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**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 THE SECURITIES EXCHANGE ACT OF 1934**

 
| **x**  | **ANNUAL REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                                                                    |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ** **                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | **For the fiscal year ended: December 31, 2008.**                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **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 W148UD, United Kingdom**

(Address of principal executive offices, including zip code)

 

**011-44-207-605-1151**

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered undersection 12(b) of the Exchange Act:  **Common stock, par value $0.001 per share**

 

Securities registered undersection 12(g) of the Exchange Act:  **Not applicable**

 

Nameof each exchange on which registered: **NYSE AMEX**

 

Indicate by check mark ifthe Registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.    Yes o     No  x

 

Indicate by check mark ifthe Registrant is not required to file reports pursuant to Section 13 or15(d) of the Act.    Yes o     No  x

 

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

 

Indicate by check mark ifdisclosure of delinquent filers is not contained herein, and will not becontained, 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 check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one):

 
| Large Accelerated Filer    o |   | Accelerated filer   o |   | Non-accelerated Filer   x          |   | 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, 2008,the last day of the registrant’s most recently completed second fiscal quarter,the aggregate market value of the registrant’s common stock held bynon-affiliates of the registrant was approximately $44,322,000.

 

The common stock is theregistrant’s only class of stock.

 

Asof March 31,2009 theregistrant had outstanding 32,550,590 shares of common stock, $0.001 par value(excludes 6,349,793 common shares held as treasury stock).

 

 

 

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MGT Capital Investments Inc.

Form 10-K

 

Table of 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 9A (T) |   | 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  |   |                                                                                                                |

 

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

 

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NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This Annual Report on Form 10-K,including the section entitled “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” in Item 7, containsforward-looking statements that involve risks and uncertainties, as well asassumptions that, if they never materialize or prove incorrect, could cause theresults of MGT Capital Investments, Inc. and its consolidated subsidiaries(the “Company”) to differ materially from those expressed or implied by suchforward-looking statements. All statements other than statements of historicalfact are statements that could be deemed forward-looking statements, includingany projections 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’speriodic disclosure statements and for reports filed with the Securities and ExchangeCommission. The Company assumes no obligation and does not intend to updatethese forward-looking statements.

 

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

 

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**PART I**

 
| **ITEM 1** | **BUSINESS** |
|------------|--------------|

 

MGT Capital Investments, Inc(“MGT”, “we”, “us”, “the Group”, “the Company”) is a holding company.  Wecurrently have a controlling interest in our two main operating subsidiaries:Medicsight plc (“Medicsight”) and Medicexchange Limited (“Medicexchange”). We also have wholly owned subsidiaries MGT Capital Investments (UK)Limited, MGT Investments (Gibraltar) Limited, Medicexchange Inc., MedicsightNominees Limited, 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 86 million shares (55%) of the 155million issued share capital of Medicsight.

 

·                    Medicexchange and its majorityowned subsidiaries provide medical imaging professionals with a global webportal containing an online sales channel for diagnostic, treatment and surgeryplanning solutions.  This combined with a variety of relevant clinicalpapers, training materials and content gives these medical imaging professionalsaccess to information and products that they otherwise would have difficultyaccessing.  The Company holds 22.5 million shares (73%) of the 30.8million issued share capital of Medicexchange.  Medicexchange’s shares arenot publicly traded.

 

**Medicsight**

 

Medicsight plc is anindustry leader in the development of Computer-Aided Detection and imageanalysis software to assist radiologists in the early detection and diagnosisof disease.  The Company’s focuscontinues to be on developing CAD software applications and relatedtechnologies that help clinicians analyse medical images generated from CTscanners for the early detection of potential colonic polyps.

 

**Productdevelopment**

 

Medicsight’score technology is the proprietary ColonCADTM algorithm that is integrated(using application protocol interface (“API”) technology) into visualisationworkstations for radiologists to use when reviewing a patient’s colon scandata.  The CAD algorithm assists theradiologist as they search for polyps in the CT scan image data.  The radiologist uses the visualisationsoftware to review the patient’s CT scan images on the screen and search forpolyps (potentially pre-cancerous lesions on the wall of the colon).  After a full review the radiologist thenactivates the Medicsight ColonCADTM software - which immediately displays “CADmarks” on the images, drawing the radiologist’s attention to potentialpolyps.  The radiologist will then assessthe marked regions in order to make the final decision as to the presence orabsence of a lesion.

 

Clinical studies havedemonstrated that radiologists assisted by Medicsight’s ColonCADTM technologyhave a significantly higher sensitivity for the detection of polyps in CT colonographycompared to unassisted reading (i.e. traditional reading without the use ofColonCADTM).

 

A recent study, presented byDr Stuart Taylor (a consultant radiologist at London’s University CollegeHospital), at the 2008 annual Radiological Society of North America Conference,ColonCADTM demonstrated a sensitivity of 85% for colonic polyps of size 5mm andlarger, and 95% for polyps of 10mm and larger. Polyp size is the main criterion for follow-up action after a positiveCT Colonography finding; polyps in the 6mm to 9mm range are often monitoredover time whilst polyps with a diameter of 10mm or greater are recommended foroptical colonoscopy follow up and possible removal.

 

During 2008 the Groupcompleted work on ColonCAD 4.0 and formally launched this product at theEuropean Congress of Radiology in March 2009. This new releasesignificantly reduces the number of false-positive CAD marks presented to aradiologist reviewing a patient data set. This should lead to further improvements in reader performance whenassisted by the ColonCADTM software.

 

This ColonCAD 4.0 upgradewill be integrated in to our partner workstation and released into the Europeanmarket during 2009.  We believe that thisversion of ColonCADTM extends Medicsight’s position as a provider of one of theworld’s leading colon CAD software solutions. Medicsight’s ColonCADTM has been developed and validated using a largedatabase of CT scans from hospitals around the world and has been assessed inmany clinical studies, the results of which have been published inpeer-reviewed publications and presented at leading radiology conferences.

 

The MedicRead product isMedicsight’s advanced visualisation software application with integrated Colon,Lung and Liver modules.  Medicsightlaunched MedicRead 1.0 in 2008.  The nextversion of this product will be released in 2009 and will include improvedworkflow flexibility, improved 3D visualisation options, as well as theColonCAD 4.0 within the CT Colonography module.

 

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MedicRead is a flexibleoption for hospitals and clinics unable to invest large capital sums in newimage analysis infrastructure.  MedicReadcan be deployed either on a standalone basis or integrated into an existingclinical IT infrastructure (e.g. a PACS environment).  In addition to which, MedicRead will beavailable directly to end users via an easily accessible online download fromthe Medicsight portal.

 

In 2008 Medicsight beganwork on MedicServer - a server-based application which enables thecentralisation of the ColonCADTM data processing and then the distribution ofthe CAD results to workstations around the healthcare enterprise network. Wewill begin integrating MedicServer into our partner applications in 2009. Asclinical IT architecture moves towards an enterprise model and centralprocessing, and away from desk-top solutions, we believe that MedicServer willbecome a compelling offering to the market.

