**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION****WASHINGTON, D.C. 20549**

 

**FORM 10-K**

 

**FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO  SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

| **(Mark  One)** |
|-----------------|
| x               | **ANNUAL  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|            | ** ** |
|            | **For the fiscal year ended: December 31,  2007.** |
|            |   |
| **OR**          |   |
|            | ** ** |
| o               | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934.** |
|            | ** ** |
|            | **For the transition period from                                 to                                ** |

 

**MGT CAPITAL INVESTMENTS INC.**

(Exact Name of Registrant as Specified in its Charter)

(formerly Medicsight Inc.)

 

| **Delaware**                                                      | ** ** | **0-26886**               | ** ** | **13-4148725**                        |
|-------------------------------------------------------------------|------------|---------------------------|------------|---------------------------------------|
| (State or Other  Jurisdiction   of Incorporation or Organization) |       | (Commission  File Number) |       | (I.R.S. Employer  Identification No.) |

 

| **Kensington  Centre, 66 Hammersmith Road, London W14 8UD, United Kingdom** |
|-----------------------------------------------------------------------------|
| (Address of  principal executive offices, including zip code)               |

 
| **011-44-207-605-1151**                                    |
|------------------------------------------------------------|
| (Registrant’s  Telephone Number, Including Area Code) |

 

Securities registered under section 12(b) of the Exchange Act:  *N**ot applicable*

 

Securities registered under section 12(g) ofthe Exchange Act:  *Commonstock, par value $0.001 per share*

 

Indicate by check mark if the Registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act.    Yeso    No  x

 

Indicate by check mark if the Registrant is not required to filereports pursuant to Section 13 or 15(d) ofthe Act.    Yes o    No  x

 

Check whether the issuer: (1) filed all reports required to befiled by Section 13 or 15(d) of the Exchange Act during the past 12months (or for such shorter period that the registrant was required to file),and (2) has been subject to such filing requirements for the past 90 days.    Yes    x    No    o

 

Indicate by checkmark if disclosure of delinquent filers is not contained herein, and will notbe contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K.    x

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer," "accelerated filer,” and "smallerreporting company" in Rule 12b-2 of the Exchange Act. (Check one):

 
| Large Accelerated Filer  o |   | Accelerated  filer  x |   | Non-accelerated  Filer  o          | Smaller reporting  company  o |
|--------------------------------------|--------|---------------------------------|--------|----------------------------------------------|-----------------------------------------|
|                                 |   |                            |   | (Do not check if  smaller reporting company) |                                    |

 

Indicate by check markwhether the Registrant is a shell Company (as defined in Rule 12b-2 of theAct).    Yes    o    No    x

 

As of June 30,2007, the last day of the registrant’s most recently completed second fiscalquarter, the aggregate market value of the registrant’s common stock held bynon-affiliates of the registrant was approximately $75,611,000.

 

The common stockis the registrant’s only class of stock.

 

As of March 17,2008 the number of shares of common stock, par value $0.001 per share, of MGTCapital Investments, Inc. issued and outstanding was 38,294,982.

 

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MGTCapital Investments Inc.

Form10-K

 

Tableof Contents

 
|       | PART I                                                                                                              |   |
|------------|---------------------------------------------------------------------------------------------------------------------|--------|
| Item 1     | Business                                                                                                            |   |
| Item 1A    | Risk Factors                                                                                                        |   |
| Item 1B    | Unresolved Staff  Comments                                                                                          |   |
| Item 2     | Properties                                                                                                          |   |
| Item 3     | Legal Proceedings                                                                                                   |   |
| Item 4     | Submission of  Matters to a Vote of Security Holders                                                                |   |
|       |                                                                                                                |   |
|       |                                                                                                                |   |
|       | PART II                                                                                                             |   |
| Item 5     | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |   |
|       |                                                                                                                |   |
| Item 6     | Selected Financial  Data                                                                                            |   |
| Item 7     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |   |
| Item 7A    | Quantitative  and Qualitative Disclosures About Market Risk                                                         |   |
| Item 8     | Financial  Statements and Supplementary Data                                                                        |   |
| Item 9     | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                               |   |
| Item 9A    | Controls and  Procedures                                                                                            |   |
| Item 9B    | Other Information                                                                                                   |   |
|       |                                                                                                                |   |
|       |                                                                                                                |   |
|       | PART III                                                                                                            |   |
| Item 10    | Directors,  Executive Officers and Corporate Governance                                                             |   |
| Item 11    | Executive  Compensation                                                                                             |   |
| Item 12    | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    |   |
|       |                                                                                                                |   |
| Item 13    | Certain  Relationships and Related Transactions, and Director Independence                                          |   |
|       |                                                                                                                |   |
|       |                                                                                                                |   |
|       | PART IV                                                                                                             |   |
| Item 14    | Principal  Accountant Fees and Services                                                                             |   |
| Item 15    | Exhibits and  Financial Statement Schedules                                                                         |   |
|       |                                                                                                                |   |
| Signatures |                                                                                                                |   |

 

Allfinancial amounts are in thousands except share and per share data.

 

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NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This Annual Reporton Form 10-K, including “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” in Item 7, contains forward-lookingstatements that involve risks and uncertainties, as well as assumptions that,if they never materialize or prove incorrect, could cause the results of MGTCapital Investments, Inc and its consolidated subsidiaries (the “Company”) todiffer materially from those expressed or implied by such forward-lookingstatements. All statements other than statements of historical fact arestatements that could be deemed forward-looking statements, including anyprojections of revenue, gross margin, expenses, earnings or losses fromoperations, synergies or other financial items; any statements of the plans,strategies and objectives of management for future operations, including therate of market development and acceptance of medical imaging technology; theexecution of restructuring plans; any statement concerning developments,performance or industry rankings relating to products or services; anystatements regarding future economic conditions or performance; any statementsof expectation or belief; and any statements of assumptions underlying any ofthe foregoing. The risks, uncertainties and assumptions referred to aboveinclude the performance of contracts by suppliers, customers and partners;employee management issues; the difficulty of aligning expense levels withrevenue changes; and other risks that are described herein, including but notlimited to the specific risks areas discussed in “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” in Item 7 ofthis report, and that are otherwise described from time to time in the Company’sSecurities and Exchange Commission reports filed after this report. The Companyassumes no obligation and does not intend to update these forward-lookingstatements.

 

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

 

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# **PART I**

# ** **

## **ITEM 1**                                                        BUSINESS

## ** **

MGT Capital Investments,Inc (“MGT”, “we”, “us” or “the Company”), is a holding company in the globalHealthcare Information Technology (“HCIT”) sector.  We currently have a controlling interest in ourtwo main operating subsidiaries: Medicsight PLC (“Medicsight”) andMedicexchange PLC (“Medicexchange”).  Wealso have wholly owned subsidiaries MGT Capital Investments (UK) Limited, MGTInvestments (Gibraltar) Limited, Medicexchange Inc., Medicsight NomineesLimited, HTTP Tech Inc. and Medical Vision Systems Inc.

 

·                  Medicsight and its wholly ownedsubsidiaries is a medical imaging software development company listed on theAIM market of the London Stock Exchange (Ticker symbol “MDST”) that developsand commercializes enterprise-wide Computer-Aided Detection (“CAD”)applications which analyze Computer Tomography (“CT”) scans to assistradiologists in the early detection and measurement of colorectal polyps andlung lesions.  The Company holds 85million shares (55%) of the 155 million issued share capital of Medicsight.

 

·                  Medicexchange andits majority owned subsidiaries provide medical imaging professionals with aglobal web portal containing an online sales channel for diagnostic, treatmentand surgery planning solutions.  Thiscombined with a variety of relevant clinical papers, training materials andcontent gives these professionals access to information and products that theyotherwise would have difficulty accessing. The Company holds 22.5 million shares (73%) of the 30.8 million issuedshare capital of Medicexchange. Medicexchange’s shares are not publicly traded.

 

**Medicsight**

 

Medicsight is a medical imaging software developmentcompany and one of the world’s leading developers of enterprise-wide CADsoftware which analyzes CT scans to assist radiologists in the early detectionand measurement of lung lesions and colorectal polyps.

 

Early detection of cancer is the key to betterprognosis, less invasive and lower treatment costs, and higher survivalrates.  Our CAD software applications areintended to aid clinicians in the early detection of potential abnormalities.

 

Medicsight has focused on two of the leading causes ofdeath, colorectal cancer (also known as colon or bowel cancer) and lung cancer.

 

*Colon Cancer*

 

World Health Organization data shows that colon cancercauses 655,000 deaths each year. Colon cancer is one of the most prevalentcancers in western countries, and is likely to grow faster in developingcountries whose populations are consuming more and more of a western stylediet.  If detected early enough, 90percent of cases can be 100 percent curable. Many western countries operatecolon cancer screening programs, and Computer Tomography Colonography (“CTC”)is ideally suited for population screening of asymptomatic adults.

 

*Lung Cancer*

 

Lung cancer is the most common and deadliest of allcancers.  Worldwide 1.3 million cases oflung cancer are diagnosed each year, and the disease accounts for 17.1 per centof all global cancer deaths.  The linkbetween smoking and lung cancer has long been accepted.  Clinical research has shown that if detectedearly and treated, there is more than an 85 per cent chance of a ten yearsurvival rate from lung cancer.  Assmoking increases in Asia, it is predicted that the number of cases of lungcancer diagnosed each year in Asia will dramatically increase over the nextdecade.

 

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**Products**

 

Medicsight develops and markets ColonCAD, LungCAD anda new MedicRead visualization software application.  The ColonCAD and LungCAD software (and theirprevious versions, ColonCAR and LungCAR) are application programmable interfaces(“APIs”) which have been seamlessly integrated into our partners’ advanced 3Dvisualization workstations to give the clinical user a combined visualizationand detection solution.

 

*ColonCAD*

 

During the year Medicsight’s Research and DevelopmentTeam made a number of enhancements to ColonCAD. This has resulted in a further improvement in its detection rate ofcolonic polyps.  According to a recentstudy, ColonCAD has demonstrated a sensitivity of 85% for colonic polyps ofsize 5mm and larger, and 95% for polyps of 10mm and larger. Polyp size is themain criterion for follow-up action on a positive finding; polyps in the 6 to 9mm range are monitored whilst 10mm or greater polyps are recommended foroptical colonoscopy follow-up and possible removal. This is our most sensitiveColonCAD release to date and has been integrated into the visualizationworkstations of our partners.  We believethat this version of Medicsight ColonCAD is one of the world’s leading colonCAD solutions.  The product has beendeveloped and validated using a large database of CT scans from hospitalsaround the world and has been assessed in many clinical studies, the results ofwhich have been published in peer-reviewed publications and at leadingradiology conferences.

 

*LungCAD*

 

In 2007 we enhanced our LungCAD software application,complementing our LungCAD nodule detection and measurement tools withadditional features to create a disease management suite which we believe willmeet the clinical needs of lung imaging specialists. 

 

*MedicRead*

 

In May 2007 we launched MedicRead Colon — whichis Medicsight’s own advanced visualization software application.  MedicRead Colon can be deployed either on astandalone basis or into an existing clinical IT infrastructure.  We believe MedicRead Colon is a flexibleoption for hospitals and clinics unable to invest large capital sums in newimage analysis infrastructure.  The nextversion of the product will be released in 2008.

 

**Clinical Activity**

 

Medicsight’s clinical team continued its work withMedicsight’s global network of medical luminaries.  Medicsight’s ColonCAD application is involvedin a number of government-funded studies looking at the sensitivity of CTC andthe comparison of CTC with existing imaging methods for the early detection ofcolorectal cancer.

 

The British Special Interest Group in Gastrointestinaland Abdominal Radiology (“SIGGAR”) finished recruiting patients in November 2007for the largest UK randomized control trial to date. Medicsight CAD is the onlyCAD product to be involved in this trial which compares CTC with OpticalColonoscopy and Barium Enema x-ray. Results are expected to be available in mid-2008.

 

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The Medicsight ColonCAD software is also integratedinto the visualization software used to read CTC examinations for the FrenchSTIC trial “Sciences et Technologies de l’information et de la Communication(Information and Communication Science and Technology)”.  Recruitment for this trial will continuethroughout 2008.

 

The Japanese National Cancer Centre in Tokyo hasadopted Medicsight ColonCAD for the first CTC colon cancer screening program inJapan.

 

In Japan, Medicsight supported, in co-operation withToshiba Medical Systems (“Toshiba”), two CTC training workshops at the JapaneseRadiological Society (“JRS”), the largest Japanese radiology congress, and theJapan Digestive Disease Week (“JDDW”) conference, the largest Japanesegastroenterological conference. Within the training programs, the effectivenessof ColonCAD was demonstrated reflecting the way it is used at the JapaneseNational Cancer Centre, Tokyo.  As a result of the success of theseworkshops, additional training programs are planned for 2008.

 

There has also been significant progress in the USA inrelation to the acceptance of CTC into mainstream medical practice.  In September 2007 the American Collegeof Radiology Imaging Network (“ACRIN”) concluded a national trial in the USA toclinically validate the widespread application of CTC as a screening tool forthe detection of colon cancer.  Thepreliminary results have shown the benefits of CTC in both clinical andeconomic terms.  A further studyconducted by the University of Wisconsin Medical Center, the results of whichwere published in the New England Journal of Medicine in October 2007,supported the use of CTC as a primary screening tool.  On 5 March 2008, the American CancerSociety (“ACS”) issued new Colorectal Cancer Screening guidelines recommendingthat CTC be added to the panel of tests that physicians have at their disposalwhen screening for colorectal cancer. The ACS endorsement is expected to lead to routine reimbursement for CTCand to a material increase in the use of CTC for screening those populationswho are most at risk of developing this devastating condition.

 

CTC as a diagnostic examination for the earlydetection of colorectal cancer is increasingly becoming accepted as mainstreamclinical practice. The Virtual Screening for Cancer Act 2007 was introduced inthe US Congress in December 2007. If passed into law, the bill would allow CTC to form part of the USgovernment’s Medicare program and under certain circumstances would allow fullreimbursement.  This measure shouldincrease the number of CTC examinations performed in the US and provide asignificant revenue opportunity for Medicsight. The Company is monitoring this development closely.

 

Medicsight’s products have been profiled at majorinternational radiology conferences throughout 2007.  The Company exhibited its ColonCAD andMedicRead Colon applications at (a) the Radiological Society of NorthAmerica (“RSNA”) annual meeting in Chicago in November 2007; (b) theEuropean Congress of Radiology (“ECR”) annual meeting (Vienna, March 2007);and (c) the European Society of Gastrointestinal and Abdominal Radiology (“ESGAR”)in June 2007; as well as exhibiting at other international radiologyconferences.

 

In 2007 Medicsight continued its support of educationwithin the international medical community by sponsoring US and European CTCworkshops.  These workshops trainradiologists to interpret CTC images using the latest visualization and CADtechnology.

 

**Regulatory Environment**

 

Our CAD software applications are medical devices andrequire local regulatory approvals. In the USA, the Food and DrugAdministration (FDA) is the regulatory authority. In Europe, regulatoryapproval is gained through Conformité Europeène (CE) marking. Other markets suchas China (SFDA — State Food & Drug Administration); Japan (MHLW —Ministry of Health, Labor and Welfare); Australia (TGA — Therapeutic GoodsAdministration); South Korea (KFDA — Korea Food & DrugsAdministration); and Canada (CMDCAS — Canadian Medical Device ConformityAssessment System) have their own regulatory bodies, but these countries oftenrequire foreign applicants 

 

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to show evidence of an existing CE or FDA approval fora product before gaining approval in the local market.

 

At the beginning of 2007 the Company’s ColonCAD andLungCAD products had regulatory approval only in the European Union (CEMarking).

 

During 2007 the Company was granted Medical DeviceLicenses from the Therapeutic Products Directorate of Health in Canada and fromthe Department of Health and Ageing Therapeutic Goods Administration ofAustralia for ColonCAD, LungCAD and MedicRead Colon; and MedicRead Colon was CEMarked in the European Union.

 

Applications are ongoing for FDA clearance in the USAand for regulatory approval in China, Japan and Brazil.  These are expected to be granted in 2008.

 

**Markets & Opportunity**

 

We market our ColonCAD and LungCAD products throughpartners.  The Company has signed anumber of non-exclusive integration and distribution agreements with thefollowing visualization partners:

 

·                  Vital Images Inc — ColonCAD has been integrated intoVital’s CTC application which is part of the Vitrea software package;

 

·                  TeraRecon Inc —have successfully integrated ColonCADand LungCAD into the Aquarius family of medical imaging applications;

 

·                  Viatronix Inc — ColonCAD and LungCAD have beensuccessfully integrated into the Viatronix V3D Colon and V3D Explorer software;

 

·                  3mensio Medical Imaging BV — have integrated ColonCADand LungCAD into the 3viseon application;

 

·                  Barco NV - have integrated ColonCAD into the Voxar 3DColonMetrix application.

 

In February 2008 Medicsight signed a PreliminaryAgreement with the System Integration (PACS) Division of Toshiba for the resaleof MedicRead Colon in Japan.

 

Medicsight is also in discussion with a number ofother major imaging companies and expects to finalize distribution agreementsin America, Asia and Europe in 2008.

 

**Revenue and Growth Strategy**

 

The year ended December 31, 2007 saw Medicsightbook its first ColonCAD revenues through its partners in Europe.  We plan to build on this and acceleraterevenues through:

 

·                  signing new distribution agreements for the Colon andLung CAD products and the MedicRead applications;

 

·                  continuing to invest in improved clinical awarenessand validation;

 

·                  working with governments, international healthorganizations and medical institutions to promote the benefits of early diseasedetection and to publicize the potential for population screening programs toreduce premature deaths from diseases that can be curable if detected early inthe disease process;

 

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·                  actively promoting CAD through support of accreditedtraining programs;

 

·                  introducing additional products into the Company’sportfolio by a combination of internal research and development andacquisitions.

 

**Competition**

 

The Company’s competitors can be divided into twocategories: (a) MDCT scanner manufacturers such as GE, Hitachi, Philips,Siemens and Toshiba; and (b) independent CAD software providers.

 

A number of MDCT manufacturers offer CAD solutionsthat are available in European markets, however currently the only FDA approvedCAD is Siemens Lung CAD.

 

In the CAD vendor market, there are a number of small,independent software providers, which include:

 

·                  im3D (Italy) — have developed a Colon CAD product thatis CE certified but not FDA cleared;

 

·                  Median Technologies (France) — have developed a ColonCAD product and a Lung CAD (CAD-lung) — both have CE approval but not FDA clearance;

 

·                  Hologic Inc. (R2) (USA) — have developed a Lung CADproduct that is FDA approved.

 

**Medicsight’s admission to the AIMMarket of the London Stock Exchange**

 

On June 21, 2007, Medicsight completed itsinitial public offering on the AIM Market of the London Stock Exchange.  29 million new shares were issued toinstitutional and other investors at a price of £1.10 ($2.20) per share raising£32,000  ($64,115) gross new money.  Medicsight incurred fees of £1,550 ($3,096),including fees of $298 with Asia IT Capital Investments Ltd (a relatedparty).  £5,500 ($11,100) of the netproceeds were used to repay debt (between Medicsight and the Company).  The remaining £24,900 ($49,800) cash inflowfrom the IPO will be used for working capital and business development.

 

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

 

After the Company’s private placement and theMedicsight IPO, the Company holds 85 million (55%) of the 155 million issuedshare capital of Medicsight.  On December 31,2007, Medicsight PLC shares closed at a price of £1.06 ($2.12), valuing MGT’s85 million shares at $180,000.

 

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**Medicexchange PLC**

 

Medicexchange PLC operates Medicexchange.com, anonline portal for radiologists and medical imaging professionals.  Medicexchange PLC also has operations inBeijing, (China) offering western vendors a sales, regulatory and marketing routeinto the Chinese market place.

 

*Medicexchange.com*

 

Medicexchange.com was launched in November 2006and provides users with: (a) daily news coverage from over 240 originalauthor sources; (b) conference coverage including exclusive reports andinterviews; (c) product and clinical community news; (d) job andrecruitment boards; and (e) clinical product information and theopportunity to buy on-line.

 

Medicexchange.com is aimed at the estimated 1.2million plus medical imaging professionals around the world, many of whom frommarket research stated a preference for the concept of web-based downloadableproducts and a “per use” pricing model.

 

*China operations*

 

In Fiscal 2007, Medicexchange opened an office inBeijing and has established a distribution network with access to over 1,000distributors serving 80% of tier 1 and 2 urban hospitals.  Medicexchange now offers sales, marketing andregulatory affairs consulting services for medical vendors to enter the Chinesemarket.

 

**Employees**

 

As of December 31, 2007, the Company and itssubsidiaries had 80 employees, all of whom are full-time employees.  Our employees are not part of a union.  We believe that we have an excellentrelationship with our employees.

 

**Patents and Trademarks**

** **

Protection of ourproprietary technology and our rights over that technology, from copy orunchallenged and improper use, is essential to our future success. Anychallenges to, or disputes concerning, our core technology may result in greatexpense to us, delays in bringing products to market and disruption of ourfocus on our core activities. They may also result in loss of rights over ourtechnology or the right to operate in particular markets due to adverse legaldecisions against us.

 

Medicsight hasfiled patent applications in the United Kingdom, the United States, theEuropean Patent Office, Japan, South Korea, Australia, Canada, and under theInternational Patent Cooperation Treaty (which currently has 128 membercountries) covering our core technologies and their applications.  We have recently filed new patentapplications covering technology of both Medicsight CAD and Medicexchange andintend to continue filing new applications in the future.  Two patentshave been granted in the US covering aspects of Medicsight CAD technology.  Although prior art searches have been carriedout, we cannot provide assurance that any or all of the pending patents will begranted or that they will not be challenged, or that rights granted to us willactually provide us with advantage over our competitors. Medicsight activelyreviews third party patents and is not currently aware of any that our productswill infringe.

 

“Medicsight”®, “Medicsight Colon Screen”®,“Medicsight Lung Screen”®, “Medicsight ColonCAR”®, “Medicsight Lung CAR”®,“Medicsight Computer Assisted Reader” ®, “MedicsightSee More, Save More” ® and “Lung CAR” ® have been registered as trademarks in theUnited Kingdom.  “Medicsight”®  has also beenregistered in the United States, the European Union, Australia, China and anumber of other countries.  “MedicRead”® has beenregistered as a trademark in the European Union.  These trademarks are important to thecorporate identity in connection with Medicsight CAD.

 

Failure toregister appropriate patents, copyrights or trademarks in any jurisdiction mayimpede our ability to create brand awareness in our products, result inexpenses in pursuing our rights with respect to our intellectual property, orresult in lost revenues due to intellectual property disputes. Where we may berequired to purchase 

 

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licenses fromsellers with prior rights in any country, we cannot assure you that we will beable to do so at a commercially acceptable cost.

 

**FinancialInformation about Medicsight and Medicexchange**

 

Note 14 to theConsolidated Financial Statements provides information on the Company’s segmentreporting.

 

**General**

** **

MGT was originallyincorporated as a Utah corporation in 1977 and was re-incorporated in Delawarein 2000.  At December 31, 2007 theCompany’s authorized share capital was 75,000,000 shares of common stock, parvalue of $0.001.

 

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

 

At March 17,2008, 38,294,982 shares of our common stock had been issued.

 

Our principalexecutive office is located at Kensington Centre, 66 Hammersmith Road, LondonW14 8UD, United Kingdom, telephone 011-44-207-605-1151, facsimile011-44-207-605-1171.

 

Our web address iswww.mgtci.com. Information on our website is not deemed to be a part of thisAnnual Report.

 

**Availableinformation**

 

Wewill provide, upon request and free of charge, paper copies of our annualreport on Form 10-K, quarterly reports on Form 10-Q and currentreports on Form 8-K, including any amendments to the foregoing reports, assoon as is reasonably practicable after such material is electronically filedwith, or furnished to, the Securities and Exchange Commission.  These materials along with our Code ofBusiness Conduct and Ethics are also available through our corporate website atwww.mgtci.com.  A copy of this annual report on Form 10-Kis located at the Securities and Exchange Commission’s Public Reference Room at100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can beobtained by calling the SEC at 1-800-SEC-0330. The public may also download these materials from the Securities andExchange Commission’s website at http://www.sec.gov. Any amendments to, and waivers of, our Code of Business Conduct andEthics will be posted on our corporate website.

