Table of Contents

MGT Capital Investments Inc.

Form 10-K

Table of Contents

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

Table of Contents

NOTE REGARDING FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, 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 margin, 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 7 of this report, and that are otherwise described from time to time in the Company’s periodic disclosure statements and for reports filed with the Securities and Exchange Commission. The Company assumes no obligation and does not intend to update these forward-looking statements.

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

1

Table of Contents

Immediately prior to the Medicsight IPO the Company sold down, by private placement, 11.7 million of its Medicsight plc shares.  The shares were priced at £1.10 ($2.20) — the same price as the Medicsight IPO.  Gross proceeds on the private placement were £12,845 ($25,736).  We incurred fees with Asia IT Capital Investments Ltd (a related party) of £578 ($1,167).  These proceeds were received on July 27, 2007.

After the Company’s private placement and the Medicsight IPO, the Company held 85 million of the 155 million issued share capital of Medicsight.  Since the IPO the Company bought back 1 million of Medicsight’s shares bringing our holding to 86 million shares, which is 55% of the outstanding share capital of Medicsight.

Medicexchange Limited

Medicexchange is an embryonica global imaging portal focusing on the medical vision sector that owns and operates two websites, Medicexchange.com aimed at North America and Europe and Maydeal.com in China (acquired in April 2008).

through its website Medicexchange.com.  In the year, Medicexchange disposed of its Chinese website business.  Medicexchange has endeavored to build traffic and registered users, and revenuespredominantly from North America, Europe and China.America.

Whilst user numbers have been increasing, revenue generation has not been forthcoming due to tightening of corporate advertising budgets and the general global economic conditions.

ManagementWe are currently reviewing options for the Medicexchange business.

Other investments

We hold other investments.  In additionFiscal 2009 we invested in Moneygate Group Limited (“Moneygate”), a UK based Independent Financial Advisor, acquiring 49% of the business.  We account for our investment in Moneygate as an equity method investment.  We have also advanced a working capital facility as well as a longer term loan to Medicsight and Medicexchange we have small investmentsallow the business to grow through acquisition.

As well as holding equity in XShares LLC we have also, in Fiscal 2009, have issued convertible loan notes to XShares.  We also have holdings in Hipcricket IncInc. and Eurindia Limited. Due

6

Table of Contents

Financial Information

Note 1619 to the Consolidated Financial Statements provides information on the Company’s segment reporting.

General

MGT was originally incorporated as a Utah corporation in 1977 and was re-incorporated in Delaware in 2000.  At December 31, 20082009 the Company’s authorized share capital was 75,000,000 shares of common stock, par value of $0.001.

In January 2007 the Company changed its name from Medicsight Inc. to MGT Capital Investments, Inc.

At March 27,26, 2009, 38,900,383 shares of our common stock had been issued and 32,550,590 were outstanding.

Our principal executive office is located at Kensington Centre, 66 Hammersmith Road, London W14 8UD, United Kingdom, telephone 011-44-207-605-1151, facsimile 011-44-207-605-1171.

Our web address is www.mgtci.com. Information on our website is not included as a part of this Annual Report.

Available information

We will provide, upon request and free of charge, paper copies of our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, including any amendments to the foregoing reports, as soon as is reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission.  These materials along with our Code of Business Conduct and Ethics are also available through our corporate website at www.mgtci.com.  A copy of this annual report on Form 10-K is located at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549.  Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.  The public may also download these materials from the Securities and Exchange Commission’s website at http://www.sec.gov.  Any amendments to, and waivers of, our Code of Business Conduct and Ethics will be posted on our corporate website.

7

Table of Contents

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.

We are a developing company with limited revenues from operations.

MGT hasWe have incurred significant operating losses since inception and hashave only recently commenced generating revenues from operations.  As a result, MGT haswe have generated negative cash flows from operations and hashave an accumulated deficit atas of December 31, 2008. MGT is2009.  We are operating in a developing industry based on new technology and itsour 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 developswe develop and marketsmarket will be accepted by consumers.  If our products are ultimately unsuccessful in the market, this could have a material adverse effect on the Company’sour business, financial condition, results of operations and future prospects.