 

At the Radiology Society ofNorth America (“RSNA”), 95th Scientific Assembly and Annual Meeting, Medicsightunveiled its online MedicRead colon, lung and liversolution.  We plan to regulate andrelease this product in selected territories during 2009.

 

*Longer term projects*

 

Our recent focus has been on developing thecolon family. Some longer term colon related opportunities we are researchinginclude:

 

·                  Flat lesions (which are non-protruding lesions in the Colon) haverecently received much clinical interest. The Medicsight team are researching CAD technology for the detection ofthese flat lesions to compliment the existing ColonCADTM application.

 

·                  Working with leading London academic and clinical centres,Medicsight has initiated research projects to explore additional CADtechnologies in the field of optical endoscopy, with a view to thesetechnologies improving work flow and combining information from multiple datasources in real time.

 

·                  In addition to the colon CAD applications Medicsight have developedan early version of a CO2 insufflation device called MedicCO2lon.  Each patient that has aCT colon scan requires their colon to be insufflated (distended) with either CO2 gas or room air administeredprior to the acquisition of their CT colonography images.   Good quality insufflation is essential forthe acquisition of high quality images from the CT colonography examination.

 

**Regulatory approvals and submissions**

 

In November 2008Medicsight submitted the ColonCADTM 510(k) application to the US Food andDrug Administration (“FDA”) for clearance in the USA.  In December 2008 we received anAdditional Information (“AI”) letter from the FDA.  In March 2009 we submitted our responseto the FDA’s enquires.

 

In November 2007 wesubmitted our MedicRead Colon application to the Ministry of Health, Labour andWelfare (“MHLW”) regulatory authorities in Japan.  During 2008 we attended a number of meetingswith ministry officials, demonstrated the product, answered specific questionsregarding the product application and formally responded to questions from theMHLW.

 

In 2008 the Groupreceived approvals from the Chinese State Food and Drug Administration (“SFDA”)for its MedicRead Colon workstation and from the Brazilian regulatoryagency, Agencia Nacional de Vigilancia Sanitaria (“ANVISA”), for its ColonCADTMand MedicRead Colon Products. In addition to the above our product has Canadianregulatory approval from the Therapeutic Products Directorate of Health Canadaand the Australian Therapeutic Goods Administration (TGA).

 

In March 2009 the Group CE marked the latest version of the MedicsightColonCAD 4.0.

 

**Clinical Activity**

 

The Group’sClinical Development team continued their work with Medicsight’s networkof global medical luminaries.  A NorthAmerican Medical Advisory Board meeting was held in Boston in 2008.  A European Medical Advisory Board meeting washeld in January 2009.  In total 16key opinion leaders attended, giving feedback into Medicsight’s product roadmapand clinical development plan.

 

Medicsight ColonCADTM isbeing used in a number of government-funded studies looking at the performanceof CT colonography and the comparison of CT colonography with existing imagingmethods, such as barium enema examination and optical colonoscopy, both usedfor assessment of the colon and in the detection of colorectal cancer.

 

The British Special InterestGroup in Gastrointestinal and Abdominal Radiology (“SIGGAR”) completed patientrecruitment for the SIGGAR1 trial in late 2007. (SIGGAR1 is the largest UK randomised control trial to date and comparesCTC with two other widely-used imaging approaches, optical colonoscopy andbarium enema).  Medicsight’s ColonCADTM isthe only CAD product to be involved in this trial. The study outcome data wasreviewed in 2008, with the results currently undergoing final statisticalanalysis and expected to be announced later this year.

 

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ColonCADTM has also been usedin the first CT colonography colorectal cancer screening programme undertakenin Japan. The screening trial is ongoing at the National Cancer Centre inTokyo. ColonCADTM has been used on a number of patients within the screeningprogramme and the results of this assessment are currently undergoing reviewbetween Japanese and UK clinicians with the expectation that results will bepresented later in 2009.

 

The Medicsight ColonCADTMsoftware is also integrated into visualisation software used to read CTcolonography examinations for the French STIC trial (“Sciences et Technologiesde l’Information et de la Communication”, “Information and CommunicationScience and Technology”). The trial, undertaken across more than 20 sites inFrance, is a prospective multi-center evaluation of CTC as a screeningtechnique, including the use of CAD for examination interpretation. The studywill also assess the cost effectiveness of CTC screening. Recruitment hascontinued throughout 2008 towards the target of 1,500 trial participants.

 

In 2008 we signed anexclusive CAD clinical research agreement with leading US CT Colonographyradiologists, Dr. Perry Pickhardt and Dr. David Kim, from the Universityof Wisconsin Medical School, Madison, Wisconsin. Dr. Pickhardt, AssociateProfessor of Radiology and Dr Kim along with The University of Wisconsin werethe first group to establish a third-party reimbursed CT colonographycolorectal cancer screening programme in 2004.  Since then they have bothplayed an instrumental role in building the clinical evidence base that hasproven the comparable effectiveness of CTC for the detection of colorectalneoplasia within an asymptomatic population in relation to Optical Colonoscopy. A key milestone recently achieved, partly as a result of their research,was the release of the American Cancer Society 2008 Consensus Guidelines thatfocus on colon cancer prevention and for the first time have recommended CTC beprovided every five years for adults aged 50 years and over.  Under this research program Drs Pickhardt andKim will undertake a research study evaluating the standalone performance ofMedicsight’s latest ColonCAD 4.0 in comparison to experienced radiologists indetecting colorectal polyps.

 

Medicsight’s productscontinue to have a profile at major international radiology conferences andthroughout 2008 the Group exhibited its ColonCADTM and MedicRead Colonapplications at the European Congress of Radiology (“ECR”) annual meeting inVienna in March, the annual meeting of Japanese Radiological Society (“JRS”) inApril, the European Society of Gastrointestinal and Abdominal Radiology (“ESGAR”)in Istanbul in June, the Japanese Digestive Disease Week (“JDDW”) congress in October 2008,the Asia Oceanic Congress of Radiology (“AOCR”) in Seoul in October andthe Radiological Society of North America (“RSNA”) annual meeting in Chicago inNovember; as well as exhibiting at other international radiologyconferences.  Scientific researchfeaturing Medicsight’s ColonCADTM application was also presented at the ECR,ESGAR and RSNA meetings.

 

Through 2008 Medicsightcontinued its support of a number of international CT colonography trainingworkshops. Workshops were held in Victoria, BC, Canada in May and Chicago,Illinois in August. Medicsight once again supported the two annual ESGAR CTCworkshops — in Vigo, Spain and Berlin, Germany during 2008. All these workshopstrain radiologists to interpret CTC images using the latest visualisation andCAD technology and are fundamental to the increasing acceptance andimplementation of CT colonography as a routine imaging examination forinvestigation of the colon.

 

**Commercial progress**

 

Medicsight’s primary routeto market is via partnerships with global advance visualisation companies, PACSsuppliers and other OEM’s.

 

In February 2008 Medicsightsigned a preliminary agreement with the System Integration division of ToshibaMedical Systems Corporation for the resale of its MedicRead Colon and ColonCADTMsoftware solutions throughout Japan. This collaboration consists of a threeyear clinical programme which will deliver eight clinical studies to supportboth the regulatory and sales and marketing efforts of Medicsight and Toshiba.