 

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**ITEM 1A.****                                            RISKFACTORS**

 

Discussion of ourbusiness and operations included in this annual report on Form 10-K shouldbe read together with the risk factors set forth below. They describe variousrisks and uncertainties to which we are or may become subject. These risks anduncertainties, together with other factors described elsewhere in this report,have the potential to affect our business, financial condition, results ofoperations, cash flows, strategies or prospects in a material and adversemanner.  New risks may emerge at any time, and we cannot predict thoserisks or estimate the extent to which they may affect financial performance.Each of the risks described below could adversely impact the value of oursecurities.  These statements, like all statements in this report, speakonly as of the date of this report (unless another date is indicated), and weundertake no obligation to update or revise the statements in light of futuredevelopments.

 

We cannot assureyou that MGT will be successful in commercializing the Medicsight CAD productsor the Medicexchange portal, or if the products or the portal arecommercialized, that they will be profitable to the Company. We face obstaclesin commercializing the Medicsight CAD products and the Medicexchange portal andin generating operating revenues as detailed below.

 

MGT has had only alimited operating history and has just commenced generating revenue fromoperations upon which an evaluation of its prospects can be made. MGT’sprospects must be considered keeping in mind the risks, expenses anddifficulties frequently encountered in the establishment of a new business in aconstantly changing industry. There can be no assurance that MGT will be ableto achieve profitable operations in the foreseeable future or at all.

 

MGT has identifieda number of specific risk areas that may affect MGT’s operations and results inthe future:

 

*TechnicalRisks:*  The MedicsightCAD system may not deliver the levels of accuracy and reliability needed, orthe development of such accuracy and reliability may be delayed.

 

*MarketRisk: *The market forthe Medicsight CAD products and Medicexchange.com may be slower to develop orsmaller than estimated or it may be more difficult to build the market thananticipated. The medical community may resist Medicsight CAD and the Medicexchange.comproducts or be slower to accept them than we anticipate. Revenues fromMedicsight CAD and Medicexchange.com may be delayed or costs may be higher thananticipated which may result in the Company requiring additional funding.

 

*RegulatoryRisks:*The Medicsight CAD system is subject to regulatoryrequirements in the United States of America, Europe, Japan, China and ourother targeted markets. Necessary regulatory approvals may not be obtained ormay be delayed.  We may incur substantialadditional cost in obtaining regulatory approvals for our products in ourtargeted markets.

 

*CompetitiveRisk:*There are a number of groups and organizations, such assoftware companies in the medical imaging field, MDCT scanner manufacturers,screening companies and other healthcare providers that may develop acompetitive offering to the Medicsight CAD products and Medicexchange.com.  In addition these competitors may havesignificantly greater resources than MGT. We cannot make any assurance thatthey will not attempt to develop such offerings, that they will not be successfulin developing such offerings or that any offerings they do develop will nothave a competitive edge over Medicsight CAD products and Medicexchange.com.

 

*FinancialRisk:*MGT has incurred significant operating losses sinceinception and has only recently commenced generating revenues from operations.As a result, MGT has generated negative cash flows from operations and has 

 

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an accumulateddeficit at December 31, 2007. MGT is operating in a developing industrybased on new technology and its primary source of funds to date has beenthrough the issuance of securities and borrowed funds. While MGT is optimisticand believes appropriate actions are being taken, there can be no assurancethat management’s efforts will be successful or that the products MGT developsand markets will be accepted by consumers.

 

*CorporateStructure:*MGT’s corporate structure may make it moredifficult or costly to take certain actions. MGT conducts its business through:(a) Medicsight, a UK public company which is 55% owned by the Company, andthrough Medicsight’s subsidiaries in the United Kingdom, the United States,Japan and Gibraltar and; (b) the Medicexchange subsidiaries, in which MGT’sholdings range between 75% and 100%. Although MGT, Medicsight and Medicexchange share some directors andmanagement, they are required to comply with corporate governance and otherlaws and rules applicable to public companies in the United Kingdom andthe United States.  Should MGT propose totake any action, such as a transfer or allocation of assets or liabilitiesbetween MGT and its subsidiaries, MGT would have to take into consideration thepotentially conflicting interests of MGT’s stockholders and the minoritystockholders.  This may deter MGT fromtaking such actions that might otherwise be in the best interest of MGT orcause MGT to incur additional costs in taking such actions. The subsidiarycompanies would not be able to pay dividends or make other distributions ofprofits or assets to MGT without making pro-rata payments or distributions tothe respective minority stockholders. Although neither the subsidiary companies nor MGT has plans to paydividends or make distributions to its shareholders, MGT’s corporate structuremay deter its subsidiaries from doing so in the future.

 

*The protection of our intellectualproperty may be uncertain, and we may face possible claims of others:*Although we have received patents andhave filed patent applications with respect to certain aspects of ourtechnology, we generally do not rely on patent protection with respect to ourproducts and technologies. Instead, we rely primarily on a combination of tradesecret and copyright law, employee and third-party nondisclosure agreements andother protective measures to protect intellectual property rights pertaining toour products and technologies. Such measures may not provide meaningfulprotection of our trade secrets, know-how or other intellectual property in theevent of any unauthorized use, misappropriation or disclosure. Others may independentlydevelop similar technologies or duplicate our technologies. In addition, to theextent that we apply for any patents, such applications may not result inissued patents or, if issued, such patents may not be valid or of value. Thirdparties could, in the future, assert infringement or misappropriation claimsagainst us with respect to our current or future products and technologies, orwe may need to assert claims of infringement against third parties. Anyinfringement or misappropriation claim by us or against us could placesignificant strain on our financial resources, divert management’s attentionfrom our business and harm our reputation. The costs of prosecuting ordefending an intellectual property claim could be substantial and could adverselyaffect our business, even if we are ultimately successful in prosecuting ordefending any such claims. If our products or technologies are found toinfringe the rights of a third party, we could be required to pay significantdamages or license fees or cease production, any of which could have a materialadverse effect on our business.

 

*If we fail to attract and retainqualified personnel, our business would be harmed: *We expect to rapidly expand our operations and growour sales, research and development and administrative operations. Thisexpansion is expected to place a significant strain on our management and willrequire hiring a significant number of qualified personnel. Accordingly,recruiting and retaining such personnel in the future will be critical to oursuccess. There is intense competition from other companies, research andacademic institutions, government entities and other organizations forqualified personnel in the areas of our activities. If we fail to identify,attract, retain and motivate these highly skilled personnel, we may be unableto continue our marketing and development activities.

 

*If we do not effectively managechanges in our business, these changes could place a significant strain on ourmanagement and operations and, as a result, our business might not succeed: *Our ability to grow successfully requires an effectiveplanning and management process. The expansion and growth of our business couldplace a significant strain on our management systems, infrastructure and otherresources. To manage our growth successfully, we must continue to improve andexpand our systems and infrastructure in a timely and efficient manner. Ourcontrols, systems, procedures and resources may not be adequate to support achanging and growing company. If our management fails to respond effectively tochanges and growth in our business, including acquisitions, such failure couldhave a material adverse effect on our business.

 

10

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*ForeignExchange Risks:*As MGT’s main operating currency is UKsterling (£) and its financial statements are reported in US Dollars, MGT’sassets and liabilities and its results of operations are affected by movementsin the $:£ exchange rate.

 

*OtherRisks:*MGT’s ability to deliver its software could behindered by risks such as the loss of key personnel or the patents andtrademarks being successfully challenged or credit facilities being reduced orterminated by lenders.

 

*InternalControls:*Failure to achieve and maintain effective internalcontrols in accordance with Section 404 of the Sarbanes-Oxley Act of 2002could have a material adverse effect on our business and operating results. Inaddition, as a consequence of such failure, current and potential stockholderscould lose confidence in our financial reporting, which could have an adverseeffect on our stock price. Effective internal controls are necessary for us toprevent reliable financial reports and effectively prevent fraud. If we cannotprovide reliable financial reports or prevent fraud, we could be subject toregulatory action or other litigation and our operating results could beharmed.

 

Commencing withour fiscal year ending December 31, 2007, we were required to document andtest our internal control procedures in order to satisfy the requirements of Section 404of the Sarbanes-Oxley Act of 2002, which requires our management to annuallyasses the effectiveness of our internal controls over financial reporting, andour independent registered public accounting firm to report on theseassessments.

 

If we fail tomaintain the adequacy of our internal accounting controls, as such standardsare modified, supplemented or amended from time to time, we may not be able toensure that we can conclude on an ongoing basis that we have effective internalcontrols over financial reporting in accordance with Section 404. Failureto achieve and maintain an effective internal control environment could causeus to face regulatory action and also cause investors to lose confidence in ourreported financial information, either of which could have an adverse effect onour stock price.

 

**ITEM 1B.****                                            UNRESOLVEDSTAFF COMMENTS**

 

None.

 

## **ITEM2**                                                        PROPERTIES

## ** **

Our principalexecutive office is located at Kensington Centre, 66 Hammersmith Road, LondonW14 8UD, United Kingdom where we occupy 8,787 square feet under a lease thatexpires on August 25, 2016.  We haveadditional satellite offices in Japan (occupied by Medicsight) and China(occupied by Medicexchange).

 

## **ITEM3**                                                        LEGAL PROCEEDINGS

## ** **

The Company is notengaged in any material legal proceedings at this time nor are we aware of anypending legal proceedings.

 

## **ITEM4**                                                        SUBMISSION OF MATTERSTO A VOTE OF SECURITY HOLDERS

## ** **

There were nomatters submitted to the vote of the Company’s security holders during thefourth quarter of the fiscal year ended December 31, 2007.

 

11

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# **PART II**

## ** **

## **ITEM 5**                                                        MARKET FORREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER’S PURCHASESOF EQUITY SECURITIES.

## ** **

**Market Information**

** **

The Company’scommon stock is traded on the American Stock Exchange (www.amex.com) under thesymbol “MGT”.  The following table setsforth the range of high and low sales prices per share of our common stock foreach quarterly period during 2006 and 2007.

 

| ** **     | ** ** | **High**   | ** ** | **Low**    | ** ** |
|----------------|------------|------------|------------|------------|------------|
|           |       |       |       |       |       |
| **2007**       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fourth Quarter |       | $          | 4.10       |       | $          | 3.03 |   |
| Third Quarter  |       | 5.10       |       | 3.65       |       |
| Second Quarter |       | 5.40       |       | 3.25       |       |
| First Quarter  |       | 4.14       |       | 3.30       |       |
|           |       |       |       |       |       |
| **2006**       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fourth Quarter |       | 4.60       |       | 2.80       |       |
| Third Quarter  |       | 4.65       |       | 3.90       |       |
| Second Quarter |       | 5.25       |       | 4.42       |       |
| First Quarter  |       | 5.50       |       | 4.60       |       |
|                |            |            |            |            |            |  |  |

 

On March 14, 2008, the Company’s common stock closed on theAmerican Stock Exchange at $2.90 per share.

 

As of March 14, 2008, there were 775 holders of record of theCompany’s common stock.

 

**Dividends**

 

The Company hasnever declared or paid cash dividends on its common stock. The Companycurrently intends to retain earnings, if any, to support its growth strategyand does not anticipate paying cash dividends in the foreseeable future.Payment of future dividends, if any, will be at the discretion of the Company’sBoard of Directors after taking into account various factors, including theCompany’s financial condition, operating results, current and anticipated cashneeds and plans for expansion.

 

**RecentSales of Unregistered Securities**

** **

None.

 

12

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## ** **

## **ITEM6**                                                        SELECTED FINANCIALDATA.

## ** **

The following table should be read in conjunction withour Consolidated Financial Statements and notes thereto appearing elsewhere inthis Form 10-K.

 

All figures in thousands, except share and per sharedata:

 
| ** **                                        | ** ** | **2007(1)** | ** ** | **2006 (1)** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------------|------------|-------------|------------|--------------|------------|----------|------------|----------|------------|----------|------------|
|                                              |       |        |       |         |       |     |       |     |       |     |       |
| Revenues - continuing operations                  |       | $           | 89         |         | $          | —   |       | $        | —     |     | $          | — |   | $ | — |   |
| Gross Margin - Continuing operations              |       | $           | 54         |         | $          | —   |       | $        | —     |     | $          | — |   | $ | — |   |
|                                              |       |        |       |         |       |     |       |     |       |     |       |
| Loss from continuing operations                   |       | (13,800     | )          | (14,935      | )          | (10,738  | )          | (12,885  | )          | (8,941   | )          |
| Loss from discontinued operations                 |       | —      |       | –       |       | (1,478   | )          | (2,145   | )          | (1,155   | )          |
|                                              |       |        |       |         |       |     |       |     |       |     |       |
| Net loss                                          |       | (13,800     | )          | (14,935      | )          | (12,216  | )          | (15,030  | )          | (10,096  | )          |
|                                              |       |        |       |         |       |     |       |     |       |     |       |
| Loss per share from continuing operations         |       | (0.35       | )          | (0.39        | )          | (0.31    | )          | (0.42    | )          | (0.40    | )          |
|                                              |       |        |       |         |       |     |       |     |       |     |       |
| Dividends declared per common share ($)           |       | —      |       | —       |       | —   |       | —   |       | —   |       |
|                                              |       |        |       |         |       |     |       |     |       |     |       |
| Total Assets                                      |       | 109,020     |       | 38,469       |       | 24,486   |       | 21,041   |       | 17,649   |       |
|                                              |       |        |       |         |       |     |       |     |       |     |       |
| Long term obligations                             |       | —      |       | —       |       | 6        |       | 223      |       | 306      |       |
|                                              |       |        |       |         |       |     |       |     |       |     |       |
| Cash, cash  equivalents and marketable securities |       | 94,592      |       | 24,735       |       | 11,249   |       | 5,276    |       | 845      |       |
| Current assets                                    |       | 95,319      |       | 25,306       |       | 11,867   |       | 6,515    |       | 2,144    |       |
| Current liabilities                               |       | (4,420      | )          | (3,378       | )          | (2,746   | )          | (2,353   | )          | (6,540   | )          |
| Working capital surplus (deficit)                 |       | $           | 90,899     |         | $          | 21,928   |       | $        | 9,121      |     | $          | 4,162 |   | $ | (4,396 | ) |

----

(1)          Includes equity-based compensation of $1,541 for Fiscal 2007 and $440for Fiscal 2006.

 

## **ITEM 7**                                                       MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

## ** **

All figures in thousandsexcept share and per share data.

 

**Executive Summary**

 

                MGT achieved the following results in 2007:

 

·                  Revenue from license and other sales $89compared to nil in 2006.

 

·                  Operating expenses increased 40% to$21,977 compared to $15,712 in 2006.

 

·                  Net loss reduced 8% to $13,800 andresulted in a loss per share of $0.35 compared to a net loss of $14,935 and netloss per share of $0.39 in 2006.

 

13

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Our balance sheetstrengthened significantly with cash, cash equivalents and marketablesecurities being $94,592 compared to $24,735 in 2006. This is as a result ofthe Medicsight IPO and MGT’s sale of Medicsight shares.

 

**Critical accounting policies andestimates**

 

Our discussion and analysis of financial condition andresults of operations are based upon our consolidated financial statements,which have been prepared in accordance with accounting principles generallyaccepted in the United States of America. The notes to the consolidatedfinancial statements contained in this Annual Report describe our significantaccounting policies used in the preparation of the consolidated financialstatements. The preparation of these financial statements requires us to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring 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 listedbelow reflect significant judgments, estimates and assumptions used in thepreparation of our consolidated financial statements.

 

*RevenueRecognition*

 

*Medicsight*

** **

The Company recognizesrevenue in accordance with American Institute of Certified Public Accountants (“AICPA”)Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended bySOP 98-4 and SOP 98-9, as well as Technical Practice Aids issued from time totime by the AICPA, and SEC Staff Accounting Bulletin No. 104. The Companyrecognizes revenue when it is realized or realizable and earned. The Companyconsiders revenue realized or realizable and earned when it has persuasiveevidence of an arrangement, the product has been shipped or the services havebeen provided to the customer, the sales price is fixed or determinable, andcollectability is probable.

 

License fee revenue isderived from the licensing of computer software. Maintenance revenue is derivedfrom software maintenance. The Company’s software licenses are generally soldas part of an arrangement that includes maintenance and support.

 

The Company licensessoftware and sells maintenance through visualization solution partners andoriginal equipment manufacturers. The Company receives regular sales reportingdetailing the number of licenses sold by original equipment manufacturers,value-added resellers and independent distributors (collectively, “Resellers”)to end users. The Company generally offers terms that require payment 30 daysfrom invoicing.

 

Provided the Reseller i)assumes all risk of the purchase, ii) has the ability and obligation to payregardless of receiving payment from the end user, and all other revenuerecognition criteria are met, license revenue from Resellers is recognized uponshipment of its product to vendors (“sell-in basis”).

 

Additionally:

 

Software — Revenue fromlicense fees is recognized when notification of shipment to the end user hasoccurred, there are no significant Company obligations with regard toimplementation and the Company’s services are not considered essential to thefunctionality of other elements of the arrangement.

 

Services — Revenue frommaintenance and support arrangements is deferred and recognized ratably overthe term of the maintenance and support arrangements.

 

14

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Multiple-ElementArrangements — The Company enters into arrangements with Resellers that includea combination of software products, maintenance and support. For sucharrangements, the Company recognizes revenue using the residual method. TheCompany allocates the total arrangement fee among the various elements of thearrangement based on the fair value of each of the undelivered elementsdetermined by vendor-specific objective evidence. The fair value of maintenanceand support services is evidence of fair value for all elements, revenue isdeferred until the earlier of when vendor-specific objective evidence isdetermined for the undelivered elements (residual method) or when all elementsfor which the Company does not have vendor-specific objective evidence of fairvalue have been delivered.

 

*Medicexchange*

 

We recognize revenue whenthe following revenue recognition criteria are met:  persuasive evidence of an arrangement exists,services have been rendered, the selling price is fixed or determinable, andcollectibility is reasonable assured. Deferred revenue is recorded when payments are received in advance ofperforming our service obligations.

 

*Goodwill*

 

We account for goodwillin accordance with the provisions of SFAS No. 142, “Goodwill and Other IntangibleAssets.”  Under SFAS No. 142,goodwill and intangible assets with indefinite lives are reviewed forimpairment annually or more frequently if events or changes in circumstancesindicate that the asset might be impaired. The first step of the goodwillimpairment test, used to identify potential impairment, compares the fair valueof a reporting unit with its carrying amount, including goodwill. We comparethe book value to the market value (market capitalization plus a controlpremium) for the reporting unit. If the market value exceeds the book value,goodwill is considered not impaired, and thus the second step of the impairmenttest is not necessary. If our book value exceeds the market value, the secondstep of the goodwill impairment test is performed to measure the amount ofimpairment loss, if any. The second step of the goodwill impairment test, usedto measure the amount of impairment loss, compares the implied fair value ofthe goodwill with the book value of the goodwill. If the carrying value of thegoodwill exceeds the implied fair value of the goodwill, an impairment losswould be recognized in an amount equal to the excess. Any loss recognizedcannot exceed the carrying amount of goodwill. After a goodwill impairment lossis recognized, the adjusted carrying amount of goodwill is its new accountingbasis. Subsequent reversal of a previously recognized goodwill impairment lossis prohibited once the measurement of that loss is completed. We completed theannual goodwill impairment assessment as of December 31, 2007, in which noimpairment was identified. Goodwill was $11,200 as of December 31, 2007.

 

*Equity-basedcompensation*

 

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 notrestated prior periods’ results. Under this method, we recognize compensationexpense for all equity-based payments granted on or after January 1, 2006and prior to but not yet vested as of January 1, 2006 in accordance withSFAS No. 123(R). Under the fair value recognition provisions of SFAS No. 123(R),we recognize equity-based compensation net of an estimated forfeiture rate andrecognize compensation cost only for those shares expected to vest over therequisite service period of the award. Prior to SFAS No.123(R) adoption,we accounted for equity-based payments under Accounting Principles BoardOpinion No. 25, “Accounting for Stock Issued to Employees”, andaccordingly did not recognize equity-based compensation related to theseoptions, as the exercise price equaled the fair market value of the commonstock on the date of grant.

 

The fair value of eachoption award is estimated on the date of grant using the Black-Scholes optionvaluation model. The Black-Scholes option valuation model requires thedevelopment of assumptions that are input into the model. These assumptions arethe expected stock volatility, the risk-free interest rate, the option’sexpected life and the dividend yield on the underlying stock. Expectedvolatility is calculated based on the historical volatility of our common stockover the expected option life and other appropriate factors. Risk-free interestrates are calculated based on continuously compounded risk-free rates for the appropriateterm. The dividend yield is assumed to be zero as we have never paid ordeclared any cash dividends on our common stock and do not intend to paydividends on our common stock in the foreseeable future. The expectedforfeiture rate is estimated based on historical experience.

 

Determining theappropriate fair value model and calculating the fair value of equity-basedpayment awards require the input of the subjective assumptions described above.The assumptions used in calculating the fair value of equity-based paymentawards represent management’s best estimates, which involve inherentuncertainties and the application of management judgment. As a result, iffactors change and we use different assumptions, our equity-based compensationexpense could be materially different in the future. In addition, we arerequired to estimate the expected forfeiture rate and recognize expense onlyfor those shares expected to vest. If our actual 

 

 

15

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forfeiture rate is materially different from ourestimate, the equity-based compensation expense could be significantlydifferent from what we have recorded in the current period.

 

*Research and Development*

 

Costs incurred in connection with the development ofsoftware products that are intended for sale are accounted for in accordancewith Statement of Financial Accounting Standards No. 86, “Accounting forthe Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”.Costs incurred prior to technological feasibility being established for theproduct are expensed as incurred. Technological feasibility is established uponcompletion of a detail program design or, in its absence, completion of aworking model. Thereafter, all software production costs are capitalized andsubsequently reported at the lower of unamortized cost or net realizable value.Capitalized costs are amortized based on current and future revenue for eachproduct with an annual minimum equal to the straight-line amortization over theremaining estimated economic life of the product. Amortization commences whenthe product is available for general release to customers.

 

The Company concluded that capitalizing suchexpenditures on completion of a working model was inappropriate because the Companydid not incur any material software production costs and therefore has decidedto expense all research and development costs. The Company’s research anddevelopment costs are comprised of staff and consultancy costs expensed on theMedicsight products.

 

*Impairment of Long-lived Assets and Long-livedAssets To Be Disposed of*

 

The Company evaluates the carrying value of long-livedassets for impairment whenever events or changes in circumstances indicate thatthe carrying amount of an asset may not be recoverable. The Company’sassessment for impairment of an asset involves estimating the undiscounted cashflows expected to result from use of the asset and its eventual disposition. Animpairment loss recognized is measured as the amount by which the carryingamount of the asset exceeds the fair value of the asset.

 

Calculating the estimated fair value of an assetinvolves significant judgments and a variety of assumptions. Judgments that theCompany makes concerning the value of its intangible assets include assessingtime and cost involved for development, time to market, and risks of regulatoryfailure or obsolescence, (due to market, environmental or technologicaladvances for example). For calculating fair value based on discounted cashflows, we forecast future operating results and future cash flows, whichinclude long-term forecasts of revenue growth, gross margins and capitalexpenditures.

 

An impairment analysis was performed as of December 31,2007 and 2006 and the Company concluded there was no impairment loss.

 

**We areexposed to foreign currency exchange rate fluctuations related to the operationof our international subsidiaries.  Ourmain operating currency is UK sterling (£).We also have subsidiary operationsin Japan and China who operate in their local currencies.**

** **

**Results of Operations**

** **

**FiscalYear Ended December 31, 2007 vs. Fiscal Year Ended December 31, 2006**

** **

***Revenue***

** **

**TheCompany has generated revenues of $89 and gross margin of $54 for Fiscal 2007,compared to $nil and $nil for Fiscal 2006.**

** **

*Research and Development*

 

The Company’s research and development expenses forFiscal 2007 were $2,670 compared to $2,870 for Fiscal 2006. The Company’sresearch and development costs were comprised of staff, staff relatedconsultancy, stock options and product development software costs expensed onthe research and development of Medicsight’s products.