We face financial risks as we are a developing company

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

8

Table of Contents

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

MGT’s corporate structure may make it more difficult or costly to take certain actions.  MGT conducts itsWe conduct our business through: (a) Medicsight, a UK public company which is 55% owned by the Company,MGT Capital Investments, Inc. and through Medicsight’s subsidiaries in the United Kingdom, the United States,USA, Japan and Gibraltar 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 United States.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 minoritynon-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 minoritynon-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 nondisclosurenon-disclosure agreements and other protective measures to protect

9

Table of Contents

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.

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’sour main operating currency is UK sterling and its financial statements are reported in US Dollars,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

9

Table of Contents

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.

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.

11

Table of Contents

None.

Our principal executive office is located at Kensington Centre, 66 Hammersmith Road, London W14 8UD, United Kingdom where we occupy 8,787 square feet under a lease that expires on August 25, 2016.  We have additional satellite offices in Japan (occupied by Medicsight), China (occupied by Medicexchange), and New York City (occupied by Medicexchange).

The Company is not engaged in any material legal proceedings at this time nor are we aware of any pending legal proceedings.

There were no matters submitted to the vote of the Company’s security holders during the fourth quarter of the fiscal year ended December 31, 2008.

12(Removed and reserved)

10

Table of Contents

predominantly due to operating losses and investing $2,000 in convertible notes in XShares Group LLC.

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.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 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

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 recognizesWe recognize revenue when it is realized or realizable and earned.  The Company considersWe consider revenue realized or realizable and earned when it haswe 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.

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

The Company licensesWe license software and sellssell maintenance through visualization solution partners and original equipment manufacturers.  The Company receivesWe 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.  The CompanyWe generally offersoffer 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 ArrangementsMultiple-element arrangements — The Company enterswe enter into arrangements with Resellers that include a combination of software products, maintenance and support.  For such arrangements, the Company recognizeswe recognize revenue using the residual method.  The Company allocatesWe 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 the Company doeswe 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, “Goodwill and Other Intangible Assets.”  Under SFAS No. 142, goodwillGoodwill and intangible assets with indefinite lives are reviewed for impairment annually or more frequently if events or changes

13

Table of Contents

in circumstances indicate that the asset might be impaired.  The first step of the goodwill impairment test, used to identify potential impairment,

15

Table of Contents

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. We completed the annual goodwill impairment assessment as of December 31, 2008, in which no impairment was identified. Goodwill was $12,157 as of December 31, 2008.

As of the date of the filing of this report, we have concluded that our current method of valuing our goodwill is going to be impacted by the significant volatility in financial markets during the first quarter of 2009, which affected the share price of our subsidiary Medicsight shareholding.  As a result of this decline in market value, we could be required to take a charge for impairment against goodwill in 2009. While this situation does not affect our results for the period covered by this report, we have decided to perform an independent valuation of Medicsight goodwill during the first quarter of 2009 to determine if any impairment is required in the first quarter 2009 results.

Equity-based compensation

Effective January 1, 2006 we adopted the fair value recognition provisions of SFAS No. 123(R), using the modified prospective transition method, and therefore have not restated prior periods’ results. Under this method, weWe recognize compensation expense for all equity-based payments granted on or after January 1, 2006 and prior to but not yet vested as of January 1, 2006 in accordance with SFAS No. 123(R).payments.  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

CostsWe incur costs incurred in connection with the development of software products that are intended for sale are accounted for in accordance with Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”.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.

The CompanyWe concluded that capitalizing such expenditures on completion of a working model was inappropriate because the Companywe did not incur any material software production costs and therefore hashave decided to expense all research and development costs.  The Company’sOur 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 thecertain provisions of SFAS No. 157, “FairFASB 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 judgement,judgment, especially when using Level 2 and Level 3 inputs as definedinputs.

Investments

Investments in SFAS 157’s fair value hierarchy.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.

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

The Company evaluatesWe 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.  The Company’sOur assessment for impairment of an asset involves estimating the

14

Table of Contents

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 the Company makeswe make concerning the value of its intangible assets include assessing time and cost involved for development, time to market, and risks of

16

Table of Contents

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 marginsprofits and capital expenditures.

An impairment analysis wasImpairment analyses were performed asat various points of the year ended December 31, 20082009 and the Company decided to fully impair goodwill relating to Medicsight, its investment in Eurindia toXShares, both the value ofequity and the expected liquidating dividend.  This resulted in an impairment loss of $183 for the year ending December 31, 2008.