 

In April 2008 Medicsightannounced new global marketing partnership with INFINITT, and successfullydemonstrated the integration of Medicsight’s ColonCADTM software and InfinittXelis Colon application at major tradeshows in Korea and USA.

 

In November 2008, Medicsightsigned a global partnership agreement with Ziosoft Inc for the integration ofMedicsight ColonCADTM API within the Ziosoft 3D advanced visualization platformand distribution through the Ziosoft network.

 

These partnership agreementsare in addition to our existing agreements with Vital Images Inc., TeraReconInc., Viatronix Inc. and Barco NV (who have recently been acquired by Toshiba),3Mensio BV and Intrasense SAS.

 

We have commercialdiscussions in progress with other global partners that we expect to completein 2009.

 

**Revenue andGrowth Strategy**

 

While still limited, revenues aregrowing — we recorded $191 in 2008 compared to $41 in 2007. Medicsight ended2008 with net assets of $25,302 including $26,624 of cash and short termdeposits.  At various points during theyear we have invested our surplus cash in highly liquid, blue chip marketablesecurities and foreign currencies.  At December31, 2008 all of our liquid assets were held as short term cash balances, mainlyin sterling. Post year end, we continue to hold our surplus cash on short termdeposit.

 

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In early 2009 the boardcompleted a review of the product development roadmap, the status of regulatoryapprovals and partner integration activities, and initiated a costrestructuring program to drive cashflow savings without jeopardizing longerterm plans.

 

As part of this process andto concentrate on restructuring the MGT Capital Investments, Inc. group ofcompanies, Medicsight restructured its board. Tim Paterson-Brown stepped downas Executive Chairman but remains on the board as a Non-Executive Director. DavidSumner was promoted to the role of Executive Chairman and Allan Rowley,previously Chief Financial Officer was promoted to Chief Executive Officer.Troy Robinson, previously Group Financial Controller was promoted to ChiefFinancial Officer.

 

**Competition**

 

The Company’s competitorscan be divided into two categories: (a) MDCT scanner manufacturers such asGE, Hitachi, Philips, Siemens and Toshiba; and (b) independent CADsoftware providers.

 

A number of MDCTmanufacturers offer CAD solutions that are available in European markets,however currently the only FDA approved CAD is Siemens Lung CAD.

 

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

 

·             im3D (Italy) — have developed aColon CAD product that is CE certified but not FDA cleared;

 

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

 

·             Mevis Medical Solutions AG(Germany) — have a Lung CAD product that is FDA approved; and

 

·             iCAD Inc. (USA) — have developeda Colon CAD product but not FDA cleared.

 

**Patents andTrademarks**

 

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 has filed patentapplications in the United Kingdom, the United States, the European Patent Office,Japan, South Korea, Australia, Canada, and under the International PatentCooperation Treaty (which currently has 128 member countries) covering our coretechnologies and their applications.  We have recently filed new patentapplications covering technology of both Medicsight CAD and intend to continuefiling new applications in the future.  Two patents have been granted inthe US covering aspects of Medicsight CAD technology.  Although prior artsearches have been carried out, we cannot provide assurance that any or all ofthe pending patents will be granted or that they will not be challenged, orthat rights granted to us will actually provide us with advantage over ourcompetitors. Medicsight actively reviews third party patents and is notcurrently aware of any that our products will infringe.

 

“Medicsight” ® , “Medicsight Colon Screen” ® , “Medicsight Lung Screen” ® , “Medicsight Colon CAR” ® , “Medicsight Lung CAR” ® , “Medicsight Computer Assisted Reader” ® , “Medicsight See More, Save More” ®  and “Lung CAR” ®  have been registered as trademarks inthe United Kingdom.  “Medicsight” ®   has also been registered in the United States, the EuropeanUnion, Australia, China and a number of other countries.  “MedicRead” ®  has been registered as a trademark inthe European Union.  These trademarks are important to the corporateidentity in connection with Medicsight CAD.

 

Failure to registerappropriate patents, copyrights or trademarks in any jurisdiction may impedeour ability to create brand awareness in our products, result in expenses inpursuing our rights with respect to our intellectual property, or result inlost revenues due to intellectual property disputes. Where we may be requiredto purchase licenses from sellers with prior rights in any country, we cannotassure you that we will be able to do so at a commercially acceptable cost.

 

**Medicsight’sadmission to the AIM Market of the London Stock Exchange**

 

On June 21, 2007,Medicsight completed its initial public offering on the AIM Market of the LondonStock Exchange.  29 million new shares were issued to institutional andother 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 (arelated party).  £5,500 ($11,100) of the net proceeds were used to repaydebt (between Medicsight and the Company).

 

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

 

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

 

**MedicexchangeLimited**

 

Medicexchange is an embryonic global imagingportal focusing on the medical vision sector that owns and operates twowebsites, Medicexchange.com aimed at North America and Europe and Maydeal.comin China (acquired in April 2008).

 

Medicexchange has endeavored to buildtraffic, registered users and revenues from North America, Europe and China.

 

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

 

Management are currently reviewing optionsfor the Medicexchange business.

 

**Other investments**

 

In addition to Medicsight and Medicexchangewe have small investments in XShares LLC, Hipcricket Inc and Eurindia Limited.Due to general economic conditions all three of these investments have beenimpaired during 2008 (See note 5).  Weare currently reviewing our strategy for these investments.

 

**Employees strategy**

 

As of December 31, 2008the Company and its subsidiaries had 96 employees, all of whom were full-timeemployees.  Our employees are not part of a union.

 

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**FinancialInformation**

 

Note 16 to the ConsolidatedFinancial Statements provides information on the Company’s segment reporting.

 

**General**

 

MGT was originallyincorporated as a Utah corporation in 1977 and was re-incorporated in Delawarein 2000.  At December 31, 2008 the Company’s authorized share capitalwas 75,000,000 shares of common stock, par value of $0.001.

 

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

 

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

 

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

 

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

 

**Availableinformation**

 

We will provide, uponrequest and free of charge, paper copies of our annual report on Form 10-K,quarterly reports on Form 10-Q and current reports on Form 8-K,including any amendments to the foregoing reports, as soon as is reasonablypracticable after such material is electronically filed with, or furnished to,the Securities and Exchange Commission.  These materials along with ourCode of Business Conduct and Ethics are also available through our corporatewebsite at www.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 ofthe Public Reference Room can be obtained by calling the SEC at1-800-SEC-0330.  The public may also download these materials from theSecurities and Exchange Commission’s website at http://www.sec.gov.  Anyamendments to, and waivers of, our Code of Business Conduct and Ethics will beposted on our corporate website.