 

 

16

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*Selling, General and AdministrativeExpenses*

 

The Company’s selling, general and administrative expensesfrom continuing operations for Fiscal 2007 were $19,307 as compared to $12,842for Fiscal 2006, the significant items being:

 
| ** **                                                           | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                 |       |     |       |     |       |
| Salaries and directors’  compensation (including payroll taxes) |       | $        | 4,886      |     | $          | 3,938 |   |
| Contractors and consultants                                          |       | 974      |       | 687      |       |
| Bonus payments                                                       |       | 2,190    |       | 68       |       |
| Total People costs                                                   |       | 8,050    |       | 4,693    |       |
|                                                                 |       |     |       |     |       |
| Stock options                                                        |       | 1,334    |       | 403      |       |
| Professional fees                                                    |       | 1,935    |       | 1,087    |       |
| Property rent and rates                                              |       | 991      |       | 1,165    |       |
| Travel                                                               |       | 1,295    |       | 565      |       |
| Software and related                                                 |       | 141      |       | 450      |       |
| Product delivery                                                     |       | 995      |       | 230      |       |
| Marketing, conferences  and public relations                         |       | 2,375    |       | 2,384    |       |
| Recruitment fees                                                     |       | 216      |       | 273      |       |
|                                                                      |            |          |            |          |            |  |  |

 

Points to note are:

 

·                  People relatedcosts increased by $3,357 (72%) as we continued to expand our operations. InMedicsight the operations and sales and marketing teams have increased in sizein order to develop product pipeline and initialize commercialization. InMedicexchange the UK has remained stable with a small increase in headcount inChina.

 

·                  Bonus paymentscontributed significantly to the increase in people costs. Medicsight employeesreceived a bonus on completion of the IPO. In addition all employees received ayear end bonus.

 

·                  Stock option charges have increasedsignificantly in the year, $931 (231%). This is as a result of several newgrants being undertaken in the year across the 3 companies, and the repricingof some of the earlier Medicsight options.

 

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

 

·                  Travel expensehas increased $730 (129%) as the business has continued to expandinternationally and employees have travelled to overseas offices. In additionfurther cooperation with overseas partners and involvement in overseasconferences has increased the level of spend.

 

·                  Software andrelated decreased $309 (69%) as the initial website build costs were expensedin the previous year.

 

·                  Marketing,conferences and public relations remained in line with last year as a result ofcontinuing to supporting our Medicsight partners, promoting our internationalpresence and building the Medicexchange business and brand.

 

 

17

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*Income TaxBenefit Realized*

 

Our effective tax rate for fiscal year 2007 is0%.  The difference in the Company’seffective tax rate from the Federal statutory rate is primarily due to a 100%valuation allowance provided for all deferred tax assets.

 

InFiscal 2005 Medicsight PLC received a tax credit of $858 from the UnitedKingdom taxation authorities under its Research & Development taxrelief scheme for small and medium sized enterprises. The tax credit relates toexpenditures incurred between November 2001 and December 2003. TheCompany has not accrued for any subsequent tax credits as it has determinedthat the completion date (under rules of the scheme) of the new technologyoccurred at the end of Fiscal 2003.

 

*Net Loss andNet Loss per Share*

 

Net loss was $13,800 for Fiscal 2007 compared to a netloss of $14,935 for Fiscal 2006. Net loss per share for Fiscal 2007 was $0.35(based on weighted average shares outstanding of 38,900,383), compared to $0.39for Fiscal 2006 (based on weighted average shares outstanding of38,092,965).  For Fiscal 2007 increasedoperating expenses have been offset by interest and other income, and anincrease in amounts attributable to minority interests which increasedsignificantly following the Medicsight IPO and the MGT Capital Investments Incsale of shares in MDST.

 

*Operational currency*

 

The Company’s mainoperating currency is UK sterling (£). Its results of operations are affectedby changes in the $: £ rates used to translate the operational result. ForFiscal 2007, the average rate was $2.01: £1.00 and for Fiscal 2006 the rate was$1.85:£1.00, an increase of 8.6%.

 

*Contractual Obligations and Commitments*

 

The Company’s corporate offices are at the KensingtonCentre, 66 Hammersmith Road, London W14 8UD, UK.  This property is leased on a 10 yearagreement (commencing August 2006) with a right to terminate on theexpiration of the fifth year of the lease. The Company terminated its lease and vacated the office in New Yorkbefore December 31, 2007. The Tokyo (Japan) operation moved to new officesin the month of December 2007 and signed a lease for a 40 month period.The Beijing (China) office has not changed. All have notice periods of betweenone and 6 months to cancel.  Our minimumannual lease commitments under these arrangements are:

 

| **Year Ending** | ** ** | ** ** | ** ** |
|----------------------|------------|------------|------------|
| 2008                 | ** ** | $          | 748        | ** ** |
| 2009                 |       | 659        |       |
| 2010                 |       | 629        |       |
| 2011                 |       | 225        |       |
| 2012                 |       | 351        |       |
| Later Years          |       | 1,548      |       |
| Total                |       | $          | 4,160      |   |

 

As of December 31, 2007, the Company had repaidall amounts due as party to a capital lease and no further obligation existed.

 

18

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**Fiscal Year EndedDecember 31, 2006 vs. Fiscal Year Ended December 31, 2005**

** **

*Research andDevelopment*

* *

The Company’sresearch and development expenses for Fiscal 2006 were $2,870 as compared to$2,363 for Fiscal 2005.  The Company’sresearch and development costs were comprised of staff, staff related,consultancy, stock options, and product development software costs expensed onthe research and development of Medicsights PLCs’s products.

 

*Selling,General and Administrative Expenses*

* *

The Company’sselling, general and administrative expenses from continuing operations forFiscal 2006 were $12,842 as compared to $9,300 for Fiscal 2005, the significantitems being (in thousands):

 
| ** **                                                           | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                 |       |     |       |     |       |
| Salaries and directors’ compensation (including  payroll taxes) |       | $        | 3,938      |     | $          | 3,884 |   |
| Contractors and consultants                                          |       | 687      |       | 266      |       |
| People costs                                                         |       | 4,625    |       | 4,150    |       |
|                                                                 |       |     |       |     |       |
| Stock options                                                        |       | 403      |       | —   |       |
| Professional fees                                                    |       | 1,087    |       | 507      |       |
| Property rent and rates                                              |       | 1,165    |       | 892      |       |
| Travel                                                               |       | 565      |       | 458      |       |
| Software and related                                                 |       | 450      |       | 72       |       |
| Marketing, conferences and public relations                          |       | 2,384    |       | 1,569    |       |
| Recruitment fees                                                     |       | 273      |       | 118      |       |
|                                                                      |            |          |            |          |            |  |  |

 

Points to noteare:

 
| · | People  related costs increased by $475 (11%) as we expanded our operations in  Medicsight and Medicexchange in Japan and China respectively. Recruitment  fees also increased year on year as a result.   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Professional  fees increased $580 (114%) due to international expansion and increased work  on commercial agreements.                                                                                      |
| · | Software and  related increased $378 (525%) as we expensed the initial website build costs  and ongoing hosting fees of medicexchange.com                                                                  |
| · | Marketing,  conferences and public relations increased $815 (52%) as a result of  supporting our Medicsight partners, promoting our international presence and  building the Medicexchange business brand. |

 

19

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*Income Tax BenefitRealized*

 

In Fiscal2005, Medicsight PLC received a tax credit of $858 from the United Kingdomtaxation authorities under its Research & Development tax relief scheme forsmall and medium sized enterprises.  Thetax credit relates to expenditures incurred between November 2001 and December2003.  The Company has not accrued forany subsequent tax credits as it has determined that the completion date (underrules of the scheme) of the new technology occurred at the end of Fiscal 2003.

 

*Net Loss and NetLoss per Share*

* *

Net loss was$14,935 for Fiscal 2006 compared to a net loss of $12,216 for fiscal 2005.  Net loss per share for Fiscal 2006 was $0.39(based on weighted average shares outstanding of 38,092,965), compared to $0.36for Fiscal 2005 (based on weighted average shares outstanding of 34,224,023).  The increase net loss for Fiscal 2006 isprincipally due to the increase in selling, general and administrative costsand reduction in realized income tax benefit.

 

*Operationalcurrency*

* *

The Company’smain operating currency is UK sterling (£). Its results of operations are affected by changes in the $: £ rates usedto translate the operational result.  ForFiscal 2006, the average rate was $1.85:£1.00 and for Fiscal 2005 the rate was$1.80:£1.00, an increase of 2.8%.

 

*Contractual Obligations and Commitments*

 

The Company’s corporateoffices are at the Kensington Centre, 66 Hammersmith Road, London W14 8UD,UK.  This property is leased on a 10 yearagreement with a right to terminate on the expiry of the fifth year of thelease.  The Company has offices in NewYork, Tokyo (Japan) and Beijing (China) with notice periods of between one andthree months to cancel.  Our minimumannual lease commitments under these arrangements are (in thousands):

 

| **Year Ending** | ** ** | ** ** | ** ** |
|-----------------|------------|------------|------------|
| 2007            |       | $          | 480        |   |
| 2008            |       | 649        |       |
| 2009            |       | 475        |       |
| 2010            |       | 448        |       |
| 2011            |       | 178        |       |
| Later Years     |       | 1,865      |       |
| Total           |       | $          | 4,095      |   |

 

As of December 31,2006, the Company was party to a capital lease obligation in the amount of $7for motor vehicles.  The obligation forthe vehicle lease requires monthly payments of $2, including interest, through April 2007.  The underlying vehicles secure the lease.

 

20

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**Liquidity and Capital Resources**

** **

Working Capital information as at December 31:

 
| ** **                                       | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                             |       |     |       |     |       |     |       |
| Cash, Cash Equivalents and Marketable Securities |       | $        | 94,592     |     | $          | 24,735   |       | $ | 11,249 |   |
| Current Assets                                   |       | 95,319   |       | 25,306   |       | 11,867   |       |
| Current Liabilities                              |       | (4,420   | )          | (3,378   | )          | (2,746   | )          |
| Working Capital Surplus                          |       | $        | 90,899     |     | $          | 21,928   |       | $ | 9,121 |   |
| Ratio of Current Assets to Current Liabilities   |       | 21.6     |       | 7.5      |       | 4.3      |       |

 

*Net change in Cash, Cash Equivalentsand Marketable Securities*

 

As of December 31,2007 we had $92,373 in cash and cash equivalents (compared to $19,757 at December 31,2006) and $94,592 in cash, cash equivalents and marketable securities, comparedto $24,735 at December 31, 2006.

 

Net cash used inoperating activities was $14,426 for the year ended December 31, 2007 and$13,990 for the year ended December 31, 2006).  This resulted primarily from:

 

a.               our net loss of $17,875 ($15,412 for Fiscal 2006),before Minority Interest of $4,075 ($477 in Fiscal 2006);

 

b.              adjusted for depreciation and stock-based compensationexpenses (non cash items) of $1,908 ($718 for Fiscal 2006);

 

c.               losses on disposal of fixed assets were $6 in the yearended December 31, 2007 compared to $13 in the year ended December 31,2006;

 

d.              an overall net reduction in the movement on currentassets (excluding cash items and marketable securities) and current liabilitiesof $1,535 in the year ended December 31, 2007 (compared to $691 in Fiscal2006) — primarily due to the timing of payments in the year ended December 31,2006;

 

Net cash returned frominvesting activities of $842 in the year ended December 31, 2007 (comparedto $1,255 used for the year ended December 31, 2006), which consistedprimarily of:

 

a.               a $960 purchase of shares in Xshares Group LLC, apre-IPO investment advisor;

 

b.              a $2,000 purchase of securities in HipCricket Inc.;

 

c.               a cash inflow of $4,395 from the sale ofmarketable securities held with Bank Sarasin & Company Limited. In the periodended December 31, 2006 there was a cash outflow of $4,533 for the purchaseof available for sale marketable securities;

 

d.              a cash outflow of $593 in the year ended December 31,2007 from the purchase of fixed assets ($722 in Fiscal 2006).

 

Net cash flows fromfinancing activities were $85,611 for the year ended December 31, 2007(compared to $27,586 December 31, 2006), consisting mainly of:

 

        In Fiscal 2007 we:

 

a.               Received net proceeds of $24,569 from thesell down of 11.7 million shares in Medicsight PLC.

 

b.              Received net proceeds of $61,019 from theMedicsight PLC initial public offering (“IPO”), and $30 from private funding inMedicexchange China, increasing our minority interest by $61,049.

 

                InFiscal 2006 we:

 

a.               Received $9,017 for the sale of ourcommon stock.

 

b.              Received $22,187 from the sale of commonstock in Medicexchange PLC and Medicsight PLC.

 

c.               Less the $3,600 net movement of moniesreceived for common stock subscribed but unissued.

 

21

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A reduction in ourprincipal payments under our capital lease obligations — in the year ended December 31,2007 we paid the final $7 compared to $18 paid in the year ended December 31,2006.

 

*Additionalcapital funding requirements*

 

On June 21, 2007,Medicsight PLC completed its initial public offering on the AIM Market of theLondon Stock Exchange.  Approximately29,000,000 new shares were issued to institutional and other investors at aprice of £1.10 ($2.20) per share raising £32,000 ($64,115) gross newmoney.  We incurred fees of approximately£1,550 ($3,096), including approximately £147 ($298) with Asia IT CapitalInvestments Ltd (a related party). £5,500 ($11,100) of the net proceeds were used to repay debt (betweenMedicsight PLC and the Company).  Theremaining £24,900 ($49,800) cash inflow from the IPO will be used for workingcapital and business development.

 

Immediately prior to theMedicsight PLC IPO, the Company sold down, by private placement approximately11,700,000 of its Medicsight PLC shares. The shares were priced at £1.10 ($2.20) — the same price as theMedicsight IPO.  Gross proceeds on theprivate placement were approximately £12,845 ($25,736).  We incurred fees with Asia IT CapitalInvestments Ltd (a related party) of approximately £578 ($1,167).  These proceeds were received on July 27,2007.

 

After the privateplacement and the IPO, MGT holds 85,000,000 (55%) of the approximately155,000,000 issued share capital of Medicsight. On December 31, 2007, Medicsight’s shares closed at a price of£1.06 ($2.12), valuing MGT’s 85,000,000 shares at £90,100 ($180,200).

 

To date we have primarilyfinanced our operations through private placements of equity securities. At December 31,2007 we had issued 38,900,383 of our 75,000,000 authorized share capital.  We have also raised capital through the saleof ordinary shares of our principal subsidiaries — Medicsight andMedicexchange.

 

*Risksand Uncertainties Related to Our Future Capital Requirements*

 

To the extent thatadditional capital is raised through the sale of equity or equity-relatedsecurities of the Company or its subsidiaries, the issuance of such securitiescould result in dilution to the Company’s stockholders.

 

No assurance can begiven, however, that we will have access to the capital markets in the future,or that financing will be available on acceptable terms to satisfy the Company’scash requirements to implement its business strategies.

 

If we are unable toaccess the capital markets or obtain acceptable financing, our results ofoperations and financial conditions could be materially and adverselyaffected.  We may be required to raise substantial additional fundsthrough other means.

 

Our technology has notyet been fully commercialized and we have not begun to receive any significantrevenues from commercial operations.  We cannot assure our stockholdersthat our technology and products will be commercialized successfully, or that ifso commercialized, that revenues will be sufficient to fund our operations.

 

If adequate funds are notavailable to us, we may be required to curtail operations significantly or toobtain funds through entering into arrangements with collaborative partners orothers that may require us to relinquish rights to certain of our technologiesor products that we would not otherwise relinquish.

 

**Recent Accounting Pronouncements.**

 

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements” (“SFAS No. 157”), which defines fair value,establishes a framework for measuring fair value in accordance with generallyaccepted accounting principles and expands disclosures about fair valuemeasurements. SFAS No. 157 applies to other 

 

 

22

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accounting standards that require or permit fair valuemeasurements. Accordingly, it does not require any new fair value measurement.SFAS No. 157 will be effective for the Company on January 1, 2009.The Company is currently evaluating the impact the adoption of SFAS No. 157will have on its financial position and results of operations.

 

In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”),which permits entities to choose to measure many financial instruments andcertain other items at fair value that are not currently required to bemeasured at fair value. SFAS No. 159 will be effective for the Company on January 1,2008. The Company is currently evaluating the impact the adoption of SFASNo.159 will have on its financial position and results of operations.

 

**ITEM7A.**                                            **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

 

*InterestRate and Marketable Security Prices Risk -*Our exposure to market rate risk for changes ininterest rates relates primarily to our investment portfolio. We place ourinvestments in a mixture of (a) cash deposits on either overnight or 30day rates; (b) highly liquid blue chip available-for-sale marketsecurities. A decline in interest rates or a decline in the equity marketswould have an adverse impact on interest income.  We do not have any debt and we do not usederivative financial instruments.

 

Based upon the balance ofour cash, cash equivalents and marketable securities at December 31, 2007,for each one percentage point reduction in interest rates, the Company wouldsuffer a reduction of approximately $1,000 in interest income.  A severe decline in the equity markets wouldbe likely to reduce the Company’s dividend income to nil and considerably lowerthe capital value of the equities held.

 

*ForeignCurrency Risk -*Weare exposed to foreign currency exchange rate fluctuations related to theoperation of our international subsidiaries. Our main operating currency is UK sterling (£).  We also have subsidiary operations in Japanand China which operate in their local currencies.  At the end of each reporting period, expensesof the subsidiaries are converted into US dollars using the average currencyrate in effect for the period and assets and liabilities are converted into USdollars using either historical rates or the exchange rate in effect at the endof the period.  Additionally, we areexposed to foreign currency exchange rate fluctuations relating to payments wemake to vendors and suppliers using foreign currencies.  We currently do not hedge against this foreigncurrency risk. Fluctuations in exchange rates may impact our financialcondition and results of operations.

 

Our operating costs inFiscal 2007 were predominantly in UK sterling. We do not foresee any change in Fiscal 2008.  A ten percent increase or decline in the USdollar exchange rate against UK sterling would have created an increase ordecline in our Fiscal 2007 operating costs of approximately $2,000.

 

## **ITEM 8**                                                        FINANCIAL STATEMENTSAND SUPPLEMENTARY DATA

## ** **

See Financial Statements and Schedules attachedhereto.

 

## **ITEM 9**                                                        CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL    DISCLOSURE.

## ** **

None.

 

**ITEM9A**.                                            **CONTROLS AND PROCEDURES.**

 

**Disclosure Controls and Procedures**

 

 

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TheCompany has established controls and procedures designed to ensure thatinformation required to be disclosed in the reports that the Company files orsubmits under the Exchange Act is recorded, processed, summarized and reported,within the time periods specified in the Commission’s rules and forms andis accumulated and communicated to management, including the principalexecutive officer and principal financial officer, to allow timely decisionsregarding required disclosure.  TheCompany’s management, with the participation of our Chief Executive Officer andChief Financial Officer conducted an evaluation of the effectiveness of thedesign and operation of our disclosure controls and procedures (as such term isdefined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”)) as of the end of theperiod covered by this report (the “Evaluation Date”).  There are inherent limitations to theeffectiveness of any system of disclosure controls and procedures, includingthe possibility of human error and the circumvention or overriding of thecontrols and procedures.  Accordingly,even effective disclosure controls and procedures can only provide reasonableassurance of achieving their control objectives.  Based on such evaluation, the Chief ExecutiveOfficer and Chief Financial Officer concluded that, as of the Evaluation Date,our disclosure controls and procedures were effective at a reasonable assurancelevel.

 

**Management’sAnnual Report on Internal Control Over Financial Reporting**

 

Management of the Company is responsible for establishingand maintaining adequate internal control over financial reporting as definedin Rule 13a-15(f) under the Exchange Act. The Company’s internalcontrol over financial reporting consists of policies and procedures that aredesigned and operated to provide reasonable assurance about the reliability ofthe Company’s financial reporting and its process for preparing financialstatements in accordance with generally accepted accounting principles (“GAAP”).Because of its inherent limitations, internal control over financial reportingmay not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions or that the degree ofcompliance with the policies or procedures may deteriorate.

 

Management, with the participation of the Company’s ChiefExecutive Officer and Chief Financial Officer (Principal Financial Officer),assessed the effectiveness of the Company’s internal control over financialreporting as of December 31, 2007. In making this assessment, managementused the criteria described in *Internal Control — Integrated Framework*issuedby The Committee of Sponsoring Organizations of the Treadway Commission. Basedon the results of this assessment, management (including our Chief ExecutiveOfficer and our Chief Financial Officer (Principal Financial Officer)) hasconcluded that, as of December 31, 2007, our internal control overfinancial reporting was effective at a reasonable assurance level.

 

The Company’s internal control over financial reporting asof December 31, 2007 has been audited by Amper Politziner &Mattia, PC, the independent registered public accounting firm which audited thefinancial statements in this Annual Report, as stated in their report whichappears herein.

 

**Changes in Internal Control OverFinancial Reporting**

 

No changes in the Company’s internal control over financialreporting have occurred during the quarter ended December 31, 2007 thathave materially affected, or are reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

**ITEM 9B.**               **OTHER INFORMATION.**

 

On February 14, 2008 MGT Capital Investments, Inc.announced that its Board of Directors has authorized the repurchase of up to1,000,000 shares during the year ended 2008.

 

The repurchase of shares will be made from time to time inthe open market on the American Stock Exchange (“AMEX”) and in privatetransactions.

 

The repurchase program does not require the Company toacquire a specific number of shares.  Theshare repurchases will be funded from the Company’s working capital.  Any shares that are repurchased under theprogram will be returned to the state of authorized but unissued shares ofcommon stock. 

 

On March 11, 2008 the Board of Directors authorized theChief Executive Officer and the Chief Financial Officer to execute anadditional buyback of up to 5,350,000 shares of MGT common stock.  Following Board approval, the Company hascontracted to buy back 5,349,793 shares of its common stock at $3.00 per sharein a transaction costing $16,049 (before fees). 

 

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# **PART III**

# ** **

## ** **

## **ITEM 10                DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.**

## ** **

The following table sets forth the current officersand directors of MGT.

 

| **Name**              | ** ** | **Age** | ** ** | **Position**                                                                                      |
|-----------------------|------------|---------|------------|---------------------------------------------------------------------------------------------------|
|                  |       |    |       |                                                                                              |
| Tim Paterson-Brown    |       | 47      |       | Chief Executive Officer  and Director                                                             |
| Allan Rowley          |       | 39      |       | Chief Financial Officer  and Director                                                             |
| Neal Wyman            |       | 55      |       | Independent Director,  Audit Committee Member and Remuneration and Nominations Committee Chairman |
| Dr L. Peter Fielding  |       | 68      |       | Independent Director  and Audit Committee Member                                                  |
| Peter Venton          |       | 65      |       | Independent Director, Audit  Committee Chairman and Remuneration and Nominations Committee Member |
| Sir Christopher Paine |       | 73      |       | Independent Director                                                                              |
| Dr Allan Miller       |       | 72      |       | Independent Director                                                                              |

 

Directors are elected in accordance with the Company’sby-laws to serve until the next annual stockholders meeting and until theirsuccessors are elected in their stead. Officers are appointed by the Board of Directors and hold office untiltheir successors are chosen and qualified, until their death or until theyresign or have been removed from office. All corporate officers serve at thediscretion of the Board of Directors. There are no family relationships betweenany director or executive officer and any other director or executive officerof the Company.

 

*Tim Paterson-Brown*joined the Company inDecember 2003 as a director, was appointed Chief Executive Officer in September 2004and Chairman in June 2007.  Tim isalso Chairman of the Company’s main subsidiaries, Medicsight PLC andMedicexchange PLC.  He qualified as aChartered Surveyor with Strutt and Parker in 1984 following degrees at LondonUniversity and Magdalene College, Cambridge. In 1987 Tim joined LeisureInvestments PLC.  Between 1990 and 2003Tim worked in a variety of capacities to assist and invest in a number ofleisure and technology businesses, including Accsys Technologies PLC, aUK-listed company, of which Tim is a non-executive Director.

