Note 3. Summary of significant accounting policies

Use of estimates and assumptions and critical accounting estimates and assumptions

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).

Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were “Carrying Value of the Long-lived Assets”, “Valuation Allowance for Deferred Tax Assets” and “Valuation of Equity Instruments”.

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

Principles of consolidation

All intercompany transactions and balances have been eliminated. Non–controlling interest represents the minority equity investment in MGT subsidiaries, plus the minority investors’ share of the net operating results and other components of equity relating to the non–controlling interest.

Loss per share

Basic loss per share is calculated by dividing net loss applicable to common 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 common shareholders by the sum of the weighted average number of common shares outstanding plus potential dilutive common shares outstanding during the period. Potential dilutive securities, comprised of the convertible Preferred Stock, unvested restricted shares and stock options, are not reflected in diluted net loss per share because such shares are anti–dilutive.

The computation of diluted loss per share for the three months ended March 31, 2015, excludes 10,913 shares in connection to the convertible Preferred Stock, 1,020,825 warrants and 96,000 unvested restricted shares, as they are anti–dilutive due to the Company’s net loss. For the three months ended March 31, 2014, the computation excludes 9,555 shares in connection to the convertible Preferred Stock, 920,829 warrants and 96,677 unvested restricted shares, as they are anti–dilutive due to the Company’s net loss.

Recent accounting pronouncements

The Company is currently in the process of evaluating the impact of adopting of Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 - Revenue from Contract with Customers, ASU 2014-12 – Compensation – Stock Compensation, ASU 2014-15 – Presentation of Financial Statements - Going Concern, and ASU 2014-16 – Derivative and Hedging and 2014-17 – Business Combination (Topic 805) Pushdown Accounting. The adoption of these ASUs is not expected to have a material impact on the condensed consolidated financial statements.