The Company also impairedconvertible loan notes, and its holding in XShares LLC, resulting in an impairment loss of $2,400.Eurindia.

Results of Operations

Fiscal Year Ended December 31, 2009 vs. Fiscal Year Ended December 31, 2008

Revenue and margin

The Company has generated revenues of $228 and gross margin of $225 for Fiscal 2009 compared to $354 and $238 for Fiscal 2008.

Medicsight has sold licenses primarily in Europe where it has regulatory approvals.  Its dollar denominated revenue fell by 6% but increased by 11% in sterling, its functional currency.  Scaling back Medicexchange’s equipment sales towards the end of Fiscal 2008 has reduced Medicexchange revenue by 70% in Fiscal 2009.  The cost of equipment sales has, however, also reduced leading to an increase in gross margin as a percentage of revenue.

Operating expenses excluding goodwill impairment

Operating costs excluding goodwill impairment have reduced due to a reduction in headcount and reduced budgets due to the delay of anticipated regulatory approvals.  The strength of the dollar compared to sterling has also reduced operating expenses in dollar terms by $3,800 (13%).

The Company’s research and development expenses for Fiscal 2009 were $1,998 compared to $3,665 in Fiscal 2008. These 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.  The reduction is due to cutbacks in the research and development department as well as extended dates for product development completion.

The Company’s selling, general and administrative expenses for Fiscal 2009 were $15,195 compared to $26,066 for Fiscal 2008.  Some significant items follow:

People related costs decreased by $5,145 (42%) due to series of headcount reductions in Medicexchange in Fiscal 2008 and Medicsight in Fiscal 2009 and because of foreign exchange movements.  This included $nil bonus payments in Fiscal 2009 compared to $1,286 in the prior year.  Furthermore, foreign exchange movements reduced the expense by $1,900.

Staff who have left the group have forfeited their stock options, reducing the related charge from $3,932 in Fiscal 2008 to $1,999 in Fiscal 2009.  Medicsight stock option Plans C and D were fully vested in 2008 and 2009, reducing the charge recognized.  Stock options were modified for various employees who left Medicsight in Fiscal 2008, which increased the charge in that year.  In Fiscal 2009 all Medicsight employees were give the opportunity to forfeit their existing options in Plans A through I and, in their place receive in Plan J 50% of the number of forfeited options.  This is accounted for as a modification, but the total modification charge was less significant than in 2008.  Also, the effect of foreign exchange reduced the reported charge by $400.

Professional fees increased by $222 (9%) though the increase would have been $493 without favorable foreign exchange movements.  The increase was due to legal fees incurred in investing in Moneygate Group Limited and XShares Group LLC.

Our travel expense has reduced by $758 (42%) due to reduced discretionary budgets, especially in Medicsight, as well as foreign exchange movements as sterling weakened against the dollar. Similarly, marketing, conferences and public relations reduced by $1,865 (72%) as part of the same focus on cost reduction.

Software development and related costs were lower by $769 (41%) due to foreign exchange, the timing of product development

15

Table of Contents

and the strict cost control discussed above.

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 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 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 this is an unobservable input with little or no market activity that require significant management judgment.

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 $53,000 to $13,200.  We concluded that this decline in value was a triggering event with respect to the carrying value of our goodwill and we conducted an impairment test of goodwill as of March 31, 2009.  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.

Other income (expense)

Other income moved from income in Fiscal 2008 to an expense in Fiscal 2009.  Fiscal 2009’s expense included impairments of the XShares Group LLC convertible notes ($2,210), XShares Group LLC equity investments ($600), Eurindia ($176) and HipCricket ($701).  Interest income was lower than in the prior year, due to lower cash balances available to generate interest and a significant $3,881 foreign exchange gain in 2008.

Income Tax

Our effective tax rate for fiscal year 2009 was 0%.  The difference in the Company’s 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 was $26,377 for Fiscal 2009 compared to a net loss of $20,001 for Fiscal 2008. Net loss per share for Fiscal 2009 was $0.81 (based on weighted average shares outstanding of 32,550,590), compared to $0.60 for Fiscal 2008 (based on weighted average shares outstanding of 33,188,294). The weighted average shares outstanding decreased as a result of the Fiscal 2008 buyback of 6,349,793 shares that remain in treasury.