 

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| **ITEM 1A.** | **RISK FACTORS** |
|--------------|------------------|

 

Discussionof our business and operations included in this annual report on Form 10-Kshould be read together with the risk factors set forth below. They describevarious risks and uncertainties to which we are or may become subject. Theserisks and uncertainties, together with other factors described elsewhere inthis report, have the potential to affect our business, financial condition, resultsof operations, cash flows, strategies or prospects in a material and adversemanner.  New risks may emerge at anytime, and we cannot predict those risks or estimate the extent to which theymay affect our financial performance. Each of the risks described below couldadversely impact the value of our securities. These statements, like all statements in this report, speak only as ofthe date of this report (unless another date is indicated), and we undertake noobligation to update or revise the statements in light of future developments.

 

Wecannot assure you that MGT will be successful in commercializing any of theGroup’s products and, in particular, the Medicsight products or theMedicexchange portal, or if any of the products or the portal are commercialized,that they will prove to be profitable for the Company.

 

MGThas only had a limited operating history and has just commenced generatingrevenue from operations upon which an evaluation of its prospects can be made.MGT’s prospects 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 if at all.

 

MGThas identified a number of specific risk areas that may affect MGT’s operationsand results in the future:

 

**Companyspecific risks**

 

*We may be unable to develop our existing or future technology.*

 

OurMedicsight CAD system may not deliver the levels of accuracy and reliabilityneeded to make it a successful product in the market place.  Additionally, the development of suchaccuracy and reliability may be indefinitely delayed or may never be achieved.  Failure to develop this or other technologycould have an adverse material effect on the Company’s business, financialcondition, results of operations and future prospects.

 

*The market for our technology may be slow to develop, if at all.*

 

Themarket for the Medicsight CAD products and Medicexchange.com may be slower todevelop or smaller than estimated or it may be more difficult to build themarket than anticipated. The medical community may resist Medicsight CAD andthe Medicexchange.com products or be slower to accept them than we anticipate.Revenues from Medicsight CAD and Medicexchange.com may be delayed or costs maybe higher than anticipated which may result in the Company requiring additionalfunding.  If any of these situations wereto occur this could have a material adverse effect on the Company’s business,financial condition, results of operations and future prospects.

 

*We may be slow to receive required regulatory approvals from respectivegovernment regulators, if we receive them at all.*

 

TheMedicsight CAD system is subject to regulatory requirements in the UnitedStates of America, Europe, Japan, China and our other targeted markets.Necessary regulatory approvals may not be obtained or may be delayed.  We may incur substantial additional cost inobtaining regulatory

 

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approvals forour products in our targeted markets. The failure to obtain these approvals and/or the associated costs couldhave a material adverse effect on the Company’s business, financial condition,results of operations and future prospects.

 

*The medical imaging market we operate in is highly competitive.*

 

Thereare a number of groups and organizations, such as software companies in themedical imaging field, MDCT scanner manufacturers, screening companies andother healthcare providers that may develop a competitive offering to theMedicsight CAD products and Medicexchange.com. In addition these competitors may have significantly greater resourcesthan MGT. We cannot make any assurance that they will not attempt to developsuch offerings, that they will not be successful in developing such offeringsor that any offerings they may develop will not have a competitive edge overMedicsight CAD products and Medicexchange.com. Should a superior offeringmarket come to market, this could have a material adverse effect on theCompany’s business, financial condition, results of operations and futureprospects.

 

*We are a developing company with limited revenues from operations.*

 

MGThas incurred significant operating losses since inception and has only recentlycommenced generating revenues from operations. As a result, MGT has generatednegative cash flows from operations and has an accumulated deficit at December31, 2008. MGT is operating in a developing industry based on new technology andits primary source of funds to date has been through the issuance of securitiesand borrowed funds. There can be no assurance that management’s efforts will besuccessful or that the products MGT develops and markets will be accepted byconsumers.  If our products areultimately unsuccessful in the market, this could have a material adverse effecton the Company’s business, financial condition, results of operations andfuture prospects.

 

*Our current corporate structure may place us in an unfavourable marketposition vis-à-vis our competitors.*

 

MGT’scorporate structure may make it more difficult or costly to take certainactions. MGT conducts its business through: (a) Medicsight, a UK public companywhich is 55% owned by the Company, and through Medicsight’s subsidiaries in theUnited Kingdom, the United States, Japan and Gibraltar and; (b) theMedicexchange subsidiaries, in which MGT’s holdings range between 75% and100%.  Although MGT, Medicsight andMedicexchange share some directors and management, they are required to complywith corporate governance and other laws and rules applicable to publiccompanies in the United Kingdom and the United States.  Should MGT propose to take any action, suchas a transfer or allocation of assets or liabilities between MGT and itssubsidiaries, MGT would have to take into consideration the potentially conflictinginterests of MGT’s stockholders and the minority stockholders.  This may deter MGT from taking such actionsthat might otherwise be in the best interest of MGT or cause MGT to incuradditional costs in taking such actions. The subsidiary companies would not beable to pay dividends or make other distributions of profits or assets to MGTwithout making pro-rata payments or distributions to the respective minoritystockholders.  Although neither thesubsidiary companies nor MGT has plans to pay dividends or make distributionsto its shareholders, MGT’s corporate structure may deter its subsidiaries fromdoing so in the future.  If at any pointwe are ultimately unable to resolve any of these conflicts, this could have amaterial adverse effect on the Company’s business, financial condition, resultsof operations and future prospects.

 

*The protection of our intellectual property may be uncertain, and wemay face possible claims of others.*

 

Althoughwe have received patents and have filed patent applications with respect tocertain aspects of our technology, we generally do not rely on patentprotection with respect to our products and technologies. Instead, we relyprimarily on a combination of trade secret and copyright law, employee andthird-party nondisclosure agreements and other protective measures to protect

 

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intellectualproperty rights pertaining to our products and technologies. Such measures maynot provide meaningful protection of our trade secrets, know-how or otherintellectual property in the event of any unauthorized use, misappropriation ordisclosure. Others may independently develop similar technologies or duplicateour technologies. In addition, to the extent that we apply for any patents,such applications may not result in issued patents or, if issued, such patentsmay not be valid or of value. Third parties could, in the future, assertinfringement or misappropriation claims against us with respect to our currentor future products and technologies, or we may need to assert claims ofinfringement against third parties. Any infringement or misappropriation claimby us or against us could place significant strain on our financial resources,divert management’s attention from our business and harm our reputation. Thecosts of prosecuting or defending an intellectual property claim could besubstantial and could adversely affect our business, even if we are ultimatelysuccessful in prosecuting or defending any such claims. If our products ortechnologies are found to infringe the rights of a third party, we could berequired to pay significant damages or license fees or cease production, any ofwhich could have a material adverse effect on our business.  If a claim is brought against us, or weultimately prove unsuccessful on the claims on our merits, this could have amaterial adverse effect on the Company’s business, financial condition, resultsof operations and future prospects.

 

*We may fail to attract and retain qualified personnel.*

 

Weexpect to rapidly expand our operations and grow our sales, research anddevelopment and administrative operations. This expansion is expected to placea significant strain on our management and will require hiring a significantnumber of qualified personnel. Accordingly, recruiting and retaining suchpersonnel in the future will be critical to our success. There is intensecompetition from other companies, research and academic institutions,government entities and other organizations for qualified personnel in theareas of our activities. If we fail to identify, attract, retain and motivatethese highly skilled personnel, we may be unable to continue our marketing anddevelopment activities, and this could have a material adverse effect on theCompany’s business, financial condition, results of operations and futureprospects.