 

*Allan Rowley* joined the Company in April 2006 asFinance Director of both Medicsight and Medicexchange and was appointed theCompany’s Chief Financial Officer in August 2006.  Prior to joining, Allan served in a corporatedevelopment role at ComMedica Limited, a UK-based medical software companyspecializing in Picture Archiving & Communication System (“PACS”)software. In this role he worked on financing and acquisition opportunities andon commercial proposals with the sales and finance group. Before joiningComMedica, Allan was revenue controller and a director of European Finance atBea Systems, a NASDAQ-listed US-based software company.  Allan has several years of experience inpublic accounting in the United Kingdom and United States with Arthur Andersenand Ernst & Young, respectively. He is a member of the Institute ofChartered Accountants in England and Wales and holds a Master of Philosophy anda Bachelor of Science degree from Aberystwyth University College of Wales.

 

*Neal Wyman* trained as a CharteredAccountant with Coopers and Lybrand before moving to KPMG where he worked inthe Far East. He moved into the recruitment industry in London specializing infinancial services, gaining experience with a diverse range of clients. Heentered executive search in 1981, initially specializing in the financialservices industry before broadening into general appointments and professional services.He now focuses on general management, finance and non-executive appointments inboth private and quoted companies, with particular focus on venture capital. Heis a graduate of the London School of Economics. Neal was appointed anindependent director of the Company and a member of the Audit Committee in November 2004.

 

 

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*Dr L. Peter Fielding*, M.D. is an experienced physician whoprovides consulting services to healthcare and academic organizations, inaddition to his departmental and institutional responsibilities at WellSpanSurgical Associates. His clients in the past five years have included, in theU.S.A. National Cancer Institute; American Joint Committee on Cancer; TaikoPost University — Connecticut; Purely Cotton Inc. — Seattle; MusculoskeletalSystems Inc. - Pittsburgh; University of Connecticut Medical School, and, inthe U.K.: Imperial College for Science, Technology and Medicine and theAssociation of Surgeons in the United Kingdom and Ireland.  Dr Fielding specializes in healthcarestrategic planning, organizational structure and operational issues. He hasparticipated in the organization and development of the Pain Relief Center;Hyperbaric Medicine and Advanced Wound Care Center; Clinical Weight ReductionCenter; York Hospital Human Motion Institute and the Molecular Biology ResearchLaboratory. Peter was appointed an independent director of the Company and amember of the Audit Committee in July 2005.

 

*Peter Venton, OBE* has over 30 years’experience in the computing and telecommunications industry and holds severalpatents in the sector. He is a former Chief Executive of Plessey Radar and ofGEC-Marconi Prime Contracts. Peter currently serves as the Technical AuditChairman for the Defence Evaluation & Research Agency and joined theBoard of Medicsight as an independent director in April 2007.  He was also an independent director ofMedicsight between November 2001 and July 2005.  Peter was appointed an independent directorof the Company and a member of the Audit Committee in November 2004.

 

*SirChristopher Paine*wasthe President of the British Medical Association until 2001. He is currentlythe chairman of the MedicalAdvisory Board of the International Hospitals Group, chairman of Royal Societyof Medicine Support Services Ltd and a trustee of the London Clinic.  Hewas Medical Director of the Advisory Committee on Distinction Awards for theNational Health Service until the end of 1999 and has been President of theRoyal College of Radiologists and The Royal Society of Medicine. SirChristopher is a Medical Oncologist. He was a consultant clinical oncologistfrom 1970 at the Churchill Hospital in Oxford. He also served as director of clinical studies at the medical school. Hewas district general manager of the Oxford Health Authority from 1984-88. Inaddition, he has served on the Animal Welfare Council and Imperial CancerResearch Fund. Sir Christopher was appointed an independent director of theCompany in November 2004.

 

*Dr Allan Miller* qualified in medicine at StBartholomew’s Hospital Medical School, London in 1961. In 1965 Allan wasadmitted to the Royal College of Physicians. After spending eight years ingeneral practice he joined, Hoffman La Roche where he held the positions ofHead of Clinical Cardiovascular Research Worldwide, Head of DermatologicalResearch Worldwide and Head of Clinical Research UK.  Allan spent 14 years as Medical Director for NappPharmaceuticals Ltd and four years as European Medical Research Director of thePurdue Pharma, Mundipharma, Napp group based in Cambridge, England.  Allan is a Member of the British Medical Association and aFellow of the Royal Society of Medicine. Allan was appointed an independentdirector of the Company in December 2002.

 

***Corporate Code of Ethics***

* *

*On July 1, 2007, the Company became an accelerated filer andsubject to the provisions of the Sarbanes-Oxley Act of 2002.*

* *

*On December 28, 2007, the Board of Directors adopted a new Code ofBusiness Conduct and Ethics which applies to all directors and employeesincluding the Company’s principal executive officer, principal financialofficer and principal accounting officer or persons performing similarfunctions.*

* *

*Prior to December 28, 2007 the Company’s employees were subject tothe previous Code of Ethics adopted by the Board of Directors on November 25,2004.*

* *

*On December 28, 2007, the Board of Directors adopted the MGT ShareDealing Code, an Anti-Fraud Policy, a Whistleblowing Policy and a FraudResponse Plan.  The Board of Directors ofMedicsight adopted the Medicsight Share Dealing Code on June 6, 2007.*

* *

 

26

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Copies of the Code of Business Conduct and Ethics,the Anti-Fraud Policy, the Whistleblowing Policy, the MGT Share Dealing Codeand the Medicsight Share Dealing Code can be obtained, without charge bywriting to the Corporate Secretary at MGT Capital Investments Inc., KensingtonCentre, 66 Hammersmith Road, London W14 8UD, United Kingdom.

 

***Section 16(a) Beneficial Ownership Reporting Compliance***

* *

Under the securities laws of the United States, theCompany’s directors, its executive officers, and any persons holding more thanfive percent of the Company’s common stock are required to report their initialownership of the Company’s common stock and any subsequent changes in thatownership to the Securities and Exchange Commission (the “Commission”).  Specific due dates for these reports havebeen established and the Company is required to disclose any failure to file bythese dates.  The Company can report thatthere were no delinquent filings to report in Fiscal 2007.

 

**AuditCommittee and Audit Committee Financial Expert**

 

On November 25, 2004, the Company’s Board ofDirectors established an Audit Committee to carry out its audit functions.  At December 31, 2007, the membership ofthe Audit Committee was Peter Venton as Chairman and Neal Wyman and Dr L PeterFielding as members.

 

The Company’s Board of Directors has determined thatPeter Venton, an independent director, is the audit committee financial expert,as defined in Regulation S-K promulgated under the Securities and Exchange Actof 1934, serving on its audit committee.

 

**ITEM 11**                **EXECUTIVE COMPENSATION.**

 

**Compensation Discussion and Analysis**

 

*Goalsof our compensation program*

 

We provide a compensationpackage for our executive officers we refer to as our “named executive officers”that we believe is designed to fairly compensate them and to enhanceshareholder value. We have disclosed the compensation packages for our namedexecutive officers in the summary compensation table and related tables below.We have structured our compensation packages to motivate our named officers toachieve the Company’s business objectives and to align their interests with theinterests of our shareholders. Specifically, our compensation program isdesigned to achieve the following objectives:

 

·                  Attract and retain excellent executives who areappropriate for the Company’s needs;

 

·                  Motivate and reward executives whose knowledge, skillsand performance are critical to the Company’s success;

 

·                  Motivate the executives to increase shareholder valuefor both the Company and its subsidiary operations through the use of options;and

 

·                  Tie compensation to corporate and individualperformance.

 

We use various elementsof compensation to reward specific types of performance. Our employmentagreements for each for our named executive officers determine the salary ofeach officer, which provides the basic level of compensation for performing thejob expected of them. We use cash bonus awards as an incentive that 

 

 

27

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provides a timely reward for attainment ofexemplary corporate and individual performance in a particular period. We usestock options to provide a long term incentive, which adds value tocompensation packages if the value of our common stock rises and aligns theinterest of our executives with those of shareholders.

 

*Elementsof our compensation program*

 

Our total compensationpackage for named executive officers consists of salary, bonuses and options.Each element of compensation is considered separately and we do not generallytake into account amounts realized from prior compensation in establishingother elements of compensation. Our goal is to provide a total compensationpackage that we believe our named officers and our shareholders will view asfair and equitable. We consider the pay of each named executive officerrelative to each other named executive officer so that the total compensationprogram is consistent for our executives. This is not a mechanical process, andour Board of Directors has used its judgment and experience and works with ourRemuneration and Nomination Committees to determine the appropriate mix ofcompensation for each individual.

 

*Named Executive Officers*

 

We have the followingnamed executive officers:

 

·                  Tim Paterson-Brown - Chairman and Chief ExecutiveOfficer, MGT Capital Investments, Inc; Chairman, Medicsight PLC; and Chairman,Medicexchange PLC.

 

·                  Allan Rowley - Chief Financial Officer, MGT CapitalInvestments, Inc; Chief Financial Officer, Medicsight PLC; and Chief FinancialOfficer, Medicexchange PLC.

 

·                  David Sumner — Chief Executive Officer, MedicsightPLC.

 

·                  Adam Boyse — Chief Executive Officer, MedicexchangePLC.

 

*Salary*

 

Each named executiveofficer’s employment agreement determines his salary which varies with thescope of his responsibilities.  Theseagreements provide for an annual base salary of $240 increased to $480effective from October 1, 2007 for Tim Paterson-Brown; $200 increased to $320effective from October 1, 2007 for Allan Rowley; $240 increased to $400effective October 1, 2007 for David Sumner and $240 increased to $247 effectiveJanuary 1, 2008 for Adam Boyse.  Webelieve that the annual salary must be competitive with the market with respectto the skills and experience that are necessary to meet the requirements of thenamed executive officers position with us.

 

*Bonus*

 

The employment agreementin effect for each named executive officer provides for the possibility of acash performance bonus as determined by our Board of Directors based upon theattainment of performance goals conveyed to the officer. The Board of Directorshas the discretion to increase the cash performance bonus for any year.

 

*Stockoptions and option exercises of stock vested*

 

Options to the namedexecutive officers may be granted from the Company and or its subsidiaries. Wehave stock option plans in MGT Capital Investments Inc. and in its subsidiarycompanies Medicsight (whose shares are listed on the AIM market of the LondonStock Exchange under the ticker symbol MDST.L) and Medicexchange (whose sharesare not listed on any stock exchange at this time).

 

We award options to alignthe interests of our executives with the interest of our shareholders by havingthe realizable value depend on an increase in our stock price. We believe thiswill motivate our officers to return value 

 

 

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

 

In Fiscal 2007 none ofthe named executive officers exercised any of their stock options that hadvested.

 

*Pensionand retirement benefits*

 

Our named executiveofficers do not participate in any deferred benefit retirement plans such as apension plan.

 

*Non-qualifieddeferred compensation*

 

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

 

*Otherbenefits*

 

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

 

*Performanceawards*

 

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

 

*OurCompensation process*

 

We have a Remunerationand Nominations Committee that is comprised of Neal Wyman and Peter Venton (twoof the Company’s independent directors) that determines the compensation of theMGT Capital Investments Inc.’s executive officers. The Board of Directorsgenerally follows these recommendations. Medicsight PLC has its own Remuneration and Nominations Committee andBoard of Directors that determines the executive compensation for David Sumner(Chief Executive Officer of Medicsight). The Medicexchange Chairman determines the executive compensation for theChief Executive Officer of Medicexchange (Adam Boyse).

 

We do not formallybenchmark our compensation against any peer group. However we informallyconsider competitive market practices with respect to the salaries and totalcompensation of our named executive officers. We review the market practices byreviewing publicly available information of other companies in the HCIT sectorand our geographical areas. However while we review such market information, itis only one factor we considered in establishing compensation, and we did notmake use of any formula incorporating such data.

 

Generally in determiningwhether to increase or decrease compensation to our named executive officers,we take into account any changes, of which we are aware, in the market paylevels, the performance of the executive officer, any increase or decrease inresponsibilities and roles of the executive officer, the business needs for theexecutive officer, the transferability of managerial skills to anotheremployer, the relevance of the executives officers experience to otherpotential employers and the readiness of the executive officer to assume a moresignificant role within the organization.

 

*Changein Control*

 

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

 

*Stockownership guidelines*

 

We have not implementedany stock ownership requirements for our named execuvtive officers. We haveissued stock options to our named executive officers which we believe allowsmanagement to own equity in the Company and accordingly align their interestwith those of other shareholders.

 

 

29

----

 

 

**Summary Compensation Table**

 

The following tablesummarizes Fiscal Years 2007, 2006 and 2005 compensation for services in allcapacities of the Company’s named executive officers.

 
| **Name  Principal Position** | ** ** | **Year** | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **Option   Awards (5)** | ** ** | **All Other   Compensation** | ** ** | **Total   Compensation** | ** ** |
|-----------------------------------|------------|----------|------------|------------|------------|-----------|------------|-----------------------------------|------------|----------------------------------------|------------|-------------------------------|------------|
|                              |       |     |       |       |       |      |       |                              |       |                                   |       |                          |       |
| Tim Paterson-Brown                |       | 2007     |       | $          | 300        |      | $          | 500                               |       | $                                      | 207        |                          | $          | — |   | $ | 1,007 |   |
| Chairman and CEO (1)              |       | 2006     |       | $          | 222        |      | $          | 11                                |       | $                                      | 7          |                          | $          | — |   | $ | 240 |   |
|                              |       | 2005     |       | $          | 217        |      | $          | 16                                |       | —                                 |       | $                             | —     |   | $ | 233 |   |
|                              |       |     |       |       |       |      |       |                              |       |                                   |       |                          |       |
| Allan Rowley                      |       | 2007     |       | $          | 230        |      | $          | 380                               |       | $                                      | 168        |                          | $          | — |   | $ | 778 |   |
| CFO (4)                           |       | 2006     |       | $          | 77         |      | $          | 6                                 |       | $                                      | 38         |                          | $          | — |   | $ | 121 |   |
|                              |       |     |       |       |       |      |       |                              |       |                                   |       |                          |       |
| Glyn Thomas                       |       | 2006     |       | $          | 40         |      | $          | —                            |       | $                                      | —     |                          | $          | — |   | $ | 40 |   |
| CFO (3)                           |       |     |       |       |       |      |       |                              |       |                                   |       |                          |       |
|                              |       |     |       |       |       |      |       |                              |       |                                   |       |                          |       |
| Paul Gothard                      |       | 2006     |       | $          | 119        |      | —     |                              | $          | 48                                     |       | $                             | —     |   | $ | 167 |   |
| CFO (2)                           |       | 2005     |       | $          | 163        |      | $          | 12                                |       | —                                 |       | $                             | —     |   | $ | 175 |   |
|                              |       |     |       |       |       |      |       |                              |       |                                   |       |                          |       |
| David Sumner                      |       | 2007     |       | $          | 280        |      | $          | 430                               |       | $                                      | 140        |                          | $          | 18 |   | $ | 868 |   |
| CEO, Medicsight PLC               |       | 2006     |       | $          | 178        |      | $          | 27                                |       | $                                      | 11         |                          | $          | — |   | $ | 216 |   |
|                              |       |     |       |       |       |      |       |                              |       |                                   |       |                          |       |
| Adam Boyse                        |       | 2007     |       | $          | 240        |      | $          | 12                                |       | $                                      | 87         |                          | $          | — |   | $ | 339 |   |
| CEO, Medicexchange PLC            |       | 2006     |       | $          | 211        |      | $          | 11                                |       | $                                      | 48         |                          | $          | — |   | $ | 270 |   |

 

----

(1)                          Tim Paterson-Brown was appointed ChiefExecutive Officer on September 21, 2004 and Chairman on June 21,2007.

(2)                          Paul Gothard resigned as the Company’sChief Financial Officer effective March 31, 2006.

(3)                          Glyn Thomas was appointed Chief FinancialOfficer on an interim basis. Glyn was appointed on April 3, 2006 andresigned on August 4, 2006.

(4)                          Allan Rowley was appointed ChiefFinancial Officer on August 4, 2006.

(5)                          This column discloses the dollar amountrecognized for financial reporting purposes with respect to fiscal year 2007and 2006 in accordance with FAS 123(R).

 

 

30

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**Outstanding Equity Awards at December 31,2007**

 

 
| **Name**                     | ** ** | ** ** | ** ** | **Number of securities  underlying unexercised  Options Exercisable** | ** ** | **Number of securities  underlying unexercised Unearned  Options** | ** ** | **Option Exercise   Price** | ** ** | **Option Expiry  Dates** | ** ** |
|------------------------------|------------|------------|------------|---------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------|------------|
|                         |       |       |       |                                                                            |       |                                                                         |       |                                  |       |                          |       |
| **Tim Paterson-Brown**       | ** ** | ** ** | ** ** | ** **                                                                      | ** ** | ** **                                                                   | ** ** | ** **                            | ** ** | ** **                    | ** ** |
|                         |       |       |       |                                                                            |       |                                                                         |       |                                  |       |                          |       |
| Medicexchange  PLC           |       | Plan A     |       | 50,000                                                                          |       | 100,000                                                                      |       | £0.40 ($0.80)                    |       | June 30, 2016            |       |
| Medicsight PLC               |       | Plan E     |       | —                                                                          |       | 1,000,000                                                                    |       | £0.50 ($1.00)                    |       | December 31, 2016        |       |
|                         |       | Plan F     |       | —                                                                          |       | 250,000                                                                      |       | £0.75 ($1.50)                    |       | March 31, 2017           |       |
|                         |       | Plan G     |       | —                                                                          |       | 500,000                                                                      |       | £1.10 ($2.20)                    |       | November 30, 2017        |       |
| MGT Capital  Investments Inc |       | 2007 Plan  |       | —                                                                          |       | 1,000,000                                                                    |       | $3.69                                 |       | December 5, 2017         |       |
|                         |       |       |       |                                                                            |       |                                                                         |       |                                  |       |                          |       |
| **Allan Rowley**             | ** ** | ** ** | ** ** | ** **                                                                      | ** ** | ** **                                                                   | ** ** | ** **                            | ** ** | ** **                    | ** ** |
|                         |       |       |       |                                                                            |       |                                                                         |       |                                  |       |                          |       |
| Medicexchange  PLC           |       | Plan A     |       | 50,000                                                                          |       | 100,000                                                                      |       | £0.40 ($0.80)                    |       | June 30, 2016            |       |
| Medicsight PLC               |       | Plan D     |       | 83,333                                                                          |       | 166,667                                                                      |       | £0.83 ($1.65)                    |       | June 30, 2016            |       |
|                         |       | Plan E     |       | —                                                                          |       | 500,000                                                                      |       | £0.50 ($1.00)                    |       | December 31, 2016        |       |
|                         |       | Plan G     |       | —                                                                          |       | 250,000                                                                      |       | £1.10 ($2.20)                    |       | November 30, 2017        |       |
| MGT Capital  Investments Inc |       | 2007 Plan  |       | —                                                                          |       | 500,000                                                                      |       | $3.69                                 |       | December 5, 2017         |       |
|                         |       |       |       |                                                                            |       |                                                                         |       |                                  |       |                          |       |
| **David Sumner**             | ** ** | ** ** | ** ** | ** **                                                                      | ** ** | ** **                                                                   | ** ** | ** **                            | ** ** | ** **                    | ** ** |
|                         |       |       |       |                                                                            |       |                                                                         |       |                                  |       |                          |       |
| Medicexchange  PLC           |       | Plan A     |       | 50,000                                                                          |       | 100,000                                                                      |       | £0.40 ($0.80)                    |       | June 30, 2016            |       |
| Medicsight PLC               |       | Plan A     |       | 50,000                                                                          |       | —                                                                       |       | £0.75 ($1.50)                    |       | September 30, 2012       |       |
|                         |       | Plan B     |       | 50,000                                                                          |       | —                                                                       |       | £0.75 ($1.50)                    |       | June 30, 2014            |       |
|                         |       | Plan E     |       | —                                                                          |       | 900,000                                                                      |       | £0.50 ($1.00)                    |       | December 31, 2016        |       |
|                         |       | Plan G     |       | —                                                                          |       | 500,000                                                                      |       | £1.10 ($2.20)                    |       | November 30, 2017        |       |
|                         |       |       |       |                                                                            |       |                                                                         |       |                                  |       |                          |       |
| **Adam Boyse**               | ** ** | ** ** | ** ** | ** **                                                                      | ** ** | ** **                                                                   | ** ** | ** **                            | ** ** | ** **                    | ** ** |
|                         |       |       |       |                                                                            |       |                                                                         |       |                                  |       |                          |       |
| Medicexchange  PLC           |       | Plan A     |       | 50,000                                                                          |       | 100,000                                                                      |       | £0.40 ($0.80)                    |       | June 30, 2016            |       |
| Medicsight PLC               |       | Plan C     |       | 66,667                                                                          |       | 33,333                                                                       |       | £0.75 ($1.50)                    |       | June 30, 2015            |       |
|                         |       | Plan D     |       | 50,000                                                                          |       | 100,000                                                                      |       | £0.83 ($1.65)                    |       | June 30, 2016            |       |

 

 

31

----

 

 

**Grants of Plan-Based Awards**

 
| **Name**                     | ** ** | **Option Grant Dates (1)** | ** ** | **Number of   options** | ** ** | **Option Exercise   Price** | ** ** | **Grant Date  Fair Value (2)** | ** ** |
|------------------------------|------------|--------------------------------------|------------|-----------------------------------|------------|---------------------------------------|------------|--------------------------------|------------|
|                         |       |                                 |       |                              |       |                                  |       |                           |       |
| **Tim Paterson-Brown**       | ** ** | ** **                           | ** ** | ** **                        | ** ** | ** **                            | ** ** | ** **                     | ** ** |
|                         |       |                                 |       |                              |       |                                  |       |                           |       |
| Medicexchange  PLC           |       | July 20, 2006                   |       | 150,000                           |       | £0.40 ($0.80)                    |       | $                              | 60         |   |
| Medicsight PLC               |       | February 22, 2007               |       | 1,000,000                         |       | £0.50 ($1.00)                    |       | $                              | 520        |   |
|                         |       | May 16, 2007                    |       | 250,000                           |       | £0.75 ($1.50)                    |       | $                              | 165        |   |
|                         |       | December 18, 2007               |       | 500,000                           |       | £1.10 ($2.20)                    |       | $                              | 430        |   |
| MGT Capital  Investments Inc |       | December 5, 2007                |       | 1,000,000                         |       | $3.69                                 |       | $                              | 1,600      |   |
|                         |       |                                 |       |                              |       |                                  |       |                           |       |
| **Allan Rowley**             | ** ** | ** **                           | ** ** | ** **                        | ** ** | ** **                            | ** ** | ** **                     | ** ** |
|                         |       |                                 |       |                              |       |                                  |       |                           |       |
| Medicexchange  PLC           |       | July 20, 2006                   |       | 150,000                           |       | £0.40 ($0.80)                    |       | $                              | 60         |   |
| Medicsight PLC               |       | July 13, 2006                   |       | 250,000                           |       | £0.83 ($1.65)                    |       | $                              | 275        |   |
|                         |       | February 22, 2007               |       | 500,000                           |       | £0.50 ($1.00)                    |       | $                              | 260        |   |
|                         |       | December 18, 2007               |       | 250,000                           |       | £1.10 ($2.20)                    |       | $                              | 215        |   |
| MGT Capital  Investments Inc |       | December 5, 2007                |       | 500,000                           |       | $3.69                                 |       | $                              | 800        |   |
|                         |       |                                 |       |                              |       |                                  |       |                           |       |
| **David Sumner**             | ** ** | ** **                           | ** ** | ** **                        | ** ** | ** **                            | ** ** | ** **                     | ** ** |
|                         |       |                                 |       |                              |       |                                  |       |                           |       |
| Medicexchange  PLC           |       | July 20, 2006                   |       | 150,000                           |       | £0.40 ($0.80)                    |       | $                              | 60         |   |
| Medicsight PLC               |       | March 20, 2003 (*)              |       | 50,000                            |       | £0.75 ($1.50)                    |       | $                              | 38         |   |
|                         |       | September 9, 2004 (*)           |       | 50,000                            |       | £0.75 ($1.50)                    |       | $                              | 38         |   |
|                         |       | February 22, 2007               |       | 900,000                           |       | £0.50 ($1.00)                    |       | $                              | 468        |   |
|                         |       | December 18, 2007               |       | 500,000                           |       | £1.10 ($2.20)                    |       | $                              | 430        |   |
|                         |       |                                 |       |                              |       |                                  |       |                           |       |
| **Adam Boyse**               | ** ** | ** **                           | ** ** | ** **                        | ** ** | ** **                            | ** ** | ** **                     | ** ** |
|                         |       |                                 |       |                              |       |                                  |       |                           |       |
| Medicexchange  PLC           |       | July 20, 2006                   |       | 150,000                           |       | £0.40 ($0.80)                    |       | $                              | 60         |   |
| Medicsight PLC               |       | June 30, 2005                   |       | 100,000                           |       | £0.75 ($1.50)                    |       | $                              | 94         |   |
|                         |       | July 13, 2006                   |       | 150,000                           |       | £0.83 ($1.65)                    |       | $                              | 165        |   |

 

----

| (1)    | One-third of  options vest on each of the first, second and third anniversaries of the  grant date, except for the items marked (*) which were fully vested at December 31,  2007. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                    |
| (2)    | Grant date fair  value was computed in accordance with FAS 123(R). We estimated the fair value  for the stock options using the Black-Scholes option pricing model.                     |

 

32

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**Discussion of Summary Compensationand Grant of Plan Based Award Tables.**

 

*Employment agreements*

 

Pursuant to their employment agreements, TimPaterson-Brown and Allan Rowley received an annual salary of $480 and $320respectively, plus a bonus each year as determined by our Board of Directorsbased on attainment of performance goals conveyed to the employee.  Tim-Paterson Brown is on 12 months notice tothe Company and 36 months notice from the Company.  Allan Rowley is on 6 months notice to theCompany and 24 months from the Company.

