, such as foreign currency translation adjustments and unrealized gains and losses on certain marketable securities are separately classified in the financial statements. Such items are reported in the consolidated statements of stockholders’ equity as comprehensive income as follows:

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009

Net loss before non-controlling interest, as reported	$	(2,722	)	$	(5,497	)	$	(5,805	)	$	(22,423	)
Unrealized foreign exchange gain (loss)	153			3,588			(1,104		)	2,177
Unrealized gain on marketable securities	—			38			—			38
Comprehensive loss	$	(2,569	)	$	(1,871	)	$	(6,909	)	$	(20,208	)
Comprehensive loss attributable to non-controlling interest	834			225			2,164			2,051
Comprehensive loss attributable to MGT Capital Investments, Inc.	$	(1,735	)	$	(1,646	)	$	(4,745	)	$	(18,157	)

The total accumulated other comprehensive loss as of June 30, 2010 is the result of net foreign currency translation losses.

9. Reconciliation of Medicsight’s results and US GAAP consolidated results

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.

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

	Medicsight plc			Medicsight plc			Medicsight plc			Discontinued operations			Corporate and Other			Total
	(IFRS)			GAAP Adj’ts			(US GAAP)			(US GAAP)			(US GAAP)			(US GAAP)

Six months ended June 30, 2010
Net revenue to external customers	$	326		$	—		$	326		$	—		$	—		$	326
Operating loss	(3,765		)	(232		)	(3,997		)	—			(1,917		)	(5,914		)
Assets	$	13,063		$	—		$	13,063		$	—		$	4,294		$	17,357
							—
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

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.

10 . Stock-based compensation

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

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, 2010 there were 1,975,000 options outstanding and 1,316,673 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 twelve 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, 2010 there were 28,500 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, 2010 there were 156,500 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, 2010 there were 85,000 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, 2010 there were no options outstanding.

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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, 2010 there were 800,000 options outstanding, all of which 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, 2010 there were 50,000 options outstanding, all of which 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 have been employed for 12, 24 and 36 months from the grant date. At June 30, 2010 there were 150,000 options outstanding, 100,000 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, 2010 there were no 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, 2010 108,333 options were outstanding, 41,666 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, 2010 there were 6,998,565 options outstanding, 2,414,373 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, 2010 there were 300,000 options outstanding, all of which were exercisable.

Plan L - on January 26, 2010 we approved and subsequently granted options for 100,000 shares under stock option plan “L”. 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, 2010 there were 100,000 options outstanding, none of which were exercisable.

Medicexchange stock option plans

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

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.

The following assumptions were used to estimate fair value:

	Six months ended June 30
	2010		2009

Dividend yield	0	%	0	%
Expected volatility	88	%	105.7	%
Risk-free rate	3.96	%	3.89	%
Expected life of options	5.9 years		6.75 years

The following table summarizes stock option activity for the six months ended June 30, 2010:

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	Outstanding						Exercisable
	Number of shares		Weighted- average exercise price				Number of shares	Weighted- average exercise price

Outstanding at December 31, 2009	11,503,359		£	0.58	$	0.92	4,605,890	£	0.94	$	1.50

Granted	100,000		£	0.09	$	0.14
Exercised	—		—
Forfeited	(451,461	)	£	0.64	$	0.96
Transferred with sale of Medicexchange	(400,000	)	£	0.63	$	0.95

Outstanding at June 30, 2010	10,751,898		£	0.59	$	0.89	5,292,712	£	0.81	$	1.22

The following is a summary of the status of the stock options outstanding at June 30, 2010:

	Outstanding options						Exercisable options
	Number	Remaining contractual life (years)	Average exercise price				Number	Average exercise price

MGT Capital Investments, Inc. 2007 Plan	1,975,000	7.4			$	3.69	1,316,673			$	3.69
Medicsight Plan A	28,500	2.5	£	0.75	$	1.13	28,500	£	0.75	$	1.13
Medicsight Plan B	156,500	4.2	£	0.75	$	1.13	156,500	£	0.75	$	1.13
Medicsight Plan C	85,000	5.6	£	0.75	$	1.13	85,000	£	0.75	$	1.13
Medicsight Plan D	—	6.0	£	0.83	$	1.25	—	£	0.83	$	1.25
Medicsight Plan E	800,000	6.6	£	0.50	$	0.75	800,000	£	0.50	$	0.75
Medicsight Plan F	50,000	6.9	£	0.75	$	1.13	50,000	£	0.75	$	1.13
Medicsight Plan G	150,000	7.5	£	1.10	$	1.66	100,000	£	1.10	$	1.66
Medicsight Plan H	—	7.9	£	0.69	$	1.04	—	£	0.69	$	1.04
Medicsight Plan I	108,333	8.5	£	0.24	$	0.36	41,666	£	0.24	$	0.36
Medicsight Plan J	6,998,565	8.9	£	0.09	$	0.14	2,414,373	£	0.09	$	0.14
Medicsight Plan K	300,000	8.9	£	0.10	$	0.15	300,000	£	0.10	$	0.15
Medicsight Plan L	100,000	9.5	£	0.09	$	0.14	—	£	0.09	$	0.14

On May 14, 2009 we approved Medicsight Plan J. Employees who were employed on May 14, 2009 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. We accounted for this 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 plans. The modification charge for the six months ended June 30, 2010 was $2. In the six months ended June 30, 2009 it was $37.

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

	Three months ended June 30,				Six months ended June 30,
	2010		2009		2010		2009

Selling, general and administrative	$	409	$	500	$	830	$	957

Research and development	18		36		35		64

Discontinued operations	—		12		11		8

Total	$	427	$	548	$	876	$	1,029

Of the $876 stock-based expense in the six months ended June 30, 2010, $185 was allocated to the non-controlling interest.

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No compensation costs were capitalized.

The aggregate intrinsic value for options outstanding and exercisable at June 30, 2010 was $nil.

A summary of non-vested options at June 30, 2010 and the change during the six months ended June 30, 2010 is presented below:

	Number of Options		Weighted Average Grant Date Fair Value

Non-vested at January 1, 2010	6,897,469		£	0.31	$	0.48
Granted	100,000		£	0.04	$	0.07
Vested	(1,434,326	)	£	0.23	$	0.39
Forfeited	(104,166	)	£	0.41	$	0.63
Non-vested at June 30, 2010	5,458,977		£	0.19	$	0.30

At June 30, 2010 there was $1,900 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 1.9 years.

11. Non-controlling interest

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

	Medicsight			Discontinued operations of Medicexchange			Total

Non-controlling interest at January 1, 2010	$	11,150		$	254		$	11,404
Non-controlling share of (losses)	(1,771		)	(14		)	(1,785		)
Non-controlling share of stock-based expense	182			3			185
Non-controlling share of other comprehensive (loss)	(369		)	(10		)	(379		)
Disposal of Medicexchange	—			(233		)	(233		)
Non-controlling interest at June 30, 2010	$	9,192		$	—		$	9,192

12. Related Party Transactions

Tim Paterson-Brown, our Chief Executive Officer, was a non-executive director of Accsys Technologies plc, but resigned from this position on April 6, 2010. Accsys Technologies plc has a subsidiary company Titan Wood Limited, which rents space in 66 Hammersmith Road. In the six month period ended June 30, 2010 and 2009 respectively, £70 ($106) and £106 ($160) of office related costs were recharged to Titan Wood Limited. At June 30, 2010 there was a balance receivable from Titan Wood Limited of £88 ($132) of which £88 ($132) remains unpaid as of July 30, 2010. This is payable within 30 days under the terms of the invoice.

In Fiscal 2009 we purchased 49% of the share capital of Moneygate Group Limited (“Moneygate”). Moneygate is a related party as we have significant influence over it and have representation on the board of directors. On acquisition we provided loan facilities of £250 ($377) for working capital and £2,000 ($3,015) for acquisitions. In the six months ended June 30, 2010 we increased the working capital facility as acquisitions have been delayed and Moneygate still requires cash to fund its operations.

In anticipation of the sale of the Moneygate loan facility to a third party, for which terms were agreed as at June 30, 2010 the acquisition facility originally classified as a non-current asset has been classified as a current asset alongside the working capital facilityThe acquisition facility pays interest at a rate of 5% per annum. Interest of £6 ($9) has been accrued for in the six months ended June 30, 2010. The working capital facility does not pay interest (see note 5).

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We charged Moneygate a £65 ($98) management fee for services provided in the six months to June 30, 2010 and £106 ($160) including sales tax, was outstanding as of June 30, 2010 relating to this and previous services charges. As of July 30, 2010 £106 ($160) remained unpaid. This is payable within 30 days under the terms of the invoice.

13. 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 approximately £330 ($497) 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.

We also have a satellite office in Tokyo, Japan, with a two-year rental agreement that began in March 2010.

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,
2010 (remaining six months)	$	217
2011	263
2012	17
2013	2
2014	—
Later years	—
Total minimum	$	499

The total lease rental expense for the six months ended June 30, 2010 was £172 ($261) compared to £207 ($311) at June 30, 2009.

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 ($1,764) over an expected thirty-six month period. As at June 30, 2010 we have paid Euros 845 ($1,031). 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.

14. Subsequent Events

Moneygate agreed to convert all monies advanced to date £1,247 ($1,888) and future monies up to £2,000 ($3,015) in total in to convertable loan notes. On August 3, 2010 MGT Capital Investments Limited, a company incorporated in England and Wales (“MGT UK”), and a wholly owned subsidiary of MGT Capital Investments, Inc., entered into an agreement with an unrelated third party for the sale of its Moneygate convertible loan note of £2,000 ($3,015). Payment of the £2,000 ($3,015) will consist of four separate tranches, three tranches are time based and will all be fully paid by June 2011. The fourth tranche is on demand and will be received as required. We expect all funds to be received within the next 12 months. MGT will recoup all funds previously advanced to Moneygate and retain its equity in Moneygate effectively free of charge.

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

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

This quarterly report on Form 10-Q 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

As of March 31, 2010, following a detailed strategic review we have reduced our ongoing operating cost base and have disposed of our investments in Medicexchange, XShares, Hipcricket and Eurindia. Following the agreement signed on August 3, 2010, MGT will recoup all funds advanced to Moneygate but will continue to hold its equity. Going forward we will primarily be focusing our cash and resources on our investment holding in Medicsight plc. Medicexchange’s results have been classified as discontinued operations.

The Company achieved the following results in the six months ended June 30, 2010:

· Revenue from license and other sales was $326 compared to $101 in 2009. Gross profit on revenues was $212 compared with $101 in 2009

· Other operating expenses, excluding the 2009 impairment of goodwill, decreased 30% to $6,126 compared to $8,752 in 2009.

· Net loss attributable to MGT Capital Investments, Inc. decreased 79 % to $4,020 and resulted in a loss per share of $0.12 compared to a net loss of $19,175 and net loss per share of $0.59 in 2009.

Revenue remains limited as we await regulatory approvals in what we consider to be our key markets of the USA and Japan. With regards to regulatory approvals for ColonCAD, we received a second request for Additional Information (AI) from the FDA in January 2010. After working closely with the clinical, statistical and legal advisors, the Company sent a comprehensive response to the FDA on June 2, 2010. We are currently awaiting feedback from the FDA on the status of the application. We also await a further update from the Ministry of Health, Labour and Welfare (MHLW) regulatory authorities in Japan.

Operating costs, excluding the goodwill impairment that impacted the consolidated statement of operations in the first quarter of Fiscal 2009, have decreased by 30%. This was predominantly due to two headcount reductions that Medicsight took in Fiscal 2009, the impact of which is being fully felt in the first half of Fiscal 2010. Together with reduced staff costs, a focus on reducing other expenses has reduced our discretionary spending.

Our investment in Moneygate is accounted for by the equity method, and is currently generating net losses. The investment has been reduced to $0.

Net loss from Medicexchange amounted to $234, which is accounted for in discontinued operations together with a gain on sale of $149, and will not occur in the future.

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

We have cash and cash equivalents of $13,330 compared to $22,165 as of December 31, 2009. The decrease is mainly attributable to cash used in operating activities ($5,420).

Critical accounting policies and estimates

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The notes to the consolidated financial statements contained in this Annual Report describe our significant accounting policies used in the preparation of the consolidated financial statements. The preparation of these financial statements requires us to make estimates

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and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. We continually evaluate our critical accounting policies and estimates.

We believe the critical accounting policies listed below reflect significant judgments, estimates and assumptions used in the preparation of our consolidated financial statements.

Revenue Recognition

Medicsight

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, and 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.

Equity-based compensation

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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.

Research and development

We incur costs incurred in connection with the development of software products that are intended for sale. 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.

Fair value of financial instruments

Investments

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

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

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Recent accounting pronouncements

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

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

In April 2010 the FASB issued an update to ASC Topic 605, milestone method of revenue recognition, relating to research and development projects. The amendments in the ASU are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. We do not expect the adoption of this update to have a material impact on our financial position or results of operations.

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Results of operations

The following operating results are related to our major operating subsidiary, Medicsight, and other investments of MGT Capital Investments, Inc. Activity of the parent holding company on a standalone basis is immaterial and is not included in the discussion below.

Medicsight operating results

	Six months ended June 30,
	2010			2009

Revenue	$	326		$	101
Cost of revenue	(114		)	—
Selling, general and administration costs	(3,297		)	(5,950		)
Research and development	(913		)	(1,330		)
Operating expense	(4,209		)	(7,280		)
Stock-based compensation (included in operating expenses)	(406		)	(611		)
Operating loss	(3,997		)	(7,179		)
Interest and other income	35			54

	June 30, 2010		December 31, 2009

Cash	$	12,482	$	22,709
Net assets	12,225		21,519

In the six months ended June 30, 2010 sales of our CAD products were flat compared to the comparable period in the prior year. Licenses have been sold in Europe but we have yet to receive approvals in the USA and Japan, which we consider to be our key markets.

In the six months ended June 30, 2010 Medicsight launched MedicCO2LON, its insufflator product. It also signed an agreement with a global medical devices company to distribute MedicCO2LON. In the six months ended June 30, 2010, revenue of $213 had been recognized through MedicCO2LON sales. Cost of revenue for the period was $114.

With regards to regulatory approvals we received a second request for Additional Information (AI) from the FDA in January 2010. After working closely with clinical, statistical and legal advisors, the Company sent a comprehensive response to the FDA on June 2, 2010. We are currently awaiting feedback from the FDA on the status of the application. We also await a further update from the Ministry of Health, Labour and Welfare (MHLW) regulatory authorities in Japan.

Our operating expenses have reduced from $7,280 in 2009 to $4,209 in 2010. Due to the delays in receiving regulatory approvals in Japan and the USA Medicsight management made the decision in Fiscal 2009 to reduce headcount and streamline operations, but without jeopardising longer term research, product development or clinical activities. The effects of these decisions are now being reflected in the statement of operations with a significantly lower cost base.

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 decreased compared to the comparative periods in 2009 due to the reduction in headcount.

In the six months ended June 30, 2010 stock option accounting charges fell as Medicsight employed fewer people than in the same period in the prior year.

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

Other investments

Moneygate

On October 8, 2009 we invested a nominal sum in Moneygate Group Limited (“Moneygate”), a UK based Independent Financial Advisor (“IFA”), and acquired 49% of its share capital. We also provided a £250 ($377) working capital facility and an acquisition facility of £2,000 ($3,015) facility for acquisitions. As of December 31, 2009 the working capital facility had been fully drawn down as had £100 ($159) of the acquisition facility in anticipation of a potential acquisition that eventually did not occur.

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Moneygate’s business plan is predicated on acquisition-based growth in the fragmented UK IFA market, and we have provided it with the capital to expand. In the period ended June 30, 2010, Moneygate has completed the acquisition of a small IFA company, thus increasing the number of IFAs employed. Its management continues to review a number of further potential acquisitions and hopes to complete these by the end of 2010.

In the six months ended June 30, 2010 we extended the working capital facility as acquisitions have been delayed and Moneygate still requires cash to fund its operations. Following acquisitions we expect Moneygate to generate positive cash flows.

In anticipation of the sale of the Moneygate loan facility to a third party, for which terms were agreed as at June 30, 2010 the acquisition facility originally classified as a non-current asset has been classified as a current asset alongside the working capital facility. The acquisition facility pays interest at a rate of 5% per annum. Interest of £6 ($9) has been accrued for in the six months ended June 30, 2010. The working capital facility does not pay interest.

As Moneygate is accounted for by the equity method and is currently generating net losses, Moneygate’s results are not reflected in the Consolidated Statement of Operations or the Consolidated Balance Sheets.

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

Eurindia Limited

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

XShares Group

In 2007 and 2008 we invested $3,000 in Series 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, 2009 the Company invested $2,000 in XShares convertible notes with a principal of $2,100. As of December 31, 2009 the equity investment and the convertible notes had been fully impaired. On March 31, 2010 we disposed of all of our equity holdings in XShares for $1 and the convertible notes for $1 resulting in a total gain on sale of $2.

HipCricket Inc.

In Fiscal 2007 we invested $2,000 in HipCricket Inc., a company engaged in mobile marketing. In the year ended December 31, 2009 HipCricket Inc. was delisted from the AIM Market and we accounted for it as an investment held at cost. As of December 31, 2009 the investment was held at a book value of $224. On March 31, 2010 we disposed of all of our holding in HipCricket for $205.

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, 2010 Medicsight’s share price was £0.04 ($0.06) compared to £0.08 ($0.13), as of December 31, 2009. This valued Medicsight at £3,268 ($4,925), compared to £6,794 ($10,821) as of December 31, 2009.

As of July 30, 2010 Medicsight’s share price was £0.06 ($0.08) valuing the Company’s investment at £4,730 ($7,399), using a $:£ exchange rate of 1.5644.

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Liquidity and capital resources

Working capital information

	June 30, 2010			December 31, 2009
Working capital summary
Cash and cash equivalents	$	13,330		$	22,165
Current assets	16,932			23,385
Current liabilities	(1,590		)	(2,244		)
Working capital surplus	$	15,342		$	21,141
Ratio of current assets to current liabilities	10.6			10.4

	Six months ended June 30,
	2010			2009
Cash flow summary
Cash (used for) provided by
Operating activities	$	(5,420	)	$	(8,226	)
Investing activities	(2,129		)	(1,066		)
Discontinued operations	(226		)	(607		)
Effects of exchange rates on cash and cash equivalents	(1,060		)	2,382
Net cash flow	$	(8,835	)	$	(7,517	)

Our cash and cash equivalents have decreased during 2010 predominantly because of the $5,420 used in operating activities. Our net cash used in operating activities differs from net loss predominantly because of various non-cash adjustments such as stock-based compensation and movements in working capital.

Included in investing activities is a further $1,370 advanced to Moneygate, with $645 for the working capital facility and $725 for the acquisition facility. Medicexchange was sold during the six months ended June 30, 2010 and $1,101 of cash was disposed of as part of this transaction, also included within investing activities.

Our ratio of current assets to current liabilities remains strong at 10.6. This is a result of the $13,330 of cash held in the Company.

Moneygate acquisition facility

On the purchase of 49% of Moneygate we made available a £2,000 ($3,015) facility to Moneygate to make acquisitions. As of June 30, 2010 £675 ($1,017) had been drawn down. Following the agreement with an unrelated third party dated August 3, 2010, all MGT funds will be recouped and Moneygate will continue to have access to acquisition funds through the third party.

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.

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.

Commitments

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Under this lease agreement our UK property rent, services and related costs will be approximately £330 ($497) 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 a satellite office in Tokyo (Japan) with a two year rental agreement.

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	$	499	$	217	$	280	$	2
Purchase obligations	733		733		—		—

Total	$	1,232	$	950	$	280	$	2

Recent accounting pronouncements

There are no recent accounting pronouncements that have not yet been adopted that the Company believes may have a material impact on its consolidated financial statements

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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 one percent movement in interest rate would result in approximately $133 change in interest income.

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 a subsidiary operation in Japan that operates in Yen.

Our operating costs in Fiscal 2010 were predominantly in UK sterling; we do not foresee any change in the remainder of 2010. A ten percent increase or decline in the US dollar exchange rate against all foreign currencies would have created a decrease or increase in our operating costs in the six months ended June 30, 2010 of approximately $478.

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 amended (the “Exchange Act”), 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 Exchange Act, 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, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal proceedings

None.

Item 1A. Risk factors

There has been no material change in the risk factors since the filing of our last annual form 10-K

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

In the three months ended June 30, 2010 no shares of common stock were issued.

Item 3. Defaults upon senior securities

None.

Item 4. [Removed and Reserved]

Item 5. Other information

None

Item 6. Exhibits

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

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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 5, 2010