 

*If we do not effectively manage changes in our business, these changescould place a significant strain on our management and operations.*

 

 Our ability to grow successfully requires aneffective planning and management process. The expansion and growth of ourbusiness could place a significant strain on our management systems,infrastructure and other resources. To manage our growth successfully, we mustcontinue to improve and expand our systems and infrastructure in a timely andefficient manner. Our controls, systems, procedures and resources may not beadequate to support a changing and growing company. If our management fails to respondeffectively to changes and growth in our business, including acquisitions, thiscould have a material adverse effect on the Company’s business, financialcondition, results of operations and future prospects.

 

*We face risks arising from foreign currency exchange.*

 

AsMGT’s main operating currency is UK sterling and its financial statements arereported in US Dollars, MGT’s assets and liabilities and its results ofoperations are affected by movements in the $:£ exchange rate.  Should there be large or unexpectedfluctuations in the $:£ exchange rate, this could have a material effect on theCompany’s business, financial condition, results of operations and futureprospects.  The Company currently doesnot engage in hedging activities to minimize the effect of adverse movements inthe exchange rate.

 

*We may not be able to quickly realize our investments at the value atwhich we have recorded them.*

 

MGTholds a number of investments held at both at market value and at cost.  There is a risk that we may not be able toswiftly realize these investments at the fair value or cost at which they arerecorded in the financial statements.  Ifwe are unable to quickly realize these investments at prices we

 

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believe to befair, this could have a material effect on the Company’s business, financialcondition, results of operations and future prospects.

 

**Generalmarket risks**

 

*We may not be able to access credit.*

 

Weface the risk that we may not be able to access credit, either from lenders orsuppliers, or have facilities reduced or terminated.  Failure to access credit from any of thesesources could have a material adverse effect on the Company’s business,financial condition, results of operations and future prospects.

 

*Recent global economic trends could adversely affect our business,liquidity and financial results.*

 

Recentglobal economic conditions, including disruption of financial markets, couldadversely affect us, primarily through limiting our access to capital anddisrupting our clients’ businesses.  Inaddition, continuation or worsening of general market conditions in economiesimportant to our businesses may adversely affect our clients’ level of spendingand ability to obtain financing, leading to us being unable to generate thelevels of sales that we require.  Currentand continued disruption of financial markets could have a material adverseeffect on the Company’s business, financial condition, results of operationsand future prospects.

 

*We may not be able to maintain effective internal controls.*

 

Ifwe fail to maintain the adequacy of our internal accounting controls, as suchstandards are modified, supplemented or amended from time to time, we may notbe able to ensure that we can conclude on an ongoing basis that we haveeffective internal controls over financial reporting in accordance with Section404. Failure to achieve and maintain an effective internal control environmentcould cause us to face regulatory action and also cause investors to loseconfidence in our reported financial information, either of which could have a materialadverse effect on the Company’s business, financial condition, results ofoperations and future prospects.

 

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| **ITEM 1B.** | **UNRESOLVED STAFF COMMENTS** |
|--------------|-------------------------------|

 

None.

 
| **ITEM 2** | **PROPERTIES** |
|------------|----------------|

 

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

 
| **ITEM 3****** | **LEGAL PROCEEDINGS** |
|----------------|-----------------------|

 

The Company is not engagedin any material legal proceedings at this time nor are we aware of any pendinglegal proceedings.

 
| **ITEM 4****** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS** |
|----------------|---------------------------------------------------------|

 

There were no matterssubmitted to the vote of the Company’s security holders during the fourthquarter of the fiscal year ended December 31, 2008.

 

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**PART II**

 
| **ITEM 5****** | **MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED  STOCKHOLDER MATTERS AND ISSUER’S PURCHASES OF EQUITY SECURITIES.** |
|----------------|--------------------------------------------------------------------------------------------------------------------------------|

 

**MarketInformation**

 

The Company’s common stockis traded on the NYSE AMEX stock exchange (www.nyse.com) under the symbol “MGT”. The following table sets forth the range of high and low sales prices per shareof our common stock for each quarterly period during 2008 and 2007.

 
| ** **     | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------|------------|----------|------------|---------|------------|
|           |       |     |       |    |       |
| **2008**       |       |     |       |    |       |
| Fourth Quarter |       | $        | 1.60       |    | $          | 0.34 |   |
| Third Quarter  |       | 2.10     |       | 1.12    |       |
| Second Quarter |       | 2.80     |       | 1.55    |       |
| First Quarter  |       | 3.78     |       | 2.07    |       |
|           |       |     |       |    |       |
| **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 |   |

 

On March 27, 2009 theCompany’s common stock closed on the NYSE Alternext US stock exchange at $0.50per share.

 

As of March 27, 2009there were 737 holders of record of the Company’s common stock.

 

**Dividends**

 

The Company has neverdeclared or paid cash dividends on its common stock. The Company currentlyintends to retain earnings, if any, to support its growth strategy and does notanticipate paying cash dividends in the foreseeable future. Payment of futuredividends, if any, will be at the discretion of the Company’s Board ofDirectors after taking into account various factors, including the Company’sfinancial condition, operating results, current and anticipated cash needs andplans for expansion.

 

**RecentSales of Unregistered Securities**

 

None.

 

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| **ITEM 6****** | **SELECTED FINANCIAL DATA.** |
|----------------|------------------------------|

 

The following table shouldbe read in conjunction with statements and notes thereto appearing elsewhere inthis Form 10-K.

 
| ** **                                        | ** ** | **2008(1)** | ** ** | **2007(1)** | ** ** | **2006 (1)** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------|------------|-------------|------------|-------------|------------|-------------------|------------|----------|------------|----------|------------|
|                                              |       |        |       |        |       |              |       |     |       |     |       |
| Revenues - continuing operations                  |       | $           | 354        |        | $          | 89                |       | $        | —     |     | $          | — |   | $ | — |   |
| Gross margin - continuing operations              |       | $           | 238        |        | $          | 54                |       | $        | —     |     | $          | — |   | $ | — |   |
|                                              |       |        |       |        |       |              |       |     |       |     |       |
| Loss from continuing operations                   |       | (20,001     | )          | (13,800     | )          | (14,935           | )          | (10,738  | )          | (12,885  | )          |
| Loss from discontinued operations                 |       | —      |       | —      |       | —            |       | (1,478   | )          | (2,145   | )          |
|                                              |       |        |       |        |       |              |       |     |       |     |       |
| Net loss (1)                                      |       | (20,001     | )          | (13,800     | )          | (14,935           | )          | (12,216  | )          | (15,030  | )          |
|                                              |       |        |       |        |       |              |       |     |       |     |       |
| Loss per share from continuing operations         |       | (0.60       | )          | (0.35       | )          | (0.39             | )          | (0.31    | )          | (0.42    | )          |
|                                              |       |        |       |        |       |              |       |     |       |     |       |
| Dividends declared per common share               |       | —      |       | —      |       | —            |       | —   |       | —   |       |
|                                              |       |        |       |        |       |              |       |     |       |     |       |
| Total Assets                                      |       | 55,451      |       | 109,020     |       | 38,469            |       | 24,486   |       | 21,041   |       |
|                                              |       |        |       |        |       |              |       |     |       |     |       |
| Long term obligations                             |       | —      |       | —      |       | —            |       | 6        |       | 223      |       |
|                                              |       |        |       |        |       |              |       |     |       |     |       |
| Cash, cash equivalents and marketable  securities |       | 40,178      |       | 94,592      |       | 24,735            |       | 11,249   |       | 5,276    |       |
| Current assets                                    |       | 41,212      |       | 95,319      |       | 25,306            |       | 11,867   |       | 6,515    |       |
| Current liabilities                               |       | (4,340      | )          | (4,420      | )          | (3,378            | )          | (2,746   | )          | (2,353   | )          |
| Working capital surplus (deficit)                 |       | $           | 36,872     |        | $          | 90,899            |       | $        | 21,928     |     | $          | 9,121 |   | $ | 4,162 |   |