 

*Potential Payments on Termination orChange in Control*

 

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

 

**InsiderParticipation**

 

We have a Remuneration and Nominations Committee thatis comprised of Neal Wyman and Peter Venton (two of our independent directors)that determines the compensation of the MGT Capital Investments Inc.’sexecutive officers.  The Board of Directorsgenerally follows these recommendations. Each of Tim Paterson-Brown, the Company’s Chief Executive Officer, andAllan Rowley, the Company’s Chief Financial Officer, is a member of the Company’sBoard of Directors. Tim Paterson-Brown does not participate in boarddeliberations of his compensation.  AllanRowley does not participate in board deliberations of his compensation or thatof Tim Paterson-Brown.

 

Medicsight PLC has its own Remuneration andNominations Committee that determines the executive compensation for its ChiefExecutive Officer (David Sumner).  TheMedicexchange Chairman determines the executive compensation for the ChiefExecutive Officer of Medicexchange PLC (Adam Boyse).

 

**Report**

 

The Board of Directors has reviewed and discussed theCompany’s Compensation Discussion and Analysis with management.  Based on the review and discussions, thoseDirectors have approved the inclusion of the Compensation Discussion andAnalysis in our annual report on Form 10-K.

 

*Directors*

 

Tim Paterson-Brown

Allan Rowley

Neal Wyman

Dr L. Peter Fielding

Peter Venton

Sir Christopher Paine

Dr Allan Miller

 

33

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**Director Compensation**

 
| **Name**              | ** ** | **Fees Earned or  Paid in Cash (1) (2)** | ** ** | **Option   Awards (3)** | ** ** | **All Other  Compensation** | ** ** | **Total** | ** ** |
|-----------------------|------------|-------------------------------------------------------------------|------------|-----------------------------------|------------|----------------------------------|------------|-----------|------------|
|                  |       |                                                              |       |                              |       |                             |       |      |       |
| Neal Wyman            |       | $                                                                 | 15         |                              | $          | —                           |       | $         | —     |   | $ | 15 |   |
| Dr L. Peter Fielding  |       | $                                                                 | 15         |                              | $          | —                           |       | $         | —     |   | $ | 15 |   |
| Peter Venton          |       | $                                                                 | 52         |                              | $          | —                           |       | $         | —     |   | $ | 52 |   |
| Sir Christopher Paine |       | $                                                                 | 9          |                              | $          | —                           |       | $         | —     |   | $ | 9 |   |
| Dr Allan Miller       |       | $                                                                 | 9          |                              | $          | —                           |       | $         | —     |   | $ | 9 |   |

 

All the Directors will be reimbursed for theirout-of-pocket expenses incurred in connection with the performance of Boardduties.

 

----

| (1)  | As employees of  the Company, Tim Paterson-Brown, the Chairman and Chief Executive Officer,  and Allan Rowley the Company’s Chief Financial Officer received no directors  fees from the Company during 2007 and are thus not included in the table. |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)       | Includes  retainer fees and Board meeting fees accrued for Fiscal 2007 which will be  paid in Fiscal 2008.                                                                                                                                                |
| (3)       | This column  discloses the dollar amount recognized for financial reporting purposes with  respect to Fiscal 2007 in accordance with FAS 123(R).                                                                                                          |

 

**Independent Director Compensation**

 

From January 1, 2008 the Company increased feesfor its independent directors.  Each ofits independent directors receives annual compensation of $20 for theirservices to the Company.  In addition,each independent director is reimbursed for reasonable expenses to attendmeetings in connection with their duties. Independent directors who chair a committee of the Board receive anadditional $20 per annum per committee and ordinary committee members receive$10 per annum per committee.

 

34

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## **ITEM 12**                                               SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

## ** **

The followingtable sets forth certain information regarding beneficial ownership of theCompany’s common stock as of March 17, 2008:

 

·                  each person known by the Company to be the beneficialowner of more than 5% of the outstanding common stock;

 

·                  each person serving as a director or executive officerof the Company; and

 

·                  all executive officers and directors of the Company asa group.

 

Beneficial ownershipis determined in accordance with the rules of the Securities and ExchangeCommission. In general, a person who has voting power and/or investment powerwith respect to securities is treated as a beneficial owner of thosesecurities. For purposes of this table, shares subject to outstanding warrantsand options exercisable within 60 days of the date of this Annual Report areconsidered as beneficially owned by the person holding such securities. To ourknowledge, except as set forth in this table, the persons named in this tablehave sole voting and investment power with respect to the shares shown.

 

Percentagebeneficially owned is based upon 38,294,982 shares of common stock issued andoutstanding as of March 17, 2008.

 
| **Name and address of Beneficial  Owner**           | ** ** | **Number of Shares  Beneficially Owned** | ** ** | **Percentage of Common  Equity Beneficially Owned** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------------------|------------|
|                                                |       |                                     |       |                                                |       |
| **5% Beneficial Owners**                            | ** ** | ** **                               | ** ** | ** **                                          | ** ** |
| None                                                |       |                                     |       |                                                |       |
|                                                |       |                                     |       |                                                |       |
| **Directors and Officers**                          | ** ** | ** **                               | ** ** | ** **                                          | ** ** |
| Tim Paterson-Brown                                  |       | 2,000,000                                |       | 5.2                                                 | %          |
| Allan Rowley                                        |       | —                                   |       | *                                                   |       |
| Neal Wyman                                          |       | —                                   |       | *                                                   |       |
| L. Peter Fielding                                   |       | —                                   |       | *                                                   |       |
| Peter Venton                                        |       | 16,666                                   |       | *                                                   |       |
| Sir Christopher Paine                               |       | 2,200                                    |       | *                                                   |       |
| Dr Allan Miller                                     |       | —                                   |       | *                                                   |       |
| Total Officers and Directors as a Group (7 persons) |       | 2,018,866                                |       | 5.3                                                 | %          |

----

* Less than 1%.

 

Addresses for these directors and officers are care ofthe Company at Kensington Centre, 66 Hammersmith Road, London W14 8UD, UnitedKingdom.

 

35

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## **ITEM 13**                                               CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

## ** **

*Asia ITCapital Investments Ltd (a related party)*

 

On December 29,2000, the Company acquired all of the issued and outstanding shares of HTTPInsights Limited (“Insights”).  Asia ITCapital Investments Limited (“Asia IT”) was a shareholder in Insights as wellas the Company at the time of the acquisition, and had provided a creditfacility for up to $20,000.  Thisfacility was cancelled by mutual agreement and with no financial impact in June 2007.

 

On November 20,2001, Asia IT entered into a £10,000 ($19,600) credit facility with MedicsightPLC.  This facility was cancelled bymutual agreement and with no financial impact in June 2007.

 

A director of AsiaIT is a brother of Tim Paterson-Brown (our Chairman and Chief ExecutiveOfficer).  In addition to the loanfacilities made available by Asia IT to the Company and Medicsight PLC, Asia ITreceived commissions on shares issuances and transactions in Fiscal 2007, 2006and 2005.

 

During Fiscal 2007, Medicsight PLC completed itsInitial Public Offering on the AIM market of the London Stock Exchange.  Approximately 29,000,000 new shares wereissued to institutional and other investors at a price of £1.10 ($2.20) pershare raising £32,000 ($64,115) gross new money.  We incurred fees of approximately £1,550 ($3,096),including approximately £149 ($298) with Asia IT.  Immediately prior to the Medicsight IPO, theCompany sold down, by private placement via Asia IT, approximately 11,700,000million of its Medicsight shares.  Theshares were priced at £1.10 ($2.20) — the same price as the Medicsight PLC IPO.Gross proceeds on the private placement were approximately £12,845 ($25,736).  We incurred fees with Asia IT ofapproximately £578 ($1,167).

 

During Fiscal 2006the Company used Asia IT to raise a gross amount of $34,096. Asia IT earnedcommissions of $3,404 which was partly settled by issuing 275,326 shares valuedat £1.00 ($1.88) in Medicexchange PLC.

 

During Fiscal 2005the Company raised $12,035, net of commissions and expenses, in a privateplacement of restricted common stock at $4.00 per share. Asia IT receivedcommissions of $1,230.

 

During the yearended December 31, 2007, the Company placed monies on deposit with AsiaIT. These monies earn interest at a range of annual rates between 5% to 10%.The funds are on call at any time. At December 31, 2007 the balance ofmonies on deposit with Asia IT was $3,917 which included $262 of interestincome earned in the year ended December 31, 2007.

 

During the yearended December 31, 2006, the Company placed monies on deposit with AsiaIT. These monies earn interest at an annual rate of 5%. The funds are on callat any time. At December 31, 2006 the balance of monies on deposit withAsia IT was $5,993 which included $116 of interest income earned in the yearended December 31, 2006.

 

During the year ended December 31, 2007 the Company acquiredshares to the value of $2,000 and $960 in HipCricket, Inc., and XSharesGroup LLC respectively. Both of these investments were introduced to theCompany by Asia IT.  A brother of TimPaterson-Brown is an non-executive director of HipCricket Inc.

 

Tim Paterson-Brown is also a non-executive director of AccsysTechnologies PLC, which has a subsidiary company Titan Wood Limited. Titan WoodLimited rents space in 66 Hammersmith Road. In the year ended December 31,2007, $222 of office related costs were recharged to Titan Wood Limited. At December 31,2007 there was a balance receivable from Titan Wood Limited of $16, of which $16remains unpaid. This is payable within 30 days under the terms of the invoice.

 

36

----

 

*Purchaseof Shares*

 

In the year ended December 31, 2006, Allan Rowley(our Chief Financial Officer) purchased 15,000 ordinary shares in MedicexchangePLC for £15 ($30) which was received in full.

 

*Directorindependence*

 

Each of theCompany’s independent directors: Neal Wyman, Dr. L. Peter Fielding, PeterVenton, Sir Christopher Paine and Dr. Allan Miller is considered independentunder Section 803A of the American Stock Exchange Rules to which theCompany must comply.

 

37

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**PART IV**

 

## **ITEM 14**                                                 PRINCIPAL ACCOUNTINGFEES AND SERVICES.

## ** **

*AuditFees.*                                                                                   Fees billed by our principal accountantamounted to $212 in Fiscal 2007 and $96 in Fiscal 2006.

 

*AuditRelated Fees.*                                      Fees billed by our principal accountantamounted to $0 in Fiscal 2007 and $0 in Fiscal 2006.

 

*Tax Fees.*                                                                                             Fees billed by our principal accountantamounted to $135 in Fiscal 2007 and $0 in Fiscal 2006.

 

*All OtherFees.*                                                               Fees billed by our principal accountantamounted to $0 in Fiscal 2007 and $0 in Fiscal 2006 concerning various matters.

 

The Company’s Audit Committee has approved the Company’saudit fees.

 

As of November 25, 2004, the Audit Committee isdirectly responsible for the appointment, compensation, retention and oversightof the work of any independent auditor engaged (including resolution ofdisagreements between management and the auditor regarding financial reporting)for the purpose of preparing or issuing an audit report or performing otheraudit, review or attest services for the Company.  Each such firm shall report directly to theCompany’s Audit Committee.  The AuditCommittee also is responsible for overseeing the accounting and financialreporting processes of the Company and the audits of the financial statementsof the Company.

 

38

----

## ** **

## **ITEM15**                                                 EXHIBITS ANDFINANCIAL STATEMENT SCHEDULES.

## ** **

**Financial Statements**

 

The financial statements of the Company for the fiscalyears covered by this Annual Report are located on pages F-1 to F-26 ofthis Annual Report.

 

### ***Exhibits***

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                              | ** ** |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                 |       |                                                                                                                                         |       |
| 2.1                  |       | Articles of Merger of Medicsight, Inc., a Utah  corporation (1)                                                                         |       |
| 2.2                  |       | Certificate of Merger of Medicsight, Inc., a  Delaware corporation (1)                                                                  |       |
| 2.3                  |       | Offering Document to acquire shares of Radical  Technology PLC. (2)                                                                          |       |
| 3.1                  |       | Certificate of Incorporation of  Medicsight, Inc. and amendments thereto (1)                                                            |       |
| 3.2                  |       | By-Laws of Medicsight, Inc. (1)                                                                                                         |       |
| 4.1                  |       | Loan Note issued by HTTP Insights, Ltd. to  Nightingale Technologies Ltd. (5)                                                                |       |
| 10.1                 |       | Share Sale Agreement between Nightingale  Technologies Limited and Medicsight, Inc. (3)                                                 |       |
| 10.2                 |       | Letter Agreement between Asia IT Capital  Investments, Ltd. and Medicsight, Inc. (4)                                                    |       |
| 10.2                 |       | Letter Agreement between Asia IT Capital  Investments, Ltd. and Medicsight PLC (5)                                                           |       |
| 21.1                 |       | Subsidiaries (filed herewith at page E-1).                                                                                              |       |
| 31.1                 |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 of Chief Executive Officer (filed herewith at  page E-2). |       |
| 31.2                 |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 of Chief Financial Officer (filed herewith at  page E-3). |       |
| 32.1                 |       | Certification pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 of Chief Executive Officer (filed herewith at  page E-4). |       |
| 32.2                 |       | Certification pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 of Chief Financial Officer (filed herewith at  page E-5). |       |

----

(1)                                  Incorporated herein by reference to theCompany’s Current Report on Form 8-K filed on January 19, 2007.

 

(2)                                  Incorporated herein by reference to theCompany’s Current Report on Form 8-K filed on May 23, 2000.

 

(3)                                  Incorporated herein by reference to theCompany’s Current Report on Form 8-K filed March 7, 2001.

 

(4)                                  Incorporated herein by reference to theCompany’s Registration Statement on Form SB-2, filed December 26,2001.

 

(5)                                  Incorporated herein by reference to theCompany’s Annual Report on Form 10-KSB, filed April 19, 2002.

 

39

----

** **

**SIGNATURES**

** **

In accordance withSection 13 or 15(d) of the Exchange Act, the registrant caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|                |     | MGT CAPITAL  INVESTMENTS, INC |
|---------------------|----------|-------------------------------|
| March 17, 2008 |     |                          |
|                |     | By:                           | /s/ TIM PATERSON-BROWN |
| * *            | * * | * *                      | *Chief Executive Officer  (Principal Executive Officer)* |
| March 17, 2008 |     |                          |
|                |     | By:                           | /s/ ALLAN ROWLEY |
| * *            | * * | * *                      | *Chief Financial Officer  (Principal Financial Officer)* |

 

In accordance withthe Exchange Act, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated.

 
| **Signature**             | ** ** | **Title**  | ** ** | **Date**             | ** ** |
|---------------------------|------------|------------|------------|----------------------|------------|
| ** **                | ** ** | ** ** | ** ** | ** **           | ** ** |
| /s/ TIM PATERSON-BROWN    |       | Director   |       | March 17,  2008 |       |
| Tim Paterson-Brown        |       |       |       |                 |       |
|                      |       |       |       |                 |       |
| /s/ ALLAN ROWLEY          |       | Director   |       | March 17,  2008 |       |
| Allan Rowley              |       |       |       |                 |       |
|                      |       |       |       |                 |       |
| /s/ NEAL WYMAN            |       | Director   |       | March 17, 2008  |       |
| Neal Wyman                |       |       |       |                 |       |
|                      |       |       |       |                 |       |
| /s/ L. PETER FIELDING     |       | Director   |       | March 17, 2008  |       |
| L. Peter Fielding         |       |       |       |                 |       |
|                      |       |       |       |                 |       |
| /s/ PETER VENTON          |       | Director   |       | March 17, 2008  |       |
| Peter Venton              |       |       |       |                 |       |
|                      |       |       |       |                 |       |
| /s/ SIR CHRISTOPHER PAINE |       | Director   |       | March 17, 2008  |       |
| Sir Christopher Paine     |       |       |       |                 |       |
|                      |       |       |       |                 |       |
| /s/ ALLAN MILLER          |       | Director   |       | March 17, 2008  |       |
| Allan Miller              |       |       |       |                 |       |

 

40

----

** **

**MGT CAPITAL INVESTMENTS,INC. AND SUBSIDIARIES**

** **

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

** **

 
| Report  of Independent Registered Public Accounting Firm                                                                                                                                        | F-2         |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|
|                                                                                                                                                                                            |        |
| Consolidated  Balance Sheets as of December 31, 2007 and December 31, 2006                                                                                                            | F-4         |
|                                                                                                                                                                                            |        |
| Consolidated Statements of Operations for the years  ended December 31, 2007, December 31, 2006 and December 31,  2005                                                           | F-5         |
|                                                                                                                                                                                            |        |
| Consolidated Statements of Changes in Stockholders’  Equity and Comprehensive Income/(Loss) for the years ended December 31,  2007, December 31, 2006 and December 31, 2005 | F-6         |
|                                                                                                                                                                                            |        |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2007, December 31, 2006 and December 31,  2005                                                           | F-7         |
|                                                                                                                                                                                            |        |
| Notes to the Consolidated Financial Statements                                                                                                                                                  | F-8 to F-26 |

 

 

F-1

----

 

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

The Board of Directorsand Stockholders

MGT Capital Investments, Inc.and Subsidiaries

 

We have audited theaccompany balance sheets of MGT Capital Investments, Inc. and Subsidiariesas of December 31, 2007 and 2006, and the related statements ofoperations, stockholders’ equity and comprehensive income, and cash flows foreach of the years in the three-year period ended   December 31, 2007.  We also have audited MGT Capital Investment’sinternal control over financial reporting as of December 31, 2007, basedon criteria established in *InternalControl-Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO).  MGT Capital Investment’s management isresponsible for these financial statements, for maintaining effective internalcontrol over financial reporting, and for its assessment of the effectivenessof internal control over financial reporting, included in the accompanyingManagement’s Annual Report on Internal Control Over Financial Reporting.  Our responsibility is to express an opinionon these financial statements and an opinion on the company’s internal controlover financial reporting based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audits to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement and whethereffective internal control over financial reporting was maintained in allmaterial respects.  Our audits of thefinancial statements included examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made my management, andevaluating the overall financial statement presentation.  Our audit of internal control over financialreporting included obtaining an understanding of internal control overfinancial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk.  Ouraudits also included performing such other procedures as we considerednecessary in the circumstances.  Webelieve that our audits provide a reasonable basis for our opinions.

 

A company’s internal control over financial reporting is a processdesigned to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles.  A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements.  Also, projectionsof any evaluation of effectiveness to future periods are subject to the riskthat controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of MGT Capital Investments, Inc. andSubsidiaries as of December 31, 2007 and 2006, and the results of theiroperations and their cash flows for each of the years in the three-year periodended December 31, 2007 in conformity with accounting principles generallyaccepted in the United States of America. Also in our opinion, MGT Capital Investments, Inc. and Subsidiariesmaintained, in all material respects, effective internal control over financialreporting as of December 31, 2007, based on criteria established in *Internal Control-Internal Framework* issuedby the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

As discussed inNote 2 to the consolidated financial statements, in 2007, the Company adoptedthe provisions of FIN 48, “*Accounting forUncertainty in Income Taxes — an Interpretation of FASB Statement No. 109.*”  In 2006, the Company adopted the provisionsof Statement of Financial Accounting Standards No. 123 (revised), “*Share-Based Payment.*”

 

F-2

----

 

In connection with our audits of the financialstatements referred to above, we audited Schedule II — Valuation and QualifyingAccounts.  In our opinion, the financialschedule, when considered in relation to the financial statements taken as awhole, presents fairly, in all material respects, the information statedtherein.

 

/s/ Amper, Politziner &Mattia P.C.

 

March 17, 2008

Edison, New Jersey

 

F-3

----

 

**MGT CAPITAL INVESTMENTS, INC AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS**

**(Inthousands except share and per share amounts)**

 
| ** **                                                                                                                          | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                          | ** ** | **2007**              | ** ** | **2006** | ** ** |
|                                                                                                                                |       |                  |       |   |   |
| **Assets**                                                                                                                          | ** ** | ** **            | ** ** | ** ** | ** ** |
| Current assets:                                                                                                                     |       |                  |       |   |   |
| Cash and cash  equivalents                                                                                                          |       | $                     | 92,373     |   | $ | 19,757 |   |
| Marketable  securities                                                                                                              |       | 2,219                 |       | 4,978 |   |
| Accounts  receivable                                                                                                                |       | 7                     |       | — |   |
| Other receivables  — related party                                                                                             |       | 16                    |       | 74 |   |
| Prepaid expenses  and other current assets                                                                                          |       | 704                   |       | 497 |   |
| Total current  assets                                                                                                               |       | 95,319                |       | 25,306 |   |
|                                                                                                                                |       |                  |       |   |   |
| Property and equipment, at cost, net                                                                                                |       | 903                   |       | 683 |   |
| Investments at cost                                                                                                                 |       | 1,319                 |       | 359 |   |
| Security deposits                                                                                                                   |       | 279                   |       | 921 |   |
| Goodwill                                                                                                                            |       | 11,200                |       | 11,200 |   |
| Total assets                                                                                                                        |       | $                     | 109,020    |   | $ | 38,469 |   |
|                                                                                                                                |       |                  |       |   |   |
| **Liabilities**                                                                                                                     | ** ** | ** **            | ** ** | ** ** | ** ** |
| Current liabilities:                                                                                                                |       |                  |       |   |   |
| Accounts payable                                                                                                                    |       | $                     | 2,931      |   | $ | 1,986 |   |
| Accrued expenses                                                                                                                    |       | 1,469                 |       | 1,385 |   |
| Deferred revenue                                                                                                                    |       | 20                    |       | — |   |
| Current portion  of obligations under capital leases                                                                                |       | —                |       | 7 |   |
| Total current  liabilities                                                                                                          |       | $                     | 4,420      |   | $ | 3,378 |   |
|                                                                                                                                |       |                  |       |   |   |
| **Minority Interest**                                                                                                               |       | 93,504                |       | 21,710 |   |
|                                                                                                                                |       |                  |       |   |   |
| Commitments and contingencies                                                                                                       |       | —                |       | — |   |
|                                                                                                                                |       |                  |       |   |   |
| **Stockholders’ Equity**                                                                                                       |       |                  |       |   |   |
| Common stock,  $0.001 par value, 75,000,000 and 40,000,000 shares authorized respectively  38,900,383 shares issued and outstanding |       | 39                    |       | 39 |   |
| Additional  paid-in capital                                                                                                         |       | 229,428               |       | 218,138 |   |
| Accumulated  other comprehensive income                                                                                             |       | 1,078                 |       | 853 |   |
| Accumulated  deficit                                                                                                                |       | (219,449              | )          | (205,649 | ) |
| Total  stockholders’ equity                                                                                                    |       | 11,096                |       | 13,381 |   |
|                                                                                                                                |       |                  |       |   |   |
| Total  stockholders’ equity, liabilities and minority interest                                                                 |       | $                     | 109,020    |   | $ | 38,469 |   |

 

The accompanying notesare an integral part of these statements.

