Note 1: Organization, basis of presentation and liquidity

The accompanying unaudited condensed consolidated financial statements of MGT Capital Investments, Inc. (“MGT”, “the Company”, “the Group”, “we”, “us”) 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, 2012, are not necessarily indicative of the results that may be expected for any subsequent quarter or for the year ending December 31, 2012. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. The condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany accounts and transactions have been eliminated. U.S. Dollars are denoted herein by “USD” and the UK Pound Sterling is denoted herein by “£” or “GBP.”

We have a wholly-owned subsidiary MGT Capital Investments (UK) Limited and a majority-owned subsidiary MGT Gaming, Inc. (“MGT Gaming”), a company in which we acquired a majority interest on June 1, 2012. In addition, we also have a majority interest in Medicsight Ltd., including its wholly-owned subsidiaries (“Medicsight”).

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MGT Gaming holds certain intellectual property patents focused in the casino gaming sector. The Company holds 55% of the issued share capital of MGT Gaming. MGT Gaming is privately held by MGT and J&S Gaming, Inc.

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Medicsight is a medical technology company focusing on medical imaging software development and medical hardware devices. The Company developed and is commercializing Computer-Aided Detection (“CAD”) applications that analyze Computer Tomography (“CT”) scans to assist radiologists in the early detection and measurement of colorectal polyps. The CAD software received a CE Mark in 2009, which allows for sales in the European Union. In 2011, Medicsight’s software also received clearance from the U.S. Food and Drug Administration. Revenue is presently limited as Medicsight attempts to commercialize its recent U.S. approval. The Company has also developed an automated CO ₂ medical inflation device and associated disposable tubing (MedicCO ₂ LON) that is being commercialized via a global distributor. The Company continues to explore all strategic alternatives with respect to its majority interest in Medicsight Limited, including sale or license of its global patent portfolio. As of June 30, 2012, the Company holds 318 shares (66.5%) of the 478 issued share capital of Medicsight. Medicsight was previously listed on the AIM market of the London Stock Exchange until September 2011, when its shares were cancelled based upon a duly passed shareholder resolution and Medicsight became private.

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On March 21, 2012, MGT affected a reverse split, immediately followed by a forward split. At our March 20, 2012 Special Meeting of Stockholders, the Company’s stockholders approved the proposal to amend the Company’s Certificate of Incorporation to effect a Reverse/Forward Split of the Company’s Common Stock, $0.01 par value per share at an exchange ratio of 1 for 500 shares of the Company’s outstanding Common Stock, immediately followed by a forward split of the Company’s outstanding Common Stock, at an exchange ratio of 15 for 1 shares of the Company’s outstanding Common Stock. The amendment did not change the par value per share or the number of authorized shares of Common Stock. As a result of the Reverse Split, stockholders holding fewer than 500 shares of Common Stock, at the time of the reversal, received a cash payment instead of fractional shares and no longer had an interest in the Company. All Share and per share amounts have been retrospectively adjusted for all periods presented to give effect to the Reverse/Forward Split.

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On March 26, 2012, at Medicsight’s General Meeting, stockholders approved a resolution to Reverse Split the Company’s existing ordinary shares of £0.05 par value per share into 1 new ordinary share of £16,250 par value per share and for MGT to acquire all New Ordinary Shares representing the fractions of shares left over following the Reverse Split. The exchange ratio for the Reverse Split was 1 for 325,000. As a result of the Reverse Split, stockholders holding fewer than 325,000 shares were cancelled and not entitled to a cash payment for fractional shares.

The Company has incurred significant operating losses since inception and continues to generate losses from operations. As a result, the Company has generated negative cash flows from operations and has an accumulated deficit of $281,523 at June 30, 2012. 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.

At June 30, 2012, MGT’s and Medicsight’s cash and cash equivalents were $3,223 and $2,435, respectively. Management believes that the current level of working capital will be sufficient to allow the Company to maintain its operations into September 2013.