 

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(1)           Includes equity-basedcompensation of $3,932 for Fiscal 2008, $1,541 for Fiscal 2007 and $440 forFiscal 2006.

 
| **ITEM 7****** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS.** |
|----------------|--------------------------------------------------------------------------------------------------|

 

**ExecutiveSummary**

 

MGT Capital Investments Inc.achieved the following results in 2008:

 

·             Revenue from license and othersales increased 298% to $354 compared to $89 in 2007.

 

·             Gross margin increased 341% to $238compared to $54 in 2007.

 

·             Operating expenses increased 35%to $29,731 compared to $21,977 in 2007.

 

·             Net loss increased 45% to $20,001and resulted in a loss per share of $0.60 compared to a net loss of $13,800 andnet loss per share of $0.35 in 2007.

 

While remaining small invalue, revenue has increased by a significant percentage. Primarily throughsales of Medicsight products we expect revenue and therefore margin to continueto grow.

 

Operating costs haveincreased primarily as a result of increased spend on commercial operations inMedicsight as we try to develop market opportunities in regions where we haveregulatory approvals pending and try to drive increased sales where approvalsare already granted. Costs have also been impacted by increased legal and professionalfees in MGT Capital Investments, Inc. attributable to fees paid for a sharebuy-back program and tax advice.

 

Our balance sheet remainsstrong with cash, cash equivalents and marketable securities of $40,178compared to $94,592 in 2007. The movement is mainly attributable to thepurchase of our own and subsidiary company stock ($20,163), cash used inoperating activities ($20,039), cash used in investing activities ($3,772) andthe effects of exchange rates ($10,105).

 

As of the date of the filing of this report, we haveconcluded that our current method of valuing our goodwill is going to beimpacted by the significant volatility in financial markets during the firstquarter of 2009, which adversely affected the share price of our subsidiaryMedicsight shareholding.  As a result ofthis decline in market value, we could be required to take a charge forimpairment against goodwill in 2009.

 

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**Criticalaccounting policies and estimates**

 

Our discussion and analysisof financial condition and results of operations are based upon ourconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States of America. Thenotes to the consolidated financial statements contained in this Annual Reportdescribe our significant accounting policies used in the preparation of theconsolidated financial statements. The preparation of these financialstatements requires us to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting periods. Actual resultscould differ from those estimates. We continually evaluate our criticalaccounting policies and estimates.

 

We believe the criticalaccounting policies listed below reflect significant judgments, estimates andassumptions used in the preparation 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 pay regardlessof receiving payment from the end user, and all other revenue recognitioncriteria are met, license revenue from Resellers is recognized upon shipment ofits 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.

 

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 evidenceof an arrangement exists, services have been rendered, the selling price isfixed or determinable and collectability is reasonable assured.  Deferredrevenue is recorded when payments are received in advance of performing ourservice obligations.

 

*Goodwill*

 

We account for goodwill inaccordance with the provisions of SFAS No. 142, “Goodwill and OtherIntangible Assets.”  Under SFAS No. 142, goodwill and intangibleassets with indefinite lives are reviewed for impairment annually or morefrequently if events or changes in circumstances indicate that the asset mightbe impaired. The first step of the goodwill impairment test, used to identifypotential impairment, 

 

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compares the fair value of areporting unit with its carrying amount, including goodwill. We compare thebook value to the market value (market capitalization plus a control premium)for the reporting unit. If the market value exceeds the book value, goodwill isconsidered not impaired, and thus the second step of the impairment test is notnecessary. If our book value exceeds the market value, the second step of thegoodwill impairment test is performed to measure the amount of impairment loss,if any. The second step of the goodwill impairment test, used to measure theamount of impairment loss, compares the implied fair value of the goodwill withthe book value of the goodwill. If the carrying value of the goodwill exceedsthe implied fair value of the goodwill, an impairment loss would be recognizedin an amount equal to the excess. Any loss recognized cannot exceed thecarrying amount of goodwill. After a goodwill impairment loss is recognized,the adjusted carrying amount of goodwill is its new accounting basis.Subsequent reversal of a previously recognized goodwill impairment loss isprohibited once the measurement of that loss is completed. We completed theannual goodwill impairment assessment as of December 31, 2008, in which noimpairment was identified. Goodwill was $12,157 as of December 31, 2008.

 

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

 

*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.

 

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 theappropriate term. The dividend yield is assumed to be zero as we have neverpaid or declared any cash dividends on our common stock and do not intend topay dividends on our common stock in the foreseeable future. The expectedforfeiture rate is estimated based on historical experience.

 

Determining the appropriatefair value model and calculating the fair value of equity-based payment awardsrequire the input of the subjective assumptions described above. Theassumptions used in calculating the fair value of equity-based payment awardsrepresent management’s best estimates, which involve inherent uncertainties andthe application of management judgment. As a result, if factors change and weuse different assumptions, our equity-based compensation expense could bematerially different in the future. In addition, we are required to estimatethe expected forfeiture rate and recognize expense only for those sharesexpected to vest. If our actual forfeiture rate is materially different fromour estimate, the equity-based compensation expense could be significantlydifferent from what we have recorded in the current period.

 

*Researchand development*

 

Costs incurred in connectionwith the development of software products that are intended for sale areaccounted for in accordance with Statement of Financial Accounting Standards No. 86,“Accounting for the Costs of Computer Software to be Sold, Leased, or OtherwiseMarketed”. Costs incurred prior to technological feasibility being establishedfor the product are expensed as incurred. Technological feasibility isestablished upon completion of a detail program design or, in its absence,completion of a working model. Thereafter, all software production costs arecapitalized and subsequently reported at the lower of unamortized cost or netrealizable value. Capitalized costs are amortized based on current and futurerevenue for each product with an annual minimum equal to the straight-lineamortization over the remaining estimated economic life of the product.Amortization commences when the product is available for general release tocustomers.

 

The Company concluded thatcapitalizing such expenditures on completion of a working model wasinappropriate because the Company did not incur any material softwareproduction costs and therefore has decided to expense all research anddevelopment costs. The Company’s research and development costs are comprisedof staff, consultancy and other costs expensed on the Medicsight products.