 

F-4

----

 

 

**MGT CAPITAL INVESTMENTS, INC AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Inthousands, except share and per share amounts)**

 
| ** **                                                               | ** ** | **For the Years Ended December 31,** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                               | ** ** | **2007**                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                               | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                                                 |       | $                                         | 89         |   | $ | — |   | $ | — |   |
| Cost of revenue                                                          |       | 35                                        |       | — |   | — |   |
| Gross Margin                                                             |       | 54                                        |       | — |   | — |   |
|                                                                     |       |                                      |       |   |   |   |   |
| Operating expenses                                                       |       |                                      |       |   |   |   |   |
| Selling, general and administrative                                      |       | 19,307                                    |       | 12,842 |   | 9,300 |   |
| Research and development cost                                            |       | 2,670                                     |       | 2,870 |   | 2,363 |   |
|                                                                     |       | 21,977                                    |       | 15,712 |   | 11,663 |   |
|                                                                     |       |                                      |       |   |   |   |   |
| Operating loss                                                           |       | (21,923                                   | )          | (15,712 | ) | (11,663 | ) |
|                                                                     |       |                                      |       |   |   |   |   |
| Interest and other income                                                |       | 4,048                                     |       | 300 |   | 67 |   |
| Loss before income taxes, minority interest and  discontinued operations |       | (17,875                                   | )          | (15,412 | ) | (11,596 | ) |
|                                                                     |       |                                      |       |   |   |   |   |
| Income tax benefit                                                       |       | —                                    |       | — |   | 858 |   |
| Loss before minority interest and discontinued  operations               |       | (17,875                                   | )          | (15,412 | ) | (10,738 | ) |
|                                                                     |       |                                      |       |   |   |   |   |
| Minority interest                                                        |       | 4,075                                     |       | 477 |   | — |   |
| Loss from continuing operations                                          |       | (13,800                                   | )          | (14,935 | ) | (10,738 | ) |
|                                                                     |       |                                      |       |   |   |   |   |
| Discontinued operations:                                                 |       |                                      |       |   |   |   |   |
| Loss from  impairment of assets                                          |       | —                                    |       | — |   | (394 | ) |
| Loss from  operations of Lifesyne                                        |       | —                                    |       | — |   | (1,084 | ) |
|                                                                     |       |                                      |       |   |   |   |   |
| Net loss                                                                 |       | $                                         | (13,800    | ) | $ | (14,935 | ) | $ | (12,216 | ) |
|                                                                     |       |                                      |       |   |   |   |   |
| Net loss from continuing activities                                      |       | $                                         | (0.35      | ) | $ | (0.39 | ) | $ | (0.31 | ) |
| Net loss from discontinued activities                                    |       | —                                    |       | — |   | (0.05 | ) |
|                                                                     |       |                                      |       |   |   |   |   |
| Basic and diluted loss per share                                         |       | $                                         | (0.35      | ) | $ | (0.39 | ) | $ | (0.36 | ) |
|                                                                     |       |                                      |       |   |   |   |   |
| Weighted average number of common shares outstanding                     |       | 38,900,383                                |       | 38,092,965 |   | 34,224,023 |   |

 

The accompanyingnotes are an integral part of these statements.

 

 

F-5

----

 

**MGT CAPITAL INVESTMENTS, INC AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME/(LOSS)**

**(Inthousands except share and per share amounts)**

** **
| ** **                                      | ** ** | ** **       | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | ** **        | ** ** | ** **             | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|------------------|------------|-------------|------------|----------------|------------|-------------------|------------|-------------------|------------|------------------------|------------|------------|------------|
| ** **                                      | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional** | ** ** | **Shares**        | ** ** | **Accumulated**   | ** ** | ** **             | ** ** | **Total**  | ** ** |
| ** **                                      | ** ** | **Common stock** | ** ** | **Paid-In** | ** ** | **to be**      | ** ** | **Comprehensive** | ** ** | **Accumulated**   | ** ** | **Stockholders’** | ** ** |
| ** **                                      | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Issued**        | ** ** | **Income (Loss)** | ** ** | **Deficit**            | ** ** | **Equity** | ** ** |
|                                            |       |             |       |        |       |           |       |              |       |              |       |                   |       |       |       |
| BALANCE,  JANUARY 1, 2005                       |       | 33,066           |       | $           | 33         |           | $          | 196,652           |       | $                 | —     |                   | $          | 278        |       | $ | (178,498 | ) | $ | 18,465 |   |
| Common  stock issued (net of commissions)       |       | 3,327            |       | 3           |       | 12,032         |       | —            |       | —            |       | —                 |       | 12,035     |       |
| Common  stock to be issued (net of commissions) |       | —           |       | —      |       | —         |       | 3,600             |       | —            |       | —                 |       | 3,600      |       |
| COMPREHENSIVE  LOSS                             |       |             |       |        |       |           |       |              |       |              |       |                   |       |       |       |
| Net loss for the year                           |       | —           |       | —      |       | —         |       | —            |       | —            |       | (12,216                | )          | (12,216    | )          |
| Translation adjustment                          |       | —           |       | —      |       | —         |       | —            |       | (150              | )          | —                 |       | (150       | )          |
| Total comprehensive loss                        |       | —           |       | —      |       | —         |       | —            |       | (150              | )          | (12,216                | )          | (12,366    | )          |
|                                            |       |             |       |        |       |           |       |              |       |              |       |                   |       |       |       |
| BALANCE,  DECEMBER 31, 2005                     |       | 36,393           |       | 36          |       | 208,684        |       | 3,600             |       | 128               |       | (190,714               | )          | 21,734     |       |
|                                            |       |             |       |        |       |           |       |              |       |              |       |                   |       |       |       |
| Common  stock issued (net of commissions)       |       | 2,507            |       | 3           |       | 9,014          |       | —            |       | —            |       | —                 |       | 9,017      |       |
| Proceeds  from sale subsidiary company stock    |       | —           |       | —      |       | —         |       | (3,600            | )          | —            |       | —                 |       | (3,600     | )          |
| Stock-  based compensation                      |       | —           |       | —      |       | 440            |       | —            |       | —            |       | —                 |       | 440        |       |
| COMPREHENSIVE  LOSS                             |       |             |       |        |       |           |       |              |       |              |       |                   |       |       |       |
| Net loss for the year                           |       | —           |       | —      |       | —         |       | —            |       | —            |       | (14,935                | )          | (14,935    | )          |
| Translation adjustment                          |       | —           |       | —      |       | —         |       | —            |       | 280               |       | —                 |       | 280        |       |
| Unrealised gain on  marketable securities       |       | —           |       | —      |       | —         |       | —            |       | 445               |       | —                 |       | 445        |       |
| Total comprehensive loss                        |       | —           |       | —      |       | —         |       | —            |       | 725               |       | (14,935                | )          | (14,210    | )          |
|                                            |       |             |       |        |       |           |       |              |       |              |       |                   |       |       |       |
| BALANCE,  DECEMBER 31, 2006                     |       | 38,900           |       | 39          |       | 218,138        |       | —            |       | 853               |       | (205,649               | )          | 13,381     |       |
|                                            |       |             |       |        |       |           |       |              |       |              |       |                   |       |       |       |
| Gain  on sale of subsidiary company stock       |       | —           |       | —      |       | 9,749          |       | —            |       | —            |       | —                 |       | 9,749      |       |
| Stock-  based compensation                      |       | —           |       | —      |       | 1,541          |       | —            |       |              |       | —                 |       | 1,541      |       |
| COMPREHENSIVE  LOSS                             |       |             |       |        |       |           |       |              |       |              |       |                   |       |       |       |
| Net loss for the year                           |       | —           |       | —      |       | —         |       | —            |       | —            |       | (13,800                | )          | (13,800    | )          |
| Translation adjustment                          |       | —           |       | —      |       | —         |       | —            |       | 589               |       | —                 |       | 589        |       |
| Unrealised gain on  marketable securities       |       | —           |       | —      |       | —         |       | —            |       | (364)             |       | —                 |       | (364       | )          |
| Total comprehensive loss                        |       | —           |       | —      |       | —         |       | —            |       | 225               |       | (13,800                | )          | (13,575    | )          |
|                                            |       |             |       |        |       |           |       |              |       |              |       |                   |       |       |       |
| BALANCE,  DECEMBER 31, 2007                     |       | 38,900           |       | $           | 39         |           | $          | 229,428           |       | $                 | —     |                   | $          | 1,078      |       | $ | (219,449 | ) | $ | 11,096 |   |

 

The accompanying notes are an integral part of thesestatements.

 

 

F-6

----

 

**MGT CAPITAL INVESTMENTS, INC ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENT OF CASH FLOWS**

**(In thousands except share andper share amounts)**

 
| ** **                                                                       | ** ** | **For the Years Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                       | ** ** | **2007**                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                             |       |                                      |       |   |   |   |   |
| Cash flows from operating activities                                             |       |                                      |       |   |   |   |   |
| Net loss                                                                         |       | $                                         | (13,800    | ) | $ | (14,935 | ) | $ | (12,216 | ) |
| Loss from  discontinued operations                                               |       | —                                    |       | — |   | 1,478 |   |
|                                                                             |       | (13,800                                   | )          | (14,935 | ) | (10,738 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities:     |       |                                      |       |   |   |   |   |
| Loss  attributable to minority interests                                         |       | (4,075                                    | )          | (477 | ) | — |   |
| Stock-based  compensation expense                                                |       | 1,541                                     |       | 440 |   | — |   |
| Depreciation                                                                     |       | 367                                       |       | 278 |   | 237 |   |
| Loss on disposal  of fixed assets                                                |       | 6                                         |       | 13 |   | 219 |   |
| (Increase)/decrease in assets                                                    |       |                                      |       |   |   |   |   |
| Accounts  receivable                                                             |       | (7                                        | )          | — |   | (34 | ) |
| Accounts  receivable — related parties                                      |       | 58                                        |       | — |   | — |   |
| Prepaid expenses  and other receivables                                          |       | 435                                       |       | 47 |   | 349 |   |
| Increase/(decrease) in liabilities                                               |       |                                      |       |   |   |   |   |
| Accounts payable                                                                 |       | 945                                       |       | 814 |   | 124 |   |
| Accounts payable  — related party                                           |       | —                                    |       | (1,151 | ) | 1,151 |   |
| Accrued expenses                                                                 |       | 84                                        |       | 981 |   | (306 | ) |
| Deferred revenue                                                                 |       | 20                                        |       | — |   | — |   |
| Net cash used in  operating activities                                           |       | (14,426                                   | )          | (13,990 | ) | (8,998 | ) |
|                                                                             |       |                                      |       |   |   |   |   |
| Cash flows from investing activities:                                            |       |                                      |       |   |   |   |   |
| Cash held for  common stock subscribed but unissued                              |       | —                                    |       | 4,000 |   | (4,000 | ) |
| Purchase of  investments at cost                                                 |       | (960                                      | )          | — |   | — |   |
| Purchase of  marketable securities                                               |       | (2,000                                    | )          | (4,533 | ) | — |   |
| Sale of  marketable securities                                                   |       | 4,395                                     |       | — |   | — |   |
| Proceeds from  sale of fixed assets                                              |       | —                                    |       | — |   | 300 |   |
| Purchase of  property and equipment                                              |       | (593                                      | )          | (722 | ) | (131 | ) |
| Proceeds from  sale of Lifesyne                                                  |       | —                                    |       | — |   | 443 |   |
| Net cash (used  in)/provided by investing activities                             |       | 842                                       |       | (1,255 | ) | (3,388 | ) |
|                                                                             |       |                                      |       |   |   |   |   |
| Cash flows from financing activities:                                            |       |                                      |       |   |   |   |   |
| Principal  payments under capital lease obligations                              |       | (7                                        | )          | (18 | ) | (289 | ) |
| Proceeds from  sale of common stock (net of commissions)                         |       | —                                    |       | 9,017 |   | 12,035 |   |
| Proceeds from  sale of subsidiary company stock                                  |       | 24,569                                    |       | — |   | — |   |
| Proceeds from  issue of subsidiary company stock                                 |       | 61,049                                    |       | 22,187 |   | — |   |
| Increase (decrease)  from sale of common stock to be issued (net of commissions) |       | —                                    |       | (3,600 | ) | 3,600 |   |
| Net cash  provided by financing activities                                       |       | 85,611                                    |       | 27,586 |   | 15,346 |   |
|                                                                             |       |                                      |       |   |   |   |   |
| Cash flows of discontinued operations                                            |       |                                      |       |   |   |   |   |
| Net cash used in  operating activities                                           |       | —                                    |       | — |   | (1,078 | ) |
| Net cash used in  financing activities                                           |       | —                                    |       | — |   | (44 | ) |
|                                                                             |       | —                                    |       | — |   | (1,122 | ) |
|                                                                             |       |                                      |       |   |   |   |   |
| Effects of exchange rates on cash and cash  equivalents                          |       | 589                                       |       | 167 |   | 135 |   |
| Net change in cash and cash equivalents                                          |       | 72,616                                    |       | 12,508 |   | 1,973 |   |
| Cash and cash equivalents, beginning of year                                     |       | 19,757                                    |       | 7,249 |   | 5,276 |   |
| Cash and cash equivalents, end of year                                           |       | $                                         | 92,373     |   | $ | 19,757 |   | $ | 7,249 |   |
|                                                                             |       |                                      |       |   |   |   |   |
| Supplemental disclosures of cash paid                                            |       |                                      |       |   |   |   |   |
| Interest                                                                         |       | $                                         | 3          |   | $ | 2 |   | $ | 5 |   |

 

The accompanying notes are an integral part of these statements.

 

 

F-7

----

** **

**MGTCAPITAL INVESTMENTS, INC AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTS**

**(In thousands except share and per share amounts)**

 

**1.     Organization,basis of presentation and liquidity**

 

MGT Capital Investments,Inc (“MGT”, “we”, “the Company”, “us”) is a holding Company in the globalHealthcare Information Technology sector (“HCIT”).  We currently have a controlling interest inour two main operating subsidiaries: Medicsight PLC (“Medicsight”) andMedicexchange PLC (“Medicexchange”). We also have wholly owned subsidiaries MGTCapital Investments (UK) Limited, MGT Investments (Gibraltar) Limited,Medicexchange Inc., Medicsight Nominees Limited, HTTP Tech Inc. and MedicalVision Systems Inc.

 

·                  Medicsight and its wholly ownedsubsidiaries is a medical imaging software development company listed on theAIM market of the London Stock Exchange (Ticker symbol “MDST”) that developsand commercializes enterprise-wide Computer-Aided Detection (“CAD”)applications which analyze Computer Tomography (“CT”) scans for the earlydetection and measurement of colorectal polyps and lung lesions.  The Company holds 85 million shares (55%) ofthe 155 million shares issued capital of Medicsight.

 

·                  Medicexchange and its majority owned subsidiariesprovide medical imaging professionals with a global web portal containing anonline sales channel for diagnostic, treatment and surgery planningsolutions.  This combined with a variety of relevant clinical papers,training materials and content gives these professionals access to informationand products that they otherwise would have difficulty accessing.  The Company holds 22.5 million shares (73%)of the 30.8 million issued share capital of Medicexchange.  Medicexchange’s shares are not publiclytraded.

 

The Company has incurred significant operating lossessince inception and has just commenced generating revenue from operations. As aresult, the Company has generated negative cash flows from operations and hasan accumulated deficit of $219,449 at December 31, 2007. The Company isoperating in a developing industry based on new technology and its primarysource of funds to date has been through the issuance of securities. While theCompany is optimistic and believes appropriate actions are being taken, therecan be no assurance that management’s efforts will be successful or that theproducts the Company develops and markets will be accepted by consumers.

 

During 2005 theCompany initiated a plan of disposal of the Lifesyne business and which wassubsequently sold in November 2005 and its results are reflected asdiscontinued operations.

 

**2.     Summaryof significant accounting policies:**

 

*Principles of Consolidation*

 

The financial statements include the accounts of ourCompany and our wholly and majority owned subsidiaries. Our main operatingsubsidiaries are Medicsight and Medicexchange, both based in London (UK). Thefunctional currencies of our subsidiaries are their local currencies.  Allintercompany transactions and balances have been eliminated.  All foreign currency translation gains andlosses arising on consolidation were recorded in stockholders’ equity as acomponent of accumulated other comprehensive income (loss) in accordance withStatement of Financial Accounting Standards No. 52, *Foreign Currency Translation.*  Minority Interest represents the minorityequity investment in any of the MGT Capital Investments Inc. group ofcompanies, plus the minorities share of the net operating result.

 

*Use of Estimates*

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the amountsof assets 

 

F-8

----

 

and liabilities and disclosure of contingentliabilities at the date of the financial statements and the reported amounts ofrevenue and expenses during the reporting period. Actual results could differfrom those estimates.

 

*Fair value of financial instruments*

 

The Company’s financialinstruments consist primarily of cash, cash equivalents and marketablesecurities, for which the current carrying amounts approximate fair marketvalues.

 

*Cashand cash equivalents*

 

The Companyconsiders investments with original maturities of three months or less to becash equivalents.

 

*Marketable Securities*

 

The Company invests some of its cash balances inshort-term highly liquid available for sale marketable securities, which arecarried in our balance sheet at fair value in accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 115 *Accounting for Certain Investments in Debt and Equity Securities,*with unrealized gains and losses reported in stockholders’ equity as a componentof accumulated other comprehensive income (loss) - unless the Company concludesthat unrealized losses represent an other-than-temporary impairment. In thatcircumstance, such losses would be reflected in the consolidated statements ofoperations. Realized gains and losses are included in other income. Fair valueis based upon quoted market prices for these or similar instruments.

 

*Investments*

 

Investmentsconsist of equity ownership in various corporations. The Company records theseinvestments at historical cost, subject to any provision for impairment.

 

*Propertyand equipment*

 

Property andequipment are stated at cost. Depreciation is calculated using the straightline method on the various asset classes over their estimated useful lives,which range from two to five years. Leasehold improvements are depreciated overthe term of the lease.

 

*Goodwill*

 

Goodwillrepresents the excess of acquisition purchase price over the fair value of thenet assets acquired. Inaccordance with SFAS No. 142 “Goodwill and Other Intangible Assets,”goodwill is tested for impairment on an annual basis or whenever indicators ofimpairment arise. An impairment analysis was performed as of December 31,2007 and 2006 and the Company concluded there was no impairment loss.

 

*Impairmentof long-lived assets and long-lived assets to be disposed of*

 

The Companyevaluates the carrying value of long-lived assets for impairment wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. The Company’s assessment for impairment of anasset involves estimating the undiscounted cash flows expected to result fromuse of the asset and its eventual disposition. An impairment loss recognized ismeasured as the amount by which the carrying amount of the asset exceeds thefair value of the asset.

 

*Foreigncurrency translation*

 

The accounts ofthe Company’s foreign subsidiaries are maintained using the local currency asthe functional currency. For these subsidiaries, assets and liabilities are translatedinto US dollars at year-end exchange rates, and income and expense accounts aretranslated at average monthly exchange rates. Net gains and losses from foreigncurrency translation are excluded from operating results and are accumulated asa separate component of stockholders’ equity.

 

F-9

----

 

Gains and losseson foreign currency transactions are reflected in current operating results.

 

*Revenuerecognition*

 

* Medicsight*

 

The Company recognizes revenue in accordance withAmerican Institute of Certified Public Accountants (“AICPA”) Statement ofPosition (“SOP”) 97-2, Software Revenue Recognition, as amended by SOP 98-4 andSOP 98-9, as well as Technical Practice Aids issued from time to time by theAICPA, and SEC Staff Accounting Bulletin No. 104. The Company recognizesrevenue when it is realized or realizable and earned. The Company considersrevenue realized or realizable and earned when it has persuasive evidence of anarrangement, the product has been shipped or the services have been provided tothe customer, the sales price is fixed or determinable, and collectability isprobable.

 

License fee revenue is derived from the licensing ofcomputer software. Maintenance revenue is derived from software maintenance.The Company’s software licenses are generally sold as part of anarrangement that includes maintenance and support.

 

The Company licenses software and sells maintenancethrough visualization solution partners and original equipment manufacturers. TheCompany receives regular sales reports detailing the number of licenses sold byoriginal equipment manufacturers, value-added resellers and independentdistributors (collectively, “Resellers”) to end users. The Company generallyoffers terms that require payment 30 days from invoicing.

 

Provided the Reseller i) assumes all risk of thepurchase, ii) has the ability and obligation to pay regardless of receivingpayment from the end user, and all other revenue recognition criteria are met,license revenue from Resellers is recognized upon shipment of its product tovendors (“sell-in basis”).

 

Additionally:

 

Software — Revenue from license fees is recognizedwhen notification of shipment to the end user has occurred, there are nosignificant Company obligations with regard to implementation and the Company’sservices are not considered essential to the functionality of other elements ofthe arrangement.

 

Services — Revenue from maintenance and supportarrangements is deferred and recognized ratably over the term of themaintenance and support arrangements.

 

Multiple-Element Arrangements — The Company entersinto arrangements with Resellers that include a combination of softwareproducts, maintenance and support. For such arrangements, the Companyrecognizes revenue using the residual method. The Company allocates the totalarrangement fee among the various elements of the arrangement based on the fairvalue of each of the undelivered elements determined by vendor-specificobjective evidence. The fair value of maintenance and support services isestablished based on renewal rates. In software arrangements for which theCompany does not have vendor-specific objective evidence of fair value for allelements, revenue is deferred until the earlier of when vendor-specificobjective evidence is determined for the undelivered elements (residual method)or when all elements for which the Company does not have vendor-specificobjective evidence of fair value have been delivered.

 

As at December 31, 2007 we have $3 of deferredrevenue relating to support and maintenance services.

 

*Medicexchange*

 

We recognize revenue when the following revenuerecognition criteria are met: persuasive evidence of an arrangement exists,services have been rendered, the selling price is fixed or determinable, 

 

F-10

----

 

and collectability is reasonably assured. Deferredrevenue is recorded when payments are received in advance of performing ourservice obligations.

 

As at December 31, 2007 we have $17 of deferredrevenue.

 

*Researchand development*

 

Costs incurred inconnection with the development of software products that are intended for saleare accounted for in accordance with SFAS No. 86, “Accounting for theCosts of Computer Software to be Sold, Leased, or Otherwise Marketed”. Costsincurred prior to technological feasibility being established for the productare expensed as incurred.

 

Technologicalfeasibility is established upon completion of a detailed program design or, inits absence, completion of a working model. Thereafter, all software productioncosts can be capitalized and subsequently reported at the lower of un-amortizedcost or net realizable value. Capitalized costs are amortized based on currentand future revenue for each product with an annual minimum equal to thestraight-line amortization over the remaining estimated economic life of theproduct. Amortization commences when the product is available for generalrelease to customers.

 

The Companyconcluded that no such expenditures needed to be capitalized because theCompany did not incur any material software production costs and all such costsincurred represent research and development costs. The Company’s research anddevelopment costs are comprised of staff cost, consultancy costs and expensedresearch and development software costs expensed on the Medicsight CAD system.

 

For the yearsended December 31, 2007, December 31, 2006 and December 31,2005, the Company expended $2,670, $2,870 and $2,363 respectively, for researchand development expenses for Medicsight CAD and its products.

 

*Incometaxes*

 

Effective January 1,2007 the Company adopted FASB Interpretation No. 48, *Accounting for Uncertainty in Income Taxes, an interpretation of FASBStatement No. 109, Accounting for Income Taxes* (“FIN 48”). FIN48 clarifies the accounting for uncertainty in income taxes recognized infinancial statements and requires the impact of a tax position to be recognizedin the financial statements if that position is more likely than not of beingsustained by the taxing authority.  Atthe adoption date of January 1, 2007 and also as of December 31,2007, the Company did not have any unrecognized tax benefits. We do not expectthat the amount of unrecognized tax benefits will significantly increase ordecrease within the next twelve months. The Company’s policy is to recognize interest and penalties related totax matters in the income tax provision in the Consolidated Statements ofOperations.  There was no interest andpenalties for the year ended December 31, 2007. Tax years beginning in2004 are generally subject to examination by taxing authorities, although netoperating losses from all years are subject to examinations and adjustments forat least three years following the year in which the attributes are used.