Operational currency

The Company’s main operating currency is UK sterling (£). Its results of operations are affected by changes in the $: £ rates used to translate the operational result. For Fiscal 2009 the average rate was $1.5651: £1.00 and for Fiscal 2008 the rate was $1.85: £1.00, an increase of 15 % in the value of the dollar against sterling.

16

Table of Contents

Fiscal Year Ended December 31, 2008 vs. Fiscal Year Ended December 31, 2007

Revenue & Marginand margin

The Company has generated revenues of $354 and gross margin of $238 for Fiscal 2008, compared to $89 and $54 for Fiscal 2007. Both Medicsight and Medicexchange have increased revenues in the period.

Medicsight has sold licenceslicenses primarily in Europe where it has regulatory approvals.

Medicexchange increased the level of equipment sales in China with revenue of $131 compared to $35 in 2007. Revenue from advertising on its website has increased from $13 in 2007 to $32 in 2008.

Operating Expenses

The Company’s research and development expenses for Fiscal 2008 were $3,665 compared to $2,670 for Fiscal 2007. The Company’s 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.

The Company’s selling, general and administrative expenses from continuing operations for Fiscal 2008 were $26,066 compared to $19,307 for Fiscal 2007, the significant items being:

People related costs increased by $2,223 (21%) as we continued to expand our operations. In Medicsight the commercial team has increased in size in Europe, Japan and seen the full year impact of the US team that started in the fourth quarter of 2007.  In addition, we have seen the effects of exchange rate depreciation on both the dollar and the Yen.

Bonus payments reduced from $2,190 to $1,286 in the year as the prior year included an IPO bonus not repeated in 2008.  In addition, executive and year end bonus payments were lower.

Stock option charges have increased significantly, by $2,391 (155%), in the year. This is as a result of new grants being issued in Medicsight and the full year impact of last year’s grants.  In addition there have been modifications made for some employees who left during the year.

Professional fees increased by $436 (23%) due to increased legal fees related to commercial agreements in addition to fees incurred as part of the share buy back program.

Our travel expense has increased by $531 (41%) as the business has continued to expand internationally and employees have travelled to overseas offices. In addition, further cooperation with overseas partners and involvement in overseas conferences has increased the level of spend.

Software development and related costs increased $883 (139%) as we signed agreements to develop the MedicRead products and perform research and development with University College London.

Marketing, conferences and public relations remained in line with last year as a result of continuing to supporting our Medicsight partners, and promoting our international presence.

Income Tax

Our effective tax rate for fiscal year 2008 iswas 0%.  The difference in the Company’s effective tax rate from the Federal statutory rate is primarily due to a 100% valuation allowance provided for all deferred tax assets.

17

Table of Contents

Net loss and net loss per share

Net loss was $20,001 for Fiscal 2008 compared to a net loss of $13,800 for Fiscal 2007. Net loss per share for Fiscal 2008 was $0.60 (based on weighted average shares outstanding of 33,188,294), compared to $0.35 for Fiscal 2007 (based on weighted average shares outstanding of 38,900,383). The weighted average shares outstanding decreased as a result of the buyback of 6,349,793 shares that remain in treasury.

Operational currency

The Company’s main operating currency is UK sterling (£). Its results of operations are affected by changes in the $: £ rates used to translate the operational result. For Fiscal 2008, the average rate was $1.85: £1.00 and for Fiscal 2007 the rate was $2.01:£1.00, a decrease of 7.9%.

Fiscal Year Ended December 31, 2007 vs. Fiscal Year Ended December 31, 200617

Revenue & Margin

The Company generated revenues of $89 and gross margin of $54 for Fiscal 2007, compared to $nil and $nil for Fiscal 2006. Both Medicsight and Medicexchange increased revenues in the period.

Medicexchange increased the level of equipment sales in China with revenue of $35 compared to $nil in 2007. Revenue from advertising on its website also increased to $13 from $nil in 2007.

Operating Expenses

The Company’s research and development expenses for Fiscal 2007 were $2,670 as compared to $2,870 for Fiscal 2006.  The Company’s 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 Medicsights PLCs’s products.

People related costs increased by $3,357 (72%) as we continued to expand our operations. In Medicsight the operations and sales and marketing teams increased in size in order to develop product pipeline and initialize commercialization. In Medicexchange the UK remained stable with a small increase in headcount in China.

Bonus payments contributed significantly to the increase in people costs. Medicsight employees received a bonus on completion of the IPO. In addition all employees received a year end bonus.

Stock option charges increased significantly in the year by $931 (231%). This was as a result of several new grants being undertaken in the year across the three companies, and the repricing of some of the earlier Medicsight options.

Professional fees increased $848 (78%) due to fees incurred for Sarbanes Oxley compliance, consultancy and audit. In addition, there were been increased fees with regard to investor relations as a result of the Medicsight IPO.

Travel expense increased $730 (129%) as the business continued to expand internationally and employees travelled to overseas offices. In addition further cooperation with overseas partners and involvement in overseas conferences increased the level of spend.

Software and related decreased $309 (69%) as the initial website build costs were expensed in the previous year.

Marketing, conferences and public relations remained in line with the prior year as a result of continuing to supporting our Medicsight partners, promoting our international presence and building the Medicexchange business and brand.

Income Tax

Our effective tax rate for fiscal year 2007 was 0%.  The difference in the Company’s effective tax rate from the Federal statutory rate was primarily due to a 100% valuation allowance provided for all deferred tax assets.

18

Table of Contents

Commercial and marketing costs increased from attending more international conferences and developing relationships with our commercial partners.  Travel and accommodation increased with headcount growth.  We expect these costs to be marginally lower in 2009.

Our professional fees increased in 2007 and 2008 due to the ongoing costs of being a company listed on the AIM Market of the London Stock Exchange, as well as for legal advice in drawing up contracts with business partners.resource consultancy.

Interest and other income was generated byreduced in 2009 as we felt the effect of a full year of significantly lower investment returns on cash deposits due to the fall in global interest rates over the last two years.  In 2008 some of our cash was invested blue chip marketable securities with higher investment of the proceeds from the IPOreturns; in June 2007.  The income2009 we only held cash.  Furthermore, in 2008 also includedwe recorded a $3,881 foreign currency exchange gain made on cash that was transferred from US dollars to pounds sterling.  We believe that falling interest rates combined with lower cash balances, will meanWhilst a lower level of interest and other incomesimilar gain was made in Fiscal 2009.2009, this only amounted to $309.

Stock based compensation has increaseddecreased due to implementationstock option Plans C and D fully vesting.  This reduction in expense was not outweighed by the issuance of new stock option plans.  To motivate our employees and align their interests with shareholders, Medicsight employees were given the opportunity to forfeit their existing options and, for every two forfeited, to be issued a new planoption in June 2008, andPlan J.  This led us to incur an accounting charge for the effect of a full year’smodification, to be spread over the term that the options vest, but this charge from plans that commencedwas significantly lower than modification charges incurred in the prior year.  We also recognized expense as we modified the plans of some members of staff who left the plan.Fiscal 2008.

Cash and net assets were lower at December 31, 20082009 compared to December 31, 20092008 predominantly because of cash used in Medicsight’s net loss and also as sterling fell in value against the US dollar.  The rise in the prior year reflected the net proceeds of the IPO and private placement.operations.

Medicexchange

In 2007 Medicexchange’s revenue was derived from both online (predominantly website advertising) and offline equipment sales.  The online sales are high margin and are generated by Medicexchange’s two websites.  TheTowards the end of Fiscal 2008 offline sales were producedscaled back, reducing revenue, as evidenced by our Chinese subsidiary and had considerablythe lower margins.   In 2008 $32 of revenue was from online sales and $131 from offline.  In 2007 the split was $13 and $35 respectively.

During the year we decided to refocus on online sales only.  Revenue in Fiscal 2009 is likely to be lower but at2009.  However, this was compensated for by an increase in online advertising sales with a higher margin.margin in Fiscal 2009.

In April 2008 we acquired the business of a Chinese medical imaging web portal, Maydeal.com for $440, of which half the acquisition cost has been deferred.  This has started to produce revenue and contributed $13 to Medicexchange’s online revenue.

The following table shows some of Medicexchange’s larger expense categories.

In September 2008 we madetook the decision to scale back our London cost baseoperations in the UK and increased our emphasisrefocus on our New York office, asreducing staff numbers in London and Beijing.  The effect of this is closer to our target market.apparent in Fiscal 2009 with sharply reduced operating costs.  This is demonstrated in the following table.

These changes have allowed us to reduce the overheads in the business.  Staff costs have fallen after a number of London and Beijing based staff left the business.  As at December 31, 2008 all Medicexchange’s Beijing employees had started to work for Medicsight and

Salaries are, no longer a cost to Medicexchange.  Our China business is now focussed solely on the Shanghai based Maydeal website. We expect salary costs to betherefore, 62% lower in Fiscal 2009 asthan in Fiscal 2008 and no bonuses were paid.  Costs to consultants in 2009 increased, however, reflecting the business willoutsourcing of website management activities.  Lower staff numbers have a full year with a lower level of staff.also manifested themselves in reduced commercial and travel costs.

20

TableProfessional fees have increased due to the outsourcing of Contentsvarious accounting, legal and other services.

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 continued reduction in commercial and marketing costs.  Our travel costs have picked up in 2008 due to travel to our China office and our focus on New York.  We expect travel costs to reduce in 2009.

Professional fees increased in 2008 because of fees incurred in acquiring Maydeal.  These Chinese fees are not expected to be ongoing.

The stock based compensation charge increased year on yearhas reduced due to modificationsthe number of staff who have left the company and whose options will therefore not vest.

19

Table of Contents

Liquidity and Capital Resources

Working Capital information

Our cash, cash equivalents and marketable securities have reduced during 20082009 predominantly because of the cash used in operating activities.

Cash used in operating activities was lower than in the $2,040 increaseprior year due to the reduced headcount and concentration on reducing costs discussed above. Significant non-cash items in our investment in XShares LLC and the buyback of $18,912 of our own and $1,251 of Medicsight’s stock.  Ourreconciliation from net loss to cash used in operating activities differsare the $12,157 impairment loss on goodwill and the $2,210 impairment of the XShares Group LLC (“XShares”) convertible loan notes.

Included in investing activities in Fiscal 2009 is the payment of $2,000 to invest in XShares convertible loan notes and $546 to provide working capital and acquisition facilities to Moneygate.  This is offset by the receipt of $946 from net profit becausethe sales of various non-cash adjustments such asmarketable securities held at the transfer to minority interest, stock-based compensation and loss made on investments.  The amountend of Fiscal 2008.  More cash was used in operatinginvesting activities in Fiscal 2008 as $2,040 was greater thaninvested in previous years due to the Company’sXShares equity as well a higher net loss.investment in marketable securities.

Also in Fiscal 2008 $20,163 was spent repurchasing our own and Medicsight’s stock, classified in financing activities.  In 2007 the largest movement in cash was due to Medicsight’s fundraising, when $24,569 was raised in a private placement and $61,049 in an IPO.  The main other movement was due to the operating losses the Company incurred.

As a resultAt the end of the cash outflows in 20082009 our ratio of current assets to current liabilities was 10.4, similar to that of Fiscal 2008.  Whilst our cash has reduced compared to 9.5.  This is, however, still a comfortable ratio and is a result of the $10,218 and $26,624 of cash held in the Company and Medicsight respectively.  The increase in the ratio from 2006 to 2007 was due to the increased cash holdings after the private placement and Medicsight IPO.2008 our cost reductions have also reduced our current liabilities.

Valuation of investments held at fair value

Weadopted SFAS 157 on January 1, 2008.  This did not have a material effect on our financial position or operating results.  SFAS 157 clarifies the definition of fair value, provides a framework for measuring fair value and expands the required disclosures to better help users of the financial statements.

The adoption of SFAS 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 judgementjudgment and reflect our estimate of assumptions that market participants would use in pricing the asset.

As at December 31, 2009 we have no investments that we hold at fair value.

21

The Company’s Chief Executive Office, and Chief Financial Officer carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures, as of the end of the period covered by this Annual Report on Form 10-K.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective such that information relating to the Company (including its combined subsidiaries) required to be disclosed in the Company’s SEC reports (1) is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (2) is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

(b)Management’s Annual Report on Internal Control over Financial Reporting

SEC rules implementing Section 404 of the Sarbanes-Oxley Act of 2002 require our 20082009 Annual Report on Form 10-K to contain management’s report regarding the effectiveness of internal control over financial reporting. As a basis for our report, we tested and evaluated the design, documentation, and operating effectiveness of internal control.

Management is responsible for establishing and maintaining effective internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, of MGT Capital Investments, Inc. and its subsidiaries. The Company’s internal control over financial reporting consists of policies and procedures that are designed and operated to provide reasonable assurance about the reliability of the Company’s financial reporting and its process for preparing financial statements in accordance with generally accepted accounting principles (“GAAP”).  There are inherent limitations in the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.

Management has evaluated the Company’s internal control over financial reporting as of December 31, 2008.2009. This assessment was based on criteria for effective internal control over financial reporting described in the standards promulgated by the PCAOB and in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that MGT Capital Investments, Inc. maintained effective internal control over financial reporting as of December 31, 2008.2009.

This annual report does not include an attestation report of the Company’s registeredindependent public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registeredindependent public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

26No changes in the Company’s internal control over financial reporting have occurred during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.OTHER INFORMATION.

None

24

Table of Contents

to our shareholders through future appreciation of our stock price. The options provide a long term incentive because they vest over a period of time (typically three years) and remain outstanding for ten years, encouraging executives to focus energies on long term corporate performance. The vesting periods are designed to encourage retention of our officers.

In Fiscal 20082009 none of the named executive officers exercised any of their stock options that had vested.

Pension and retirement benefits

Our named executive officers do not participate in any deferred benefit retirement plans such as a pension plan.

Non-qualified deferred compensation

We do not have any deferred compensation programs for our named executive officers.

Other benefits

We provide private health care insurance to some of our named executives.

Performance awards

Our named executive officers are entitled to cash bonuses, as determined by our Remuneration and Nominations Committees and Board of Directors, based upon the attainment of commercial goals conveyed to that executive.

Our Compensation process

We have a Remuneration and Nominations Committee that is comprised of Neal Wyman and Peter Venton (two of the Company’s independent directors) that determines the compensation of the MGT Capital Investments, Inc.’s executive officers. The Board of Directors generally follows these recommendations.  Medicsight plc has its own Remuneration and Nominations Committee and Board of Directors that determines the executive compensation for David Sumner (Executive Chairman) and Allan Rowley (Chief Executive Officer).  TheMGT Capital Investments, Inc., in its capacity as corporate director of Medicexchange, Chairman determines the executive compensation for the Chief Executive Officer of Medicexchange (Alex Van Klaveren).

We do not formally benchmark our compensation against any peer group. However we informally consider competitive market practices with respect to the salaries and total compensation of our named executive officers. We review the market practices by reviewing publicly available information of other companies in the HCIT sector and our geographical areas. However while we

28

Table of Contents

review such market information, it is only one factor we considered in establishing compensation, and we did not make use of any formula incorporating such data.

Generally in determining whether to increase or decrease compensation to our named executive officers, we take into account any changes, of which we are aware, in the market pay levels, the performance of the executive officer, any increase or decrease in responsibilities and roles of the executive officer, the business needs for the executive officer, the transferability of managerial skills to another employer, the relevance of the executives officers experience to other potential employers and the readiness of the executive officer to assume a more significant role within the organization.

Change in Control

The Company may immediately terminate the employment of any named executive officer for gross misconduct.  Both Tim Paterson-Brown and Allan Rowley have change in control provisions in their service contracts.  On a change in control event, Tim Paterson-Brown would be entitled to an immediate payment of 3 years’ basic salary and all stock options would become immediately vested and exercisable within the following 3 years.  On a change in control event, Allan Rowley would be entitled to an immediate payment of 2 years’ basic salary and all stock options would become immediately vested and exercisable within the following 2 years.

Stock ownership guidelines

We have not implemented any stock ownership requirements for our named executive officers. We have issued stock options to our named executive officers which we believe allows management to own equity in the Company and accordingly align their interest with those of other shareholders.

31

Table of Contents

Summary Compensation Table

The following table summarizes Fiscal Years 2009, 2008 2007 and 20062007 compensation for services in all capacities of the Company’s named executive officers and other individuals: