MGT Capital Investments, Inc. (“MGT”, “the Company”, “the Group”, “we”, “us”) is a holding company. We currently have a controlling interest in Medicsight ltd (“Medicsight”) and its subsidiaries Medicsight, Inc., Medicsight KK (Japan), Medicsight Pty Limited (Australia), Medicsight FZE (UAE), MedicEndo Limited (UAE), MedicCO2lon Limited (UAE) and Medicsight UK Limited (UK). On March 29, 2011 we disposed of our 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.
The Company continues to explore all strategic alternatives with respect to its majority interest in Medicsight Limited.
The Company is also analyzing potential acquisition opportunities in healthcare marketing and technology, as well as various intellectual property assets. There can be no assurance that any acquisitions will occur at all, or that any such acquisitions will be accretive to earnings, book value and other financial metrics, or that any such acquisitions will generate positive returns for Company shareholders. Furthermore, it is contemplated that any acquisitions may require the Company to raise additional capital; such capital may not be available on terms acceptable to the Company, if at all.
Product development
ColonCAD
Medicsight’s core technology is the proprietary ColonCAD™ algorithm that is integrated (using application protocol interface (“API”) technology) into visualization workstations for radiologists to use when reviewing a patient’s colon CT scan data.
The CAD algorithm assists the radiologist as they search for polyps in the CT scan image data. The radiologist uses the visualization software to review the patient’s CT scan images on the screen and searches for polyps (potentially pre-cancerous lesions on the wall of the colon). After a full review, the radiologist then activates the Medicsight ColonCAD™ software, which immediately displays “CAD marks” on the images, drawing the radiologist’s attention to potential polyps and other regions of interest. The radiologist then assesses each marked region in order to make the final decision as to the presence or absence of a polyp.
Clinical studies have demonstrated that radiologists assisted by Medicsight’s ColonCAD™ technology have a significantly higher sensitivity for the detection of patients with polyps in CT colonography compared to unassisted reading (i.e. traditional reading without the use of ColonCAD™).
Medicsight launched ColonCAD 4.0 in Europe in March 2009. This release significantly reduced the number of false-positive CAD marks presented to a radiologist reviewing a patient data set. In early 2011, Medicsight further developed the ColonCAD technology by releasing an enhanced version (ColonCAD 4.1) in Europe. In the United States, Medicsight received marketing clearance from the FDA in May 2011 for an earlier version of ColonCAD (v. 3.5). Further improvements in sensitivity and reduction of false-positive CAD marks have been in development; however there are no current plans to pursue regulatory approvals or commercialization of these newer versions.
In addition to currently approved products, Medicsight is continuing development of prone and supine registration technology. Currently clinicians review two data sets for each patient, one in each body position of prone and supine. This registration project aims to “register” the two data sets, including polyps and other regions of interest into one patient data set, thereby reducing clinical review time.
Medicsight’s ColonCAD™ has been developed and validated using a large database of CT scans from hospitals around the world and has been assessed in many clinical studies, the results of which have been published in peer-reviewed publications and presented at leading radiology conferences.
In addition to the computer aided detection software applications, Medicsight has developed an automated CO2 insufflation device called MedicCO2LON.
A patient undergoing a CT colon scan requires the colon to be insufflated (distended) with either CO2 gas or room air administered prior to the acquisition of their CT colonography images. MedicCO2LON is designed to provide good quality insufflation, which is essential for the acquisition of high quality images from the CT colonography examination.
Intellectual Property
Medicsight continues to develop its intellectual property portfolio to protect the core technology in its CAD and other products. During 2011, no patents were granted. Medicsight currently has 12 patents granted and 25 pending in various territories.
Regulatory approvals and submissions
US Food and Drug Administration clearance
In November 2008, Medicsight submitted the ColonCAD™ 510(k) application to the Food and Drug Administration (“FDA”) for clearance in the U.S. In December 2008, we received an Additional Information (“AI”) letter from the FDA and submitted our response to the FDA’s inquires in March 2009. In May 2011, Medicsight received 510(k) marketing clearance by the FDA for its ColonCAD 3.5 software. This clearance followed 30 months of formal and informal meetings and discussions with the FDA, and included the submission of data to satisfy FDA requests for additional information.
Other regulatory territories
In 2010, we received regulatory approval of MedicRead 3.0 (our visualization workstation which includes version 4.0 of the Medicsight ColonCAD API) from the Chinese State Food and Drug Administration (“SFDA”).
In March 2011 version 4.1 of the Medicsight ColonCAD API received the CE Mark in Europe, which certifies that the product has met European Union health, safety, and environmental standards.
In July 2011, Medicsight was informally informed by the Japanese Ministry of Health Labor and Welfare (“MHLW”) that several statistical data errors were encountered in their review of the application for approval of its MedicRead software for use in CT Colonography procedures. Following informal guidance from MHLW in August 2011, the Company decided to withdraw the current submission and is assessing the next course of action.
In 2010 our MedicCO2LON automated CO2 insufflation device received the CE Mark in Europe.
In partnership with our distribution partner in 2010 we also submitted MedicCO2LON to the MHLW regulatory authorities in Japan for approval. We are currently awaiting a decision from MHLW.
Clinical Activity
In 2011, Scientific presentations of Medicsight’s CAD research were made at the annual European Congress of Radiology the 21th Annual Meeting of the European Society of Gastrointestinal and Abdominal Radiology “ESGAR”, and the annual Radiological Society of North America “RSNA” conference.
In addition, Medicsight sponsored of a number of international CT colonography training workshops. Medicsight’s current clinical development activities are very limited.
Commercial progress
Medicsight sells its ColonCad software through distribution partnerships with global advanced medical visualization companies, Picture Achieving and Communication System (“PACS”), suppliers and other Original Equipment Manufacturers (“OEM”).
Medicsight currently has partnership agreements with Vital Images, Inc. (acquired by Toshiba in 2011), TeraRecon Inc., Viatronix Inc., Toshiba Medical Visualization Systems (previously Barco NV), Infinitt, Qi Systems (formerly Ziosoft Inc.), Intrasense SAS, and Alma IT Systems.
We support our existing partners with systems integration and to increase market awareness. In addition we continue to seek new partners to bring the product to market.
In 2010, we signed a global distribution agreement with Medrad Inc. for our MedicCO2LON insufflation device and began commercial sales. Insufflators are manufactured by a third party under contract from Medicsight and are generally produced upon receipt of purchase orders from Medrad.
Revenue and Growth Strategy
Revenues remain limited. Medicsight recorded revenues of $536 in 2011 compared to $540 in 2010. Medicsight ended 2011 with net assets of $3,409 including $3,123 of cash and short term deposits. At December 31, 2011 all of our liquid assets were held as short term cash balances, mainly in US Dollars. Post year end, we continue to hold our surplus cash on short term deposit.
As we rely totally on third parties to sell our products, the Company cannot accurately estimate ColonCAD license sales or MedicCO2LON device sales.
The Company is also analyzing potential acquisition opportunities in healthcare marketing and technology, as well as various intellectual property assets. There can be no assurance that any acquisitions will occur at all, or that any such acquisitions will be accretive to earnings, book value and other financial metrics, or that any such acquisitions will generate positive returns for Company shareholders. Furthermore, it is contemplated that any acquisitions may require the Company to raise capital; such capital may not be available on terms acceptable to the Company, if at all.
Competition
The Company faces many competitors ranging from large CT scanner manufacturers such as GE, Hitachi, Philips, Siemens and Toshiba to smaller medical imaging and visualization companies, in addition to other independent CAD software providers. Moreover, regulatory approvals received by competitors in the U.S. and Europe and the U.S. have intensified the competitive landscape over the past year.
Patents and Trademarks
Protection of our proprietary technology and our rights over that technology, from copy or unchallenged and improper use, is essential to our future success. Any challenges to, or disputes concerning, our core technology may result in great expense to us, delays in bringing products to market and disruption of our focus on our core activities. They may also result in loss of rights over our technology or the right to operate in particular markets due to adverse legal decisions against us.
Three patents have been granted in the US covering aspects of Medicsight CAD technology. In addition, Medicsight has filed several patent applications in the United Kingdom, the United States, the European Patent Office, Japan, South Korea, Australia, Canada, and under the International Patent Cooperation Treaty (which currently has approximately 144 member countries) covering our core technologies and their applications.
Medicsight also has trademarked several business names in various jurisdictions. Failure to register appropriate patents, copyrights or trademarks in any jurisdiction may impede our ability to create brand awareness in our products, result in expenses in pursuing our rights with respect to our intellectual property, or result in lost revenues due to intellectual property disputes. We may be required to purchase licenses from sellers with prior rights in any country with no assurance that such rights will be available at a commercially acceptable cost.
Employees
As of December 31, 2011 the Company and its subsidiaries had 9 employees, all of whom were full-time employees. Our employees are not part of a union.
General
MGT was originally incorporated as a Utah corporation in 1977 and was re-incorporated in Delaware in 2000. At December 31, 2011 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.
As of February 29, 2012, 70,291,062 shares of our common stock are issued and all are outstanding.
Our principal executive office is located at 500 Mamaroneck Avenue, Suite 204, Harrison, NY 10528; telephone number (914) 630-7431.
Our Internet 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.
Discussion of our business and operations included in this Annual Report on Form 10-K should be read together with the risk factors set forth below. They describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties, together with other factors described elsewhere in this report, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. New risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect our financial performance. Each of the risks described below could adversely impact the value of our securities. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.
We cannot assure you that the Company will be successful in commercializing any of the Company’s products or if any of the products are commercialized, that they will be profitable for the Company.
The Company has only had a limited operating history and has recently commenced generating revenue from operations upon which an evaluation of its prospects can be made. The Company’s prospects must be considered keeping in mind the risks, expenses and difficulties frequently encountered in the establishment of a new business in a constantly changing industry. There can be no assurance that the Company will be able to achieve profitable operations in the foreseeable future if at all.
The Company has identified a number of specific risk areas that may affect the Company’s operations and results in the future:
Company specific risks
We may be unable to develop our existing or future technology.
Our Medicsight CAD system may not deliver the levels of accuracy and reliability needed to make it a successful product in the market place. Additionally, the development of such accuracy and reliability may be indefinitely delayed or may never be achieved. Failure to develop this or other technology could have an adverse material effect on the Company’s business, financial condition, results of operations and future prospects.
The market for our technology may be slow to develop, if at all.
The market for the Medicsight CAD products may be slower to develop or smaller than estimated or it may be more difficult to build the market than anticipated. The medical community may resist Medicsight CAD products or be slower to accept them than we anticipate. Revenues from Medicsight CAD may be delayed or costs may be higher than anticipated which may result in the Company requiring additional funding. Medicsight’s principal route to market is via commercial distribution partners. These arrangements are generally non-exclusive and have no guaranteed sales volumes or commitments. The partners may be slower to sell our products than anticipated. Any financial, operational or regulatory risks that affect our partners could also affect the sales of our products. In the current economic environment, hospitals and clinical purchasing budgets that are reliant on external debt finance may result in purchasing decisions being delayed. If any of these situations were to occur this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.
We may be slow to receive required regulatory approvals from respective government regulators, if we receive them at all.
The Medicsight CAD system is subject to regulatory requirements in the USA, Europe, Japan, China and our other targeted markets. Necessary regulatory approvals may not be obtained or may be delayed. We may incur substantial additional cost in obtaining regulatory approvals for our products in our targeted markets. Any delays in obtaining the necessary regulatory approvals increase the risk that our competitors’ products are approved before our own. The failure to obtain these approvals on a timely basis and/or the associated costs could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.
The medical imaging market we operate in is highly competitive.
There are a number of groups and organizations, such as software companies in the medical imaging field, MDCT scanner manufacturers, screening companies and other healthcare providers that may develop a competitive offering to the Medicsight CAD products. 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. 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 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.
We have incurred significant operating losses since inception and have only recently commenced generating revenues from operations. As a result, we have generated negative cash flows from operations and have an accumulated deficit as of December 31, 2011. We are operating in a developing industry based on new technology and our 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 we develop and market will be accepted by consumers. If our products are ultimately unsuccessful in the market, this could have a material adverse effect on our 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.
Our current corporate structure may place us in an unfavourable market position vis-à-vis our competitors.
MGT’s corporate structure may make it more difficult or costly to take certain actions. We conduct our business through Medicsight Ltd, a U.K. company which is 53.85% owned by MGT and through Medicsight’s subsidiaries in the U.K., the U.S., Japan and Gibraltar. Although MGT and Medicsight share some directors and management, they are required to comply with corporate governance and rules applicable to companies in the United Kingdom and the USA. Should MGT propose to take any action, such as a transfer or allocation of assets or liabilities between MGT and its subsidiaries, MGT would have to take into consideration the potentially conflicting interests of MGT’s stockholders and the non-controlling stockholders of Medicsight. This may deter MGT from taking such actions that might otherwise be in the best interest of MGT or cause MGT to incur additional costs in taking such actions. The subsidiary companies would not be able to pay dividends or make other distributions of profits or assets to MGT without making pro-rata payments or distributions to the respective non-controlling stockholders. Although neither the subsidiary nor MGT has plans to pay dividends or make distributions to its shareholders, MGT’s corporate structure may deter its subsidiary from doing so in the future. If at any point we are ultimately unable to resolve any of these conflicts, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.
The protection of our intellectual property may be uncertain, and we may face possible claims of others.
Although we have received patents and have filed patent applications with respect to certain aspects of our technology, we generally do not rely on patent protection with respect to our products and technologies. Instead, we rely primarily on a combination of trade secret and copyright law, employee and third-party non-disclosure agreements and other protective measures to protect intellectual property rights pertaining to our products and technologies. Such measures may not provide meaningful protection of our trade secrets, know-how or other intellectual property in the event of any unauthorized use, misappropriation or disclosure. Others may independently develop similar technologies or duplicate our technologies. In addition, to the extent that we apply for any patents, such applications may not result in issued patents or, if issued, such patents may not be valid or of value. Third parties could, in the future, assert infringement or misappropriation claims against us with respect to our current or future products and technologies, or we may need to assert claims of infringement against third parties. Any infringement or misappropriation claim by us or against us could place significant strain on our financial resources, divert management’s attention from our business and harm our reputation. The costs of prosecuting or defending an intellectual property claim could be substantial and could adversely affect our business, even if we are ultimately successful in prosecuting or defending any such claims. If our products or technologies are found to infringe the rights of a third party, we could be required to pay significant damages or license fees or cease production, any of which could have a material adverse effect on our business. If a claim is brought against us, or we ultimately prove unsuccessful on the claims on our merits, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.
We may fail to attract and retain qualified personnel.
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.
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.