 

Deferred taxes arecomputed based on the tax liability or benefit in future years of the reversalof temporary differences in the recognition of income or deduction of expensesbetween financial and tax reporting purposes. The net difference, if any,between the provision for taxes and taxes currently payable is reflected in thebalance sheet as deferred taxes. Deferred tax assets and/or liabilities, ifany, are classified as current and non-current based on the classification ofthe related asset or liability for financial reporting purposes, or based onthe expected reversal date for deferred taxes that are not related to an assetor liability. Valuation allowances are recorded to reduce deferred tax assetsto that amount which is more likely than not to be realized.

 

*Lossper share*

 

Basic loss pershare is calculated by dividing net loss attributable to the ordinaryshareholders by the weighted average number of common shares outstanding duringthe period. Diluted loss per share is calculated by dividing the 

 

F-11

----

 

net lossattributable to the ordinary shareholders by the sum of the weighted averagenumber of common shares outstanding and the diluted potential ordinary shares.

 

The computation ofdiluted loss per share excludes all options because they are anti-dilutive. Forthe year ended December 31, 2007 there were 14,757,500 options excludedwith an average exercise price of $1.72. For the year ended December 31, 2006 there were 5,040,000 optionsexcluded with an average exercise price of $1.79. For the year ended December 31,2005, there were 4,146,200 options excluded outstanding with a weighted averageexercise price of $1.96 per share.

 

*Comprehensiveloss*

 

Comprehensive loss as defined by SFAS No. 130, “ReportingComprehensive loss,” includes net loss and items defined as other comprehensiveincome. SFAS No. 130 requires that items defined as other comprehensiveincome, such as foreign currency translation adjustments and unrealized gainsand losses on certain marketable securities, be separately classified in thefinancial statements. Such items are reported in the consolidated statements ofstockholders’ equity as comprehensive loss.

 

*Segmentreporting*

 

The Companyfollows the provisions of SFAS No. 131, “Disclosure About Segments of anEnterprise and Related Information”. The approach designates the internalorganization that is used by management for making operating decisions andassessing performance as the source of the Company’s reportable segments. SFAS No. 131also requires disclosures about products and services, geographic areas andmajor customers.  We operate in twosegments.

 

*Stockoptions*

 

Effective January 1,2006, the Company adopted Statement of Financial Accounting Standards No. 123(revised), *Share-Based Payment SFAS 123(R)*,which requires that compensation cost relating to share-based paymenttransactions be recognized as an expense in the financial statements, and thatmeasurement of that cost be based on the estimated fair value of the equity orliability instrument issued.  Under SFAS No. 123(R),the pro-forma disclosures previously permitted under SFAS No. 123,Accounting for Stock-Based Compensation (“SFAS No. 123”) are no longer analternative to financial statement recognition. SFAS No 123(R) alsorequires that forfeitures be estimated and recorded over the vesting period ofthe instrument.

 

Prior to January 1,2006, as permitted by SFAS No. 123, the Company accounted for share-basedpayments to employees using the intrinsic value method under the recognitionand measurement principles of Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees (“APB No. 25”), and relatedinterpretations. Under this method, compensation cost is measured as the amountby which the market price of the underlying stock exceeds the exercise price ofthe stock option at the date at which both the number of options granted andthe exercise price are known.  Aspreviously permitted by SFAS No. 123, the Company had elected to apply theintrinsic-value-based method of accounting under APB No. 25 describedabove, and adopted only the disclosure requirements of SFAS No 123 which weresimilar in most respects to SFAS No. 123(R), with the exception of optionforfeitures, which, under SFAS No. 123, had been accounted for asincurred.

 

The Company hasadopted SFAS No 123(R) using the modified prospective method whichrequires that share-based expense recognized includes: (a) share-basedexpense for all awards granted prior to, but not yet vested, as of the adoptiondate; and (b) share-based expense for all award granted subsequent to theadoption date.  Since the modifiedprospective method is being used, there is no cumulative effect adjustment uponthe adoption of SFAS No 123(R), and the Company’s December 31, 2005financial statement do not reflect any restated amounts.

 

The Company usesthe same valuation methodologies and assumptions in estimating the fair valueof the options under both SFAS No 123(R) and the pro forma disclosuresunder SFAS No. 123.

 

F-12

----

 

Had share-basedexpense for the Company’s stock option plans been determined based on acalculated fair value using the Black-Scholes model at the grant date, the Company’snet loss would have been impacted as follows for the year ended December 31,2005:

 

| Net loss as reported                                                   |   | $    | (12,216 | ) |
|------------------------------------------------------------------------|--------|------|---------|---|
| Stock-based compensation determined under the fair  value based method |   | (645 | )       |
| Net loss, pro forma                                                    |   | $    | (12,861 | ) |

 

The pro forma effect of applying SFAS No 123(R) maynot be representative of the effect on reported net income in future yearsbecause options over several years and varying amounts may be made each year.

 

*Recent accounting pronouncements*

 

In September 2006,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “FairValue Measurements” (“SFAS No. 157”), which defines fair value,establishes a framework for measuring fair value in accordance with generallyaccepted accounting principles and expands disclosures about fair valuemeasurements. SFAS No. 157 applies to other accounting standards thatrequire or permit fair value measurements. Accordingly, it does not require anynew fair value measurement. SFAS No. 157 will be effective for the Companyon January 1, 2009. The Company is currently evaluating the impact theadoption of SFAS No. 157 will have on its financial position and resultsof operations.

 

In February 2007,the FASB issued SFAS No. 159, “The Fair Value Option for FinancialAssets and Financial Liabilities” (“SFAS No. 159”), which permitsentities to choose to measure many financial instruments and certain otheritems at fair value that are not currently required to be measured at fairvalue. SFAS No. 159 will be effective for the Company on January 1,2008. The Company is currently evaluating the potential impact, if any, theadoption of SFAS No.159 on our consolidated financial position, results ofoperations and cash flows.

 

**3.     DiscontinuedActivities (Lifesyne)**

 

During the thirdquarter of 2005 a plan was initiated for the disposal of the Lifesynebusiness.  In accordance with SFAS No. 144“Accounting forImpairment or disposal of Long-Lived Assets” Lifesyne has been accountedfor as a discontinued operation. Accordingly, our financial statements have been restated to reflect theLifesyne Segment as a discontinued operation in our consolidated statements ofoperations and cash flows for all periods presented.  Statement of operations information presentedin the notes to consolidated financial statements has been restated to reflectcontinuing operations for all periods presented.

 

On November 10,2005 Lifesyne was sold to an independent third party for $443. On August 18,2005, Medicsight PLC entered into an option agreement with the purchaser toacquire Lifesyne for a non-refundable deposit of approximately $90 as thepurchaser needed further time to arrange the financing for the acquisition.This deposit constituted part of the sale proceeds on completion of theacquisition. At that time the net assets of Lifesyne totaled approximately $844leading to an impairment loss of approximately $394.

 

Revenues andoperating losses for Lifesyne for year ended December 31, 2005 is asfollows:

 

| Revenues                       |   | $ | 427   |   |
|--------------------------------|--------|---|-------|--------|
| Operating losses               |   | $ | 1,084 |   |
| Loss from impairment of assets |   | $ | 394   |   |

 

F-13

----

**4.     Marketablesecurities**

 

Investments in marketable securities consisting ofHipCricket Inc. and a fund managed by Bank Sarasin & Company Limitedas of December 31, were as follows:

 
| ** **                | ** ** | **Market  Value** | ** ** | **Cost**   | ** ** | **Unrealized  Gains** | ** ** |
|---------------------------|------------|-------------------|------------|------------|------------|-----------------------|------------|
| ** **                | ** ** | ** **        | ** ** | ** ** | ** ** | ** **            | ** ** |
| At December 31, 2006 |       | $                 | 4,978      |       | $          | 4,533                 |       | $ | 445 |   |
| At December 31, 2007 |       | $                 | 2,219      |       | $          | 2,138                 |       | $ | 81 |   |

 

The increase in net unrealized holding gains onavailable-for-sale securities for the year ended December 31, 2007 was $81and $445 in 2006 which was charged to accumulated other comprehensive income.

 

On July 28, 2007 we converted all but $138 of themarketable securities in the fund managed by Bank Sarasin & CompanyLimited into cash. The Company converted the balance to cash in March 2008.

 

**5.     Investmentsat cost**

 

We account for investmentsin non-marketable securities under the cost method of accounting were we ownless than a 20% interest in each of the companies, and we do not havesignificant influence over the entity. We continually review each investment toassess for other-than-temporary decreases in value.

 

In 2000, MGTinvested in Eurindia PLC, (“Eurindia”) a UK company that invested in ITstart-up companies.  MGT has a 6% holdingin Eurindia and accounts for this investment on a cost basis. During 2007, wereceived two dividends totaling $423 ($0.72 per share) which we recorded inOther Income.  Eurindia has advised usthat they intend to pay an additional dividend and then liquidate the companyduring the late 2008 early 2009 timeframe.

 

During September 2007the Company invested $960 in C preference shares of XShares Group LLC, apre-IPO investment advisor that creates, issues and supports exchange tradedfunds (ETF) with a particular healthcare specialty. We account for thisinvestment on a cost basis as our total holding is less than 5%.

 

**6.     Interestand other income**

 

We had the followinginterest and other income amounts:

 
| ** **                    | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Dividend Income               |       | $          | 467        |       | $          | —     |       | $ | — |   |
| Interest Income               |       | 2,755      |       | 300        |       | 67         |       |
| Gain on Marketable Securities |       | 826        |       | —     |       | —     |       |
| Total                         |       | $          | 4,048      |       | $          | 300        |       | $ | 67 |   |

 

F-14

----

 

**7.     Propertyand equipment**

 

Property andequipment consist of the following as of December 31:

 

| ** **                     | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
|                           |       |     |       |     |       |
| Computer hardware and software |       | $        | 1,272      |     | $          | 1,053 |   |
| Leasehold improvements         |       | 529      |       | 187      |       |
| Furniture and fixtures         |       | 193      |       | 137      |       |
| Motor vehicles                 |       | —   |       | 74       |       |
|                           |       |     |       |     |       |
|                           |       | 1,994    |       | 1,451    |       |
| Less: Accumulated depreciation |       | (1,091   | )          | (768     | )          |
|                           |       | $        | 903        |     | $          | 683 |   |

 

**8.     Accruedexpenses**

 

| ** **                                                | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                      |       |     |       |     |       |
| Professional fees                                         |       | $        | 405        |     | $          | 233 |   |
| Suppliers with deferred payment terms (not yet  invoiced) |       | 529      |       | 528      |       |
| Rent, rates and property related                          |       | 316      |       | 479      |       |
| Other                                                     |       | 219      |       | 145      |       |
|                                                      |       |     |       |     |       |
| Total Accruals                                            |       | $        | 1,469      |     | $          | 1,385 |   |

 

**9.     Stockholders’Equity and Minority Interest**

 

*MGT Capital Investments Inc.*

 

During the year ended December 31, 2006 we raised$10,030 (gross before commissions) by issuing 2,507,500 restricted shares ofour common stock.  We incurred commission of $1,003 to Asia IT CapitalInvestments Limited (a related party) raising a net amount of $9,027.

 

During the year ended December 31, 2005 we raised$12,035 (net of commission and expenses) by issuing 3,327,000 restricted sharesof common stock in a private placement.

 

*Medicsight PLC*

 

On June 21, 2007, Medicsight PLC completed itsinitial public offering on the AIM Market of the London Stock Exchange.  Approximately 29,000,000 new shares wereissued to institutional and other investors at a price of £1.10 ($2.20) pershare raising £32,000 ($64,115) gross new money.  We incurred fees of approximately £1,550 ($3,096),including £149 ($298) with Asia IT Capital Investments Ltd (a relatedparty).  Approximately £5,500 ($11,100)of the net proceeds were used to repay debt (between Medicsight PLC and theCompany).  The remaining £24,900($49,800) cash inflow from the IPO will be used for working capital andbusiness development.

 

Immediately prior to the Medicsight PLC IPO, theCompany sold down, by private placement approximately 11,700,000 of itsMedicsight PLC shares.  The shares werepriced at £1.10 ($2.20) — the same price as the Medicsight IPO.  Gross proceeds on the private placement wereapproximately £12,845 ($25,736).  Weincurred fees with Asia IT Capital Investments Ltd (a related party) ofapproximately £578 ($1,167).  Theseproceeds were received on July 27, 2007.

 

F-15

----

 

Consistent with the guidance of Staff AccountingBulletin No. 51 we credited these proceeds to Additional Paid In Capitaland Minority Interest and have not recognized any gain from the privateplacement of the Medicsight shares.

 

We believe we have sufficient capital tax loss carryforwards to offset the taxable gain from this disposal.

 

After the private placement and the IPO, MGT holds85,000,000 (55%) of the approximately 155,000,000 issued share capital ofMedicsight. On December 31, 2007, (the fourth quarter’s last trading day),Medicsight shares closed at a price of £1.06 ($2.12), valuing MGT’s 85,000,000shares at $180,200.

 

During the year ended December 31, 2006 we raised£7,000 ($13,752) (gross before commissions) by issuing 14,000,000 ordinaryshares of Medicsight.  We paid commissionof £700 ($1,367) to Asia IT Capital Investments Limited (a related party) andwe paid legal fees of $6, raising a net cash amount of £6,297 ($12,379).

 

*Medicexchange PLC*

 

On July 10, 2006 we incorporated MedicexchangePLC with a 10% (approximately $10) minority shareholder.  We subsequently raised £5,508 ($10,314)(gross before commissions) by issuing 5,507,511 ordinary shares of MedicexchangePLC.  We paid commission of £275 ($516)and issued 275,326 ordinary shares to Asia IT Capital Investments Limited (arelated party), raising a net cash amount of £5,232 ($9,798).  At December 31, 2006 the Company owned22,500,000 ordinary shares in Medicexchange PLC, constituting 73.1% of theoutstanding shares.

 

*Minority Interest*

 

The Company has minority investors in both Medicsightand Medicexchange as follows:

 
| ** **                                       | ** ** | **Medicsight** | ** ** | **Medicexchange** | ** ** | **Total** | ** ** |
|--------------------------------------------------|------------|----------------|------------|-------------------|------------|-----------|------------|
|                                             |       |           |       |              |       |      |       |
| Minority Interest at January 1, 2006        |       | $              | —     |              | $          | —    |       | $ | — |   |
| Medicexchange PLC — incorporation           |       | —         |       | 10                |       | 10        |       |
| Additional funding in 2006                       |       | 12,379         |       | 9,798             |       | 22,177    |       |
| Total minority equity investment                 |       | 12,379         |       | 9,808             |       | 22,187    |       |
| Less — minority share of operating losses   |       | (20            | )          | (457              | )          | (477      | )          |
| Minority Interest at December 31, 2006      |       | $              | 12,359     |              | $          | 9,351     |       | $ | 21,710 |   |
| Medicsight — MGT share private placement    |       | 14,820         |       | —            |       | 14,820    |       |
| Medicsight minority interest share of IPO equity |       | 61,019         |       | —            |       | 61,019    |       |
| Medicexchange China — incorporation         |       | —         |       | 30                |       | 30        |       |
| Less — minority share of operating losses   |       | (3,347         | )          | (728              | )          | (4,075    | )          |
| Minority Interest at December 31, 2007      |       | $              | 84,581     |              | $          | 8,653     |       | $ | 93,504 |   |

 

**10.  Comprehensiveloss**

 

Comprehensive losses for the years ended December 31,2007 and 2006 are as follows:

 
| ** **                                                                   | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                         |       |     |       |     |       |
| Net loss as reported                                                         |       | $        | (13,800    | )        | $          | (14,935 | ) |
| Other  comprehensive income (loss)                                           |       |     |       |     |       |
| Foreign currency  translation                                                |       | 589      |       | 280      |       |
| Unrealized  holding gains (losses) arising during the period                 |       | 462      |       | 445      |       |
| Less:  Reclassification adjustment for gains (losses) included in net income |       | (826     | )          | —   |       |
| Other  comprehensive income (loss)                                           |       | 225      |       | 725      |       |
| Comprehensive loss                                                           |       | $        | (13,575    | )        | $          | (14,210 | ) |

 

F-16

----

 

        The accumulated balances related to eachcomponent of other comprehensive losses were as follows:

 
| ** **                         | ** ** | **Foreign  Currency  Translation** | ** ** | **Unrealized  Gain (Loss) on  Investments** | ** ** | **Accumulated  Other  Comprehensive Loss** | ** ** |
|------------------------------------|------------|------------------------------------|------------|---------------------------------------------|------------|--------------------------------------------|------------|
| Balance  at December 31, 2005 |       | $                                  | 128        |                                        | $          | —                                     |       | $ | 128 |   |
| Other  comprehensive gain (loss)   |       | 280                                |       | 445                                         |       | 725                                        |       |
| Balance  at December 31, 2006 |       | 408                                |       | 445                                         |       | 853                                        |       |
| Other  comprehensive gain (loss)   |       | 589                                |       | (364                                        | )          | 225                                        |       |
| Balance  at December 31, 2007 |       | $                                  | 997        |                                        | $          | 81                                         |       | $ | 1,078 |   |

 

**11.  Stockoption plans**

 

We have a number of Stock Option Plans as follows.

 

*MGT Stock Option Plan*

 

On December 5, 2007 we approved the 2007 MGT stockoption plan and granted options for 1,975,000 shares under this plan.  At December 31, 2007 there were1,975,000 options outstanding and none of the options issued wereexercisable.  Options issued under thisplan vest in equal one-thirds after employees have been employed for 12, 24 and36 months from the date of grant.

 

*Medicsight Stock Option Plans*

 

We have seven Stock Option Plans in Medicsight.  The shares of this Company were listed on theAIM Market of the London Stock Exchange on June 21, 2007.

 

Plan A - on February 26, 2003 we approved stockoption plan “A” and in the period ended June 30, 2003 we granted optionsfor 2,971,000 shares under this plan.  AtDecember 31, 2007 there were 488,000 options outstanding all of which wereexercisable.

 

Plan B - on August 15, 2005, we approved stockoption plan “B” and between July 1, 2003 and March 31, 2005 wegranted options for 3,420,500 shares under this plan.  At December 31, 2007 there were 897,000options outstanding all of which were exercisable.

 

Plan C — on August 15, 2005, we approved stockoption plan “C” and between April 1, 2005 and June 30, 2006 wegranted options for 515,000 shares under this plan.  Options issued under this plan vest in equalone-thirds after employees have been employed for 12, 24 and 36 months fromdate of grant.  At December 31, 2007there were 285,000 options outstanding and 156,667 of the options issued wereexercisable.

 

Plan D - On July 13, 2006 we approved stockoption plan “D” and granted options for 1,375,000 shares under this plan.  Options under this plan vest in equalone-thirds after employees have been employed for 12, 24 and 36 months from thedate of grant. At December 31, 2007 there were 875,000 options outstandingand 291,667 of the options issued were exercisable.

 

Plan E - on February 22, 2007 we approved andgranted options for 5,900,000 shares under stock option plan “E”.  Options under this plan vest in equal onethirds after employees have been employed for 12, 24 and 36 months 

 

F-17

----

 

from the grant date. At December 31, 2007 therewere 5,862,500 options outstanding and none of the options issued wereexercisable.

 

Plan F - on May 16, 2007 we approved andsubsequently granted options for 350,000 shares under stock option plan “F”.  Options under this plan vest in equal onethirds after employees have been employed for 12, 24 and 36 months from thegrant date.  At December 31, 2007there were 350,000 options outstanding and none of the options issued were exercisable.

 

Plan G - on December 18, 2007 we approved andsubsequently granted options for 3,025,000 shares under stock option plan “G”.  Options under this plan vest in equal onethirds after employees have been employed for 12, 24 and 36 months from the grantdate.  At December 31, 2007 therewere 3,025,000 options outstanding and none of the options issued wereexercisable.

 

*Medicexchange Stock Option Plans*

 

We have two stock option plans in Medicexchange.  The shares of this company are not publiclytraded.

 

Plan A - on July 20, 2006 we approvedMedicexchange stock option plan “A” and granted options for 950,000 sharesunder this plan.  Options issued underthis plan vest in equal one-thirds after employees have been employed for 12,24 and 36 months from the date of grant. At December 31, 2007 there were700,000 options outstanding and 233,333 of the options issued were exercisable.

 

Plan B — on July 26, 2007 we approvedMedicexchange stock option plan “B” and granted options for 300,000 sharesunder this plan. Options issued under this plan vest equal one-thirds afteremployees have been employed for 12, 24 and 36 months from the date ofgrant.  At December 31, 2007 therewere 300,000 options outstanding and none of the options issued wereexercisable.

 

The following weighted average assumptions were usedto estimate the fair value of stock options granted in the years ended December 31:

 
| ** **                                                                            | ** ** | **2007**           | ** ** | **2006**           | ** ** | **2005**           | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|--------------------|------------|
|                                                                                  |       |               |       |               |       |               |       |
| Dividend yield                                                                        |       | nil                |       | nil                |       | nil                |       |
| Expected volatility                                                                   |       | 57%-65             | %          | 60.0               | %          | 65.0               | %          |
| Risk-free interest rate                                                               |       | 4.65%-5.75         | %          | 4.75               | %          | 4.5                | %          |
| Expected life of options                                                              |       | Up to 4 Years      |       | 4 years            |       | 1 year             |       |
| Weighted average fair value of options granted                                        |       |               |       | £0.41 ($0.81) |       | £0.47 ($0.92) |       |
| Weighted-average grant-date fair value — Medicsight  Plan E                      |       | £0.26 ($0.51) |       |               |       |               |       |
| Weighted-average grant-date fair value — Medicsight  Plan F                      |       | £0.33 ($0.65) |       |               |       |               |       |
| Weighted-average grant-date fair value — Medicsight  Plan G                      |       | £0.43 ($0.86) |       |               |       |               |       |
| Weighted-average grant-date fair value —  Medicexchange Plan B                   |       | £0.51 ($1.05) |       |               |       |               |       |
| Weighted-average  grant-date fair value — MGT Capital Investments Inc. 2007 Plan |       | $1.59              |       |               |       |               |       |

 

The assumptions above arebased on multiple factors including 10-year United Kingdom treasury bonds forthe risk-free rate at the time of grant, expected future exercising patterns(we cannot base the estimate on the historical exercise patterns as no optionshave been exercised) and the volatility of the MGT Capital Investments Inc. ownstock price.

 

The assumptions used in the Black-Scholes optionvaluation model are highly subjective, and can materially affect the resultingvaluation.

 

F-18

----

The followingtable summarizes stock option activity for the three years ended December 31,2007, 2006 and 2005 under all option plans:

 

| ** **                            | ** ** | **Outstanding**      | ** ** | **Exercisable**                          | ** ** |
|---------------------------------------|------------|----------------------|------------|------------------------------------------|------------|
| ** **                            | ** ** | **Number of Shares** | ** ** | **Weighted-Average Exercise Price** | ** ** | **Number of Shares** | ** ** | **Weighted-Average Exercise Price** | ** ** |
| Outstanding at December 31, 2005 |       | 4,146,200            |       | £1.00 ($1.96)                       |       | 3,362,850 |   | £1.00 ($1.96) |   |
|                                  |       |                 |       |                                     |       |   |   |   |   |
| Granted                               |       | 2,610,000            |       | £1.05 ($2.06)                       |       |   |   |   |   |
| Exercised                             |       | —               |       | —                                   |       |   |   |   |   |
| Forfeited                             |       | (1,716,200           | )          | £1.00 ($1.96)                       |       |   |   |   |   |
|                                  |       |                 |       |                                     |       |   |   |   |   |
| Outstanding at December 31, 2006 |       | 5,040,000            |       | £0.91 ($1.79)                       |       | 2,256,200 |   | £1.00 ($1.96) |   |
|                                  |       |                 |       |                                     |       |   |   |   |   |
| Granted                               |       | 11,550,000           |       | £0.91 ($1.81)                       |       |   |   |   |   |
| Exercised                             |       | —               |       | —                                   |       |   |   |   |   |
| Forfeited                             |       | (1,832,500           | )          | £0.72 ($1.43)                       |       |   |   |   |   |
|                                  |       |                 |       |                                     |       |   |   |   |   |
| Outstanding at December 31, 2007 |       | 14,757,500           |       | £0.86 ($1.72)                       |       | 2,066,667 |   | £0.72 ($1.44) |   |

 

 

The following is asummary of the status of stock options outstanding at December 31, 2007:

 

| ** **           | ** ** | **Outstanding Options** | ** ** | **Exercisable Options**                 | ** ** |
|----------------------|------------|------------------------------|------------|----------------------------------------------|------------|
| ** **           | ** ** | **Number**                   | ** ** | **Remaining Contractual Life  (years)** | ** ** | **Average  Exercise  Price** | ** ** | **Number** | ** ** | **Average  Exercise  price** | ** ** |
| MGT 2007 Plan        |       | 1,975,000                    |       | 9.9                                          |       | $3.69 |   | — |   | — |   |
|                 |       |                         |       |                                         |       |   |   |   |   |   |   |
| Medicsight Plan A    |       | 488,000                      |       | 5.5                                          |       | £0.75 ($1.50) |   | 488,000 |   | £0.75 ($1.50) |   |
| Medicsight Plan B    |       | 897,000                      |       | 6.8                                          |       | £0.75 ($1.50) |   | 897,000 |   | £0.75 ($1.50) |   |
| Medicsight Plan C    |       | 285,000                      |       | 7.5                                          |       | £0.75 ($1.50) |   | 156,667 |   | £0.75 ($1.50) |   |
| Medicsight Plan D    |       | 875,000                      |       | 8.5                                          |       | £0.83 ($1.66) |   | 291,667 |   | £0.83 ($1.66) |   |
| Medicsight Plan E    |       | 5,862,500                    |       | 9.2                                          |       | £0.50 ($1.00) |   | — |   | — |   |
| Medicsight Plan F    |       | 350,000                      |       | 9.4                                          |       | £0.75 ($1.50) |   | — |   | — |   |
| Medicsight Plan G    |       | 3,025,000                    |       | 10                                           |       | £1.10 ($2.20) |   | — |   | — |   |
|                 |       |                         |       |                                         |       |   |   |   |   |   |   |
| Medicexchange Plan A |       | 700,000                      |       | 8.8                                          |       | £0.40 ($0.80) |   | 233,333 |   | £0.40 ($0.80) |   |
| Medicexchange Plan B |       | 300,000                      |       | 9.6                                          |       | £1.00 ($2.00) |   | — |   | — |   |

 

F-19

----

 

On February 22,2007 we modified the exercise price of 50% of the shares in Medicsight PLCunder plans “A” through to “C” from £1.00 to £0.50 per share. On February 22,2007 we modified the exercise price of 50% of the shares in Medicsight PLCunder plan “D” from £1.10 to £0.50 per share. No other terms and conditions ofthe shares within these plans were modified. The total modification charge forthe year ended December 31 2007 was $192.

 

The Company hasrecorded the following amounts related to its share-based compensation expensein the accompanying Statements of Operations:

 

| ** **                          | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|
| Selling, general and administrative |       | $        | 1,334      |     | $          | 405 |   |
| Research and development            |       | 207      |       | 35       |       |
| Total                               |       | $        | 1,541      |     | $          | 440 |   |

 

No compensationcosts were capitalized.

 

The aggregateintrinsic value for options outstanding and exercisable at December 31, 2007was approximately $1,487 (December 31, 2006: $4,420).

 

The average grantdate fair value of options was $0.96 and $0.81 for options granted during theyears ended December 31, 2007 and December 31, 2006 respectively.

 

A summary ofnon-vested options at December 31, 2007 and the change during the yearsended December 31, 2007 and 2006 is presented below:

 

| ** **                                  | ** ** | **Options** | ** ** | **Weighted Average  Grant Date Fair Value** | ** ** |
|---------------------------------------------|------------|-------------|------------|---------------------------------------------|------------|
| Nonvested options at January 1, 2006   |       | 783,350     |       | £0.41 ($0.81)                          |       |
| Granted                                     |       | 2,610,000   |       | £0.41 ($0.81)                          |       |
| Vested                                      |       | (444,550    | )          | £0.39 ($0.77)                          |       |
| Forfeited                                   |       | (165,000    | )          | £0.47 ($0.92)                          |       |
| Nonvested options at December 31, 2006 |       | 2,783,800   |       | £0.41 ($0.81)                          |       |
| Granted                                     |       | 11,550,000  |       | £0.41 ($0.82)                          |       |
| Vested                                      |       | (990,467    | )          | £0.42 ($0.84)                          |       |
| Forfeited                                   |       | (652,500    | )          | £0.41 ($0.82)                          |       |
| Nonvested options at December 31, 2007 |       | 12,690,833  |       | £0.41 ($0.82)                          |       |

 

As of December 31,2007 there was $10,343 of total unrecognized compensation cost related tonon-vested share based compensation arrangement granted under the option plans.That cost is expected to be recognized over a weighted average period of 5.8years.

 

 

**12.****      ****Income Taxes**

 

The income taxprovision is summarized as follows for the years ended December 31:

 

| ** **               | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|----------|------------|
| Current                  |       |     |       |     |       |     |       |
| Federal                  |       | $        | 0          |     | $          | 0        |       | $ | 0 |   |
| State and local          |       | 0        |       | 0        |       | 0        |       |
| Foreign                  |       | 0        |       | 0        |       | 858      |       |
| Deferred                 |       | 0        |       | 0        |       | 0        |       |
|                     |       |     |       |     |       |     |       |
| Total income tax benefit |       | $        | 0          |     | $          | 0        |       | $ | 858 |   |

 

F-20

----

 

Significantcomponents of deferred tax assets were as follows as of December 31:

 

| **Deferred Tax Assets**                    | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
| Tax loss carry-forward                     |       | $        | 20,433     |     | $          | 16,899 |   |
| Capital loss carry forward                 |       | 92       |       | 37,473   |       |
| Fixed asset depreciation methods and other |       | 2,672    |       | 2,284    |       |
| Total                                      |       | 23,197   |       | 56,656   |       |
| Valuation Allowance                        |       | (23,197  | )          | (56,656  | )          |
| Net deferred tax asset                     |       | $        | —     |     | $          | — |   |

 

The Company hasnet operating loss carry-forwards for United States tax purposes to offsetfuture taxable income of approximately $62 expiring through 2023. As it is notmore likely than not that the resulting deferred tax benefits will be realized,a full valuation allowance has been recognized for such deferred tax assets.The utilization of net operating loss carry forwards may be significantlylimited under the Internal Revenue Code as a result of ownership changes due tothe Company’s stock and other equity offerings.

 

Under UnitedKingdom taxation, Medicsight has $52,694 of net operating loss carry-forwardsto offset future taxable income. As it is not more likely than not that theresulting deferred tax benefits will be realized, a full valuation allowancehas been recognized for such deferred tax assets.

 

The provision forincome tax differs from the amount computed by applying the statutory federalincome tax rate to income before the provision for income taxes. The sourcesand tax effects of the differences are as follows for the year ended December 31:

 

| ** **                                  | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Income taxes at the federal statutory rates |       | (35      | )%         | (35      | )%         | (35      | )%         |
| Foreign rate differential                   |       | 15       |       | 5        |       | 5        |       |
| Change in valuation allowance               |       | 20       |       | 30       |       | 30       |       |
| Effective rate of income tax                |       | 0        | %          | 0        | %          | 0        | %          |

 

The Company hasnet capital losses to be carried forward of $262 to offset against futurecapital gains expiring in years 2007 through 2008.

 

The Company or oneof its subsidiaries files income tax returns in the U.S. federal jurisdiction,and various states and foreign jurisdictions. With few exceptions, the Companyis no longer subject to U.S. federal, state and local, or non-U.S. income taxexaminations by tax authorities for years before 2003.

 

The receipt of $858 relates to a tax creditpaid by the United Kingdom taxation authorities to Medicsight PLC in the secondquarter of Fiscal 2005 under its R&D tax relief scheme for small and mediumenterprises. The basis for the R&D relief is to encourage the developmentof new technologies and is only applicable to the research and development of anew technology and not a product.

 

The receipt represented the tax creditreceived for expenditures incurred between November 2001 and December 2003.The Company did not accrue for any potential tax credit for Fiscal 2004 as ithas determined that the completion date of the new technology occurred at theend of Fiscal 2003 and therefore no application for Fiscal 2004 will be made.

 

**13.****      ****Operating leases, commitmentsand security deposit**

 

On August 25, 2006we executed a 10 year agreement with Pirbright Holdings Limited, to lease 8,787square feet of office space at the Kensington Centre, 66 Hammersmith Road,London W14 8UD, UK, and simultaneously vacated our previous corporate office(46 Berkeley Square, London W1J 5AT, United Kingdom).

 

Under this new lease agreement our UK property rent,services and related costs will be approximately £330 ($647) per annum, paidquarterly in advance.  We have the right to terminate this agreement onthe expiration of the fifth year of the lease. Our annual rent is subject to upward only review on August 24,2011.

 

F-21

----

 

 

We have two 10-monthrent-free periods: the first commencing August 25, 2006; the secondcommencing August 25, 2011.  We haveaccounted for this lease as an Operating Lease, and have accounted for thelease rental expenses on a straight line basis over the period of thelease.  At December 31, 2007 and2006, deferred rent which is included in accrued expenses was $316 in 2007 and$131 in 2006.

 

We have satellite officesin Tokyo (Japan) and Beijing (China) — both of which are on two year rentalagreements.  At December 31, 2007 wehave paid in total $68 in deposit for these office rentals.

 

The following is aschedule of the future minimum rental payments required under operating leasesthat have initial or remaining non cancellable terms in excess of one year:

 
| **Year Ending** | ** ** | ** ** | ** ** |
|----------------------|------------|------------|------------|
| ** **           | ** ** | ** ** | ** ** |
| 2008                 |       | $          | 748        |   |
| 2009                 |       | 659        |       |
| 2010                 |       | 629        |       |
| 2011                 |       | 225        |       |
| 2012                 |       | 351        |       |
| Later Years          |       | 1,548      |       |
| Total                |       | $          | 4,160      |   |

 

Totalrent expense was $659, $1,056, and $969 for the years ended December 31,2007, 2006, and 2005 respectively.

 

AtDecember 31, 2007 we have capital commitments of $184 relating to thecompletion of leasehold improvements in our Japan office.

 

**14.  Segmentreporting**

 

        UnderSFAS no. 131, “Disclosures about Segments of an Enterprise and RelatedInformation”, operating segments are defined as components of an enterpriseabout which separate financial information is available that is  evaluated regularly by the chief operatingdecision maker, or decision making group in deciding how to allocate resourcesand in assessing performance. Our chief operating decision making group iscomposed of the chief executive officer and members of senior management. TheCompany’s reportable operating segments are Medicsight and Medicexchange.

 

The accounting policies of the segments are the sameas those described in the summary of significant accounting policies. Weevaluate performance of our operating segments based on revenue and operating(loss). Segments information for 2007, 2006 and 2005 are as follows (inthousands):

 

F-22

----

| ** **                                    | ** ** | **Medicsight** | ** ** | **Medicexchange** | ** ** | **Corporate   and Other** | ** ** | **Total**  | ** ** |
|-----------------------------------------------|------------|----------------|------------|-------------------|------------|---------------------------|------------|------------|------------|
|                                          |       |           |       |              |       |                      |       |       |       |
| **2007**                                      | ** ** | ** **     | ** ** | ** **        | ** ** | ** **                | ** ** | ** ** | ** ** |
| Revenue from external  customers              |       | $              | 41         |              | $          | 48                        |       | $          | —     |   | $ | 89 |   |
| Cost of revenue                               |       | 1              |       | 34                |       | —                    |       | 35         |       |
| Gross Margin                                  |       | 40             |       | 14                |       | —                    |       | 54         |       |
| Operating Expenses                            |       | 14,970         |       | 3,947             |       | 3,060                     |       | 21,977     |       |
| Operating loss                                |       | (14,930        | )          | (3,933            | )          | (3,060                    | )          | (21,923    | )          |
| Depreciation                                  |       | 190            |       | 177               |       | —                    |       | 367        |       |
| Stock based  compensation                     |       | 1,349          |       | 104               |       | 88                        |       | 1,541      |       |
| Assets                                        |       | 51,158         |       | 4,211             |       | 53,651                    |       | 109,020    |       |
| Expenditure for  property plant and equipment |       |           | 297        |              |       | 296                       |       |       | —     |   |   | 593 |   |
|                                          |       |           |       |              |       |                      |       |       |       |
| **2006**                                      | ** ** | ** **     | ** ** | ** **        | ** ** | ** **                | ** ** | ** ** | ** ** |
| Revenue from external  customers              |       | $              | —     |              | $          | —                    |       | $          | —     |   | $ | — |   |
| Cost of revenue                               |       | —         |       | —            |       | —                    |       | —     |       |
| Gross Margin                                  |       | —         |       | —            |       | —                    |       | —     |       |
| Operating Expenses                            |       | 9,517          |       | 5,657             |       | 538                       |       | 15,712     |       |
| Operating loss                                |       | (9,517         | )          | (5,657            | )          | (538                      | )          | (15,712    | )          |
| Depreciation                                  |       | 251            |       | 27                |       | —                    |       | 278        |       |
| Stock based  compensation                     |       | 403            |       | 37                |       | —                    |       | 440        |       |
| Assets                                        |       | 13,495         |       | 7,366             |       | 17,608                    |       | 38,469     |       |
| Expenditure for  property plant and equipment |       |           | 192        |              |       | 456                       |       |       | 74         |   |   | 722 |   |
|                                          |       |           |       |              |       |                      |       |       |       |
| **2005 (continuing operations)**              | ** ** | ** **     | ** ** | ** **        | ** ** | ** **                | ** ** | ** ** | ** ** |
| Revenue from external  customers              |       | $              | —     |              | $          | —                    |       | $          | —     |   | $ | — |   |
| Cost of revenue                               |       | —         |       | —            |       | —                    |       | —     |       |
| Gross Margin                                  |       | —         |       | —            |       | —                    |       | —     |       |
| Operating Expenses                            |       | 11,426         |       |              |       | 237                       |       | 11,663     |       |
| Operating loss                                |       | (11,426        | )          | —            |       | (237                      | )          | (11,663    | )          |
| Depreciation                                  |       | 237            |       | —            |       | —                    |       | 237        |       |
| Stock based  compensation                     |       | —         |       | —            |       | —                    |       | —     |       |
| Assets                                        |       | 8,777          |       | —            |       | 15,709                    |       | 24,486     |       |
| Expenditure for  property plant and equipment |       |           | 131        |              |       | —                    |       |       | —     |   |   | 131 |   |

 

The Company’s main operations and fixed assets are inthe UK.

 

Medicsight listed on the AIM Market of the LondonStock Exchange on June 21, 2007.  AIM listing rules require Medicsight topublish results under International Financial Reporting Standards (“IFRS”) inUK Sterling (“GBP”).

 

The following is a reconciliation between Medicsightpublished financial statements and the US GAAP consolidated results (inthousands):

 
| ** **                          | ** ** | **Medicsight  PLC** | ** ** | **Medicsight  PLC**       | ** ** | **Medicsight  PLC** | ** ** | **Medicexchange**  | ** ** | **Corporate  and Other** | ** ** | **Total**          | ** ** |
|-------------------------------------|------------|---------------------|------------|---------------------------|------------|---------------------|------------|--------------------|------------|-------------------------------|------------|--------------------|------------|
| ** **                          | ** ** | **(IFRS)**          | ** ** | **GAAP Adj’ts** | ** ** | **(US GAAP)**  | ** ** | **(US GAAP)** | ** ** | **(US GAAP)**            | ** ** | **(US GAAP)** | ** ** |
|                                |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| **Twelve months December 31, 2007** |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| Net revenue from external customers |       | 41                  |       | —                    |       | 41                  |       | 48                 |       | —                        |       | 89                 |       |
| Operating loss                      |       | (15,526             | )          | 596                       |       | (14,930             | )          | (3,933             | )          | (3,060                        | )          | (21,923            | )          |
| Assets                              |       | 51,158              |       | —                    |       | 51,158              |       | 4,211              |       | 53,651                        |       | 109,020            |       |
|                                |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| **Twelve months December 31, 2006** |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| Net revenue from external customers |       | —              |       | —                    |       | —              |       | —             |       | —                        |       | —             |       |
| Operating loss                      |       | (11,998             | )          | 2,481                     |       | (9,517              | )          | (5,657             | )          | (538                          | )          | (15,712            | )          |
| Assets                              |       | 13,495              |       | —                    |       | 13,495              |       | 7,366              |       | 17,608                        |       | 38,469             |       |

 

The principle GAAP adjustments being the accountingfor stock options and cumulative translation adjustments.

 

**15.  Concentrations**

 

The Company maintains its cash and cash equivalents atmajor financial institutions in Europe. Cash held in foreign institutions amounted to $92,373 and $19,757 at December 31,2007 and 2006, respectively.  The Companyperiodically evaluates the relative credit standing of financial institutionsconsidered in its cash investment strategy.

 

**16.  RelatedParty Transactions**

 

*Asia IT Capital Investments Ltd (a related party)*

 

On December 29, 2000, the Company acquired all ofthe issued and outstanding shares of HTTP Insights Limited (“Insights”).  Asia IT Capital Investments Limited (“Asia IT”)was a shareholder in Insights as well as the Company at the time of theacquisition, and had provided a credit facility for up to $20,000.  This facility was cancelled by mutualagreement and with no financial impact in June 2007.

 

On November 20, 2001, Asia IT entered into a £10,000($19,600) credit facility with Medicsight PLC. This facility was cancelled by mutual agreement and with no financialimpact in June 2007.

 

A director of Asia IT is a brother of TimPaterson-Brown (our Chairman and Chief Executive Officer).  In addition to the loan facilities madeavailable by Asia IT to the Company and Medicsight PLC, Asia IT receivedcommissions on shares issuances and transactions in Fiscal 2007, 2006 and 2005.

F-23

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On June 21, 2007,Medicsight PLC completed its initial public offering on the AIM Market of theLondon Stock Exchange.  Approximately29,000,000 new shares were issued to institutional and other investors at aprice of £1.10 ($2.20) per share raising £32,000 ($64,115) gross new money.  We incurred fees of approximately £1,550 ($3,096),including approximately £149 ($298) with Asia IT Capital Investments Ltd (arelated party).  Immediately prior to theMedicsight PLC IPO, the Company sold down, by private placement approximately11,700,000 of its Medicsight PLC shares. The shares were priced at £1.10 ($2.20) — the same price as theMedicsight IPO.  Gross proceeds on theprivate placement were approximately £12,845 ($25,736).  We incurred fees with Asia IT CapitalInvestments Ltd (a related party) of approximately £578 ($1,167).

 

During Fiscal 2006 the Company used Asia IT to raise agross amount of $34,096. Asia IT earned commissions of $3,404 which was partlysettled by issuing 275,326 shares valued at £1.00 ($1.88) in Medicexchange PLC.

 

During Fiscal 2005 the Company raised $12,035, net ofcommissions and expenses, in a private placement of restricted common stock at$4.00 per share. Asia IT received commissions of $1,230.

 

During the year ended December 31, 2007, theCompany placed monies on deposit with Asia IT. These monies earn interest at arange of annual rates between 5% to 10%. The funds are on call at any time. At December 31,2007 the balance of monies on deposit with Asia IT was $3,917 which included $262of interest income earned in the year ended December 31, 2007.

 

During the year ended December 31, 2006, theCompany placed monies on deposit with Asia IT. These monies earn interest at anannual rate of 5%. The funds are on call at any time. At December 31, 2006the balance of monies on deposit with Asia IT was $5,993 which included $116 ofinterest income earned in the year ended December 31, 2006.

 

During the year ended December 31,2007 the Company acquired shares to the value of $2,000 and $960 in HipCricketInc. and XShares Group LLC,respectively, and are included in marketable securities and investments on thebalance sheet. Both of these investments were introduced to the Company by AsiaIT.  A brother of Tim Paterson-Brown is anon-executive director of HipCricket Inc.

 

Tim Paterson-Brown is alsoa Non-executive director of Accsys Technologies PLC, which has a subsidiarycompany Titan Wood Limited.  Titan WoodLimited rents space in 66 Hammersmith Road. In the year ended December 31, 2007, $222 of office related costs wererecharged to Titan Wood Limited.  AtDecember 31, 2007 there was a balance receivable from Titan Wood Limited of $16of which $16 remains unpaid.  This ispayable within 30 days under the terms of the invoice.

 

 

F-24

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**17. Quarterly Financial Data (unaudited)**

 

The tables below summarize the Company’s unauditedquarterly operating results for Fiscal 2007 and 2006:

 
| ** **                       | ** ** | **First Quarter** | ** ** | **Second Quarter** | ** ** | **Third Quarter** | ** ** | **Fourth Quarter** | ** ** |
|----------------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|--------------------|------------|
|                             |       |              |       |               |       |              |       |               |       |
| **2007**                         | ** ** | ** **        | ** ** | ** **         | ** ** | ** **        | ** ** | ** **         | ** ** |
| Revenues                         |       | $                 | —     |               | $          | —            |       | $                  | 12         |   | $ | 77 |   |
| Gross Margin                     |       | —            |       | —             |       | 12                |       | 42                 |       |
| Net loss                         |       | (3,206            | )          | (4,095             | )          | (2,506            | )          | (3,993             | )          |
| Basic and diluted loss per share |       | (0.08             | )          | (0.11              | )          | (0.06             | )          | (0.10              | )          |
|                             |       |              |       |               |       |              |       |               |       |
| **2006**                         | ** ** | ** **        | ** ** | ** **         | ** ** | ** **        | ** ** | ** **         | ** ** |
| Revenues                         |       | $                 | —     |               | $          | —            |       | $                  | —     |   | $ | — |   |
| Gross Margin                     |       | —            |       | —             |       | —            |       | —             |       |
| Net loss                         |       | (3,030            | )          | (4,001             | )          | (3,907            | )          | (3,997             | )          |
| Basic and diluted loss per share |       | (0.08             | )          | (0.11              | )          | (0.10             | )          | (0.10              | )          |

 

**18. Subsequent Events**

** **

On February 14, 2008 MGTCapital Investments, Inc. announced that its Board of Directors has authorizedthe repurchase of up to 1,000,000 shares during the year ended 2008.

 

The repurchase of shareswill be made from time to time in the open market on the American StockExchange (“AMEX”) and in private transactions.

 

The repurchase programdoes not require the Company to acquire a specific number of shares.  The share repurchases will be funded from theCompany’s working capital.  Any sharesthat are repurchased under the program will be returned to the state ofauthorized but unissued shares of common stock.

 

On March 11, 2008 theBoard of Directors authorized the Chief Executive Officer and the ChiefFinancial Officer to execute an additional buyback of up to 5,350,000 shares ofMGT common stock.  Following Boardapproval, the Company has contracted to buy back 5,349,793 shares of its commonstock at $3.00 per share in a transaction costing $16,049 (before fees).

 

 

 

F-25

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#### **Schedule II**

 

**MGT Capital InvestmentsInc.**

 

Valuation and QualifyingAccounts

 
| ** **                           | ** ** | **Balance  at** | ** ** | ** **    | ** ** | ** **     | ** ** | ** **       | ** ** |
|--------------------------------------|------------|-----------------|------------|---------------|------------|----------------|------------|------------------|------------|
| ** **                           | ** ** | **Beginning**   | ** ** | ** **    | ** ** | ** **     | ** ** | **Balance  at**  | ** ** |
| **Deferred Tax Valuation Allowance** | ** ** | **of  year**    | ** ** | **Additions** | ** ** | **Write-offs** | ** ** | **end  of year** | ** ** |
|                                 |       |            |       |          |       |           |       |             |       |
| 2005                                 |       | $               | 48,511     |          | $          | 3,665          |       | $                | —     |   | $ | 52,176 |   |
| 2006                                 |       | 52,176          |       | 4,480         |       | —         |       | 56,656           |       |
| 2007                                 |       | 56,656          |       | 3,921         |       | 37,380         |       | 23,197           |       |
|                                      |            |                 |            |               |            |                |            |                  |            |  |  |  |  |

 

The deferred tax valuation allowance applies to bothoperating loss carry-forwards and capital losses incurred by the Company.

 

 

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