 

*Fairvalue of financial instruments*

* *

On January 1, 2008 theCompany adopted the provisions of SFAS No. 157, “Fair ValueMeasurements,” for financial assets and financial liabilities.  Applying fair value measurements to ourfinancial instruments requires management’s judgement, especially when usingLevel 2 and Level 3 inputs as defined in SFAS 157’s fair value hierarchy.

 

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

 

The Company evaluates thecarrying value of long-lived assets for impairment whenever events or changesin circumstances indicate that the carrying amount of an asset may not berecoverable. The Company’s assessment for impairment of an asset involvesestimating the undiscounted cash flows expected to result from use of the assetand its eventual disposition. An impairment loss recognized is measured as theamount by which the carrying amount of the asset exceeds the fair value of theasset.

 

Calculating the estimatedfair value of an asset involves significant judgments and a variety ofassumptions. Judgments that the Company makes concerning the value of itsintangible assets include assessing time and cost involved for development,time to market, and risks of 

 

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regulatory failure orobsolescence (due to market, environmental or technological advances forexample). For calculating fair value based on discounted cash flows, weforecast future operating results and future cash flows, which includelong-term forecasts of revenue growth, gross margins and capital expenditures.

 

An impairment analysis wasperformed as of December 31, 2008 and the Company decided to impair itsinvestment in Eurindia to the value of the expected liquidating dividend.  This resulted in an impairment loss of $183for the year ending December 31, 2008. 

The Company also impairedits holding in XShares LLC, resulting in an impairment loss of $2,400.

 

**Resultsof Operations**

 

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

 

*Revenue &Margin*

 

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

 

Medicsight has sold licencesprimarily in Europe where it has regulatory approvals.

 

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

 

*OperatingExpenses*

 

The Company’s research anddevelopment expenses for Fiscal 2008 were $3,665 compared to $2,670 for Fiscal2007. The Company’s research and development costs were comprised of staff,staff related consultancy, stock options and product development software costsexpensed on the research and development of Medicsight’s products.

 

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

 

People related costsincreased by $2,223 (21%) as we continued to expand our operations. InMedicsight the commercial team has increased in size in Europe, Japan and seenthe full year impact of the US team that started in the fourth quarter of2007.  In addition, we have seen theeffects of exchange rate depreciation on both the dollar and the Yen.

 

Bonus payments reduced from$2,190 to $1,286 in the year as the prior year included an IPO bonus notrepeated in 2008.  In addition, executiveand year end bonus payments were lower.

 

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

 

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

 

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

 

Software development andrelated costs increased $883 (139%) as we signed agreements to develop theMedicRead products and perform research and development with University CollegeLondon.

 

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

 

*IncomeTax*

 

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

 

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*Netloss and net loss per share*

 

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

 

*Operationalcurrency*

 

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

 

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

 

*Revenue &Margin*

 

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

 

Medicexchange increased thelevel of equipment sales in China with revenue of $35 compared to $nil in 2007.Revenue from advertising on its website also increased to $13 from $nil in2007.

 

*Operating Expenses*

 

The Company’s research anddevelopment expenses for Fiscal 2007 were $2,670 as compared to $2,870 forFiscal 2006.  The Company’s research and development costs were comprisedof staff, staff related, consultancy, stock options, and product developmentsoftware costs expensed on the research and development of Medicsights PLCs’sproducts.

 

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

 

Bonus payments contributedsignificantly to the increase in people costs. Medicsight employees received abonus on completion of the IPO. In addition all employees received a year endbonus.

 

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

 

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

 

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

 

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

 

Marketing, conferences andpublic relations remained in line with the prior year as a result of continuingto supporting our Medicsight partners, promoting our international presence andbuilding the Medicexchange business and brand.

 

*IncomeTax*

 

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

 

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*Netloss and net loss per share*

 

Net loss was $13,800 forFiscal 2007 compared to a net loss of $14,935 for Fiscal 2006. Net loss pershare for Fiscal 2007 was $0.35 (based on weighted average shares outstandingof 38,900,383), compared to $0.39 for Fiscal 2006 (based on weighted averageshares outstanding of 38,092,965).

 

*Operationalcurrency*

 

The Company’s main operatingcurrency is UK sterling (£). Its results of operations are affected by changesin the $: £ rates used to translate the operational result. For Fiscal 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%.

 

**Operatingresults by business segment**

 

Weconsider MGT’s business segments to be those of its two operating subsidiaries,Medicsight and Medicexchange.

 

**Medicsight**

 
| ** **                                                 | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                       |       |     |       |     |       |     |       |
| Revenue                                                    |       | $        | 191        |     | $          | 41       |       | $ | — |   |
| Operating expenses                                         |       | 20,790   |       | 14,970   |       | 9,517    |       |
| Research and development (included in  operating expenses) |       | 3,665    |       | 2,670    |       | 2,870    |       |
| Operating loss                                             |       | (20,599  | )          | (14,930  | )          | (9,517   | )          |
| Interest and other income                                  |       | 4,937    |       | 1,226    |       | 117      |       |
| Depreciation                                               |       | 269      |       | 190      |       | 251      |       |
| Stock based compensation                                   |       | 2,379    |       | 1,349    |       | 403      |       |
| Cash                                                       |       | 26,624   |       | 50,398   |       | 12,076   |       |
| Net assets                                                 |       |     | 25,302     |     | 48,825     |     |       | 350 |   |
|                                                            |            |          |            |          |            |          |            |  |  |  |

 

Medicsight revenueimproved in Fiscal 2008 due to increased interest in our ColonCADTM product as it develops traction in the market.  Whilst we have regulatory approval in anumber of territories, our revenues have been generated almost entirely in theEU.  We expect European revenues tocontinue to improve, but believe that the US and Japanese markets offer ahigher revenue opportunities once regulatory approval is granted.  Support and maintenance revenue is currentlylow, but we intend to build this as a revenue stream.

 

Our ColonCADTM product has avery high margin, though revenue from MedicRead and Insufflator products in thefuture will incur a more significant cost of sales.

 

Included in operating expensesare costs that we allocate to research and development.  This is made up of staff, staffrelated consultancy, stock options and product development software costsexpensed on the research and development of Medicsight’s products.  These have increasedin Fiscal 2008 compared to the previous two years due to expenditure ondeveloping a software interface for one of our products and a joint researchproject with University College London. We are currently reviewing our research and development expenditure toensure that it retains a commercial focus.

 

The following table shows someof Medicsight’s larger expense categories in operating costs.

 
| ** **               | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|----------|------------|
|                     |       |     |       |     |       |     |       |
| Salaries                 |       | $        | 7,490      |     | $          | 4,746    |       | $ | 3,893 |   |
| Bonus                    |       | 954      |       | 1,506    |       | 23       |       |
| Commercial and marketing |       | 2,362    |       | 1,836    |       | 944      |       |
| Travel and accommodation |       | 1,374    |       | 1,080    |       | 234      |       |
| Professional fees        |       |     | 921        |     | 986        |     |       | 586 |   |
|                          |            |          |            |          |            |          |            |  |  |  |

 

Incremental headcount is themain reason for the increase in operating costs.  We have recruited staff in our commercial,marketing and business development departments in 2008.  Fiscal 2008 also includes a full year ofsalaries for the staff in the US and Japan that were employed towards the endof 2007.  In 2007 we paid an IPO bonus tocertain Medicsight employees that was not repeated in 2008.  However, we are currently streamliningMedicsight’s operations and reducing staff numbers in order to reduce ouroperating costs and cashflow.  Wetherefore expect costs in 2009 to be lower due to reduced salary costs.  This headcount reduction is being implementedacross multiple departments and all locations.

 

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Commercial and marketing costsincreased from attending more international conferences and developingrelationships with our commercial partners. Travel and accommodation increased with headcount growth.  We expect these costs to be marginally lowerin 2009.

 

Our professional fees increasedin 2007 and 2008 due to the ongoing costs of being a company listed on the AIM Marketof the London Stock Exchange, as well as for legal advice in drawing upcontracts with business partners.

 

Interest and other income wasgenerated by returns on the investment of the proceeds from the IPO in June 2007.  The income in 2008 also included a $3,881foreign exchange gain made on cash that was transferred from US dollars topounds sterling.  We believe that fallinginterest rates combined with lower cash balances, will mean a lower level ofinterest and other income in Fiscal 2009.

 

Stock based compensation hasincreased due to implementation of a new plan in June 2008, and the effectof a full year’s charge from plans that commenced in the prior year.  We also recognized expense as we modified theplans of some members of staff who left the plan.

 

Cash and net assets were lowerat December 31, 2008 compared to December 31, 2009 because ofMedicsight’s net loss and also as sterling fell in value against the USdollar.  The rise in the prior yearreflected the net proceeds of the IPO and private placement.

 

**Medicexchange**

 
| ** **                      | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                            |       |     |       |     |       |     |       |
| Revenue from external customers |       | $        | 163        |     | $          | 48       |       | $ | — |   |
| Cost of revenue                 |       | 116      |       | 34       |       | —   |       |
| Gross margin                    |       | 47       |       | 14       |       | —   |       |
| Operating expenses              |       | 3,643    |       | 3,947    |       | 5,657    |       |
| Operating loss                  |       | (3,522   | )          | (3,933   | )          | (5,657   | )          |
| Stock based compensation        |       | 195      |       | 104      |       | 37       |       |
| Net (liabilities) / assets      |       |     | (1,412     | )        | 1,546      |     |       | 4,592 |   |
|                                 |            |          |            |          |            |          |            |  |  |  |

 

Medicexchange’s revenue wasderived from both online and offline sales. The online sales are high margin and are generated by Medicexchange’stwo websites.  The offline sales wereproduced by our Chinese subsidiary and had considerably lower margins.   In 2008 $32 of revenue was from online salesand $131 from offline.  In 2007 the splitwas $13 and $35 respectively.

 

During the year we decided torefocus on online sales only.  Revenue inFiscal 2009 is likely to be lower but at a higher margin.

 

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

 

The following table shows someof Medicexchange’s larger expense categories.

 
| ** **               | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|----------|------------|
|                     |       |     |       |     |       |     |       |
| Salaries                 |       | $        | 1,547      |     | $          | 1,713    |       | $ | 1,874 |   |
| Bonus                    |       | 72       |       | 93       |       | 46       |       |
| Commercial and marketing |       | 264      |       | 539      |       | 1,440    |       |
| Travel and accommodation |       | 218      |       | 167      |       | 328      |       |
| Professional fees        |       |     | 196        |     | 29         |     |       | 195 |   |
|                          |            |          |            |          |            |          |            |  |  |  |

 

In September 2008 we madethe decision to scale back our London cost base and increased our emphasis onour New York office as this is closer to our target market.

 

These changes have allowed usto reduce the overheads in the business. Staff costs have fallen after a number of London and Beijing based staffleft the business.  As at December 31,2008 all Medicexchange’s Beijing employees had started to work for Medicsightand are no longer a cost to Medicexchange. Our China business is now focussed solely on the Shanghai based Maydealwebsite. We expect salary costs to be lower in Fiscal 2009 as the business willhave a full year with a lower level of staff.

 

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We also use less office spaceand the lower number of staff has lead to a lower level of ancillary costs.  We have also reduced our discretionaryspending, demonstrated by the continued reduction in commercial and marketingcosts.  Our travel costs have picked upin 2008 due to travel to our China office and our focus on New York.  We expect travel costs to reduce in 2009.

 

Professional fees increased in2008 because of fees incurred in acquiring Maydeal.  These Chinese fees are not expected to beongoing.

 

The stock based compensationcharge increased year on year due to modifications made to the plans of anumber of employees who left Medicexchange during the year.  Net assets have reduced as a result of netlosses during the year.

 

**Liquidityand Capital Resources**

 

*Working Capitalinformation*

 
| ** **                                        | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Working capital summary**             |       |     |       |     |       |     |       |
| Cash, cash equivalents and marketable  securities |       | $        | 40,178     |     | 94,592     |     | $          | 24,735 |   |
| Current assets                                    |       | 41,212   |       | 95,319   |       | 25,306   |       |
| Current liabilities                               |       | (4,340   | )          | (4,420   | )          | (3,378   | )          |
| Working capital surplus                           |       | $        | 36,872     |     | 90,899     |     | $          | 21,928 |   |
| Ratio of current assets to current  liabilities   |       | 9.5      |       | 21.6     |       | 7.5      |       |

 
| ** **                                              | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **Cash flow summary**                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash (used for) provided by                             |       |       |       |       |       |       |       |
| Operating activities                                    |       | $          | (20,039    | )          | (14,426    | )          | $          | (13,990 | ) |
| Investing activities                                    |       | (3,772     | )          | 842        |       | (1,255     | )          |
| Financing activities                                    |       | (20,163    | )          | 85,611     |       | 27,586     |       |
| Effects of exchange rates on cash and cash  equivalents |       | (10,105    | )          | 589        |       | 167        |       |
| Net cashflow                                            |       | $          | (54,079    | )          | 72,616     |       | $          | 12,508 |   |

 

Our cash, cash equivalents and marketablesecurities have reduced during 2008 predominantly because of the cash used inoperating activities, the $2,040 increase in our investment in XShares LLC andthe buyback of $18,912 of our own and $1,251 of Medicsight’s stock.  Our net cash used in operating activitiesdiffers from net profit because of various non-cash adjustments such as thetransfer to minority interest, stock-based compensation and loss made oninvestments.  The amount of cash used inoperating activities was greater than in previous years due to the Company’shigher net loss.

 

In 2007 the largest movement incash was due to Medicsight’s fundraising, when $24,569 was raised in a privateplacement and $61,049 in an IPO.  Themain other movement was due to the operating losses the Company incurred.

 

As a result of the cashoutflows in 2008 our ratio of current assets to current liabilities has reducedto 9.5.  This is, however, still acomfortable ratio and is a result of the $10,218 and $26,624 of cash held inthe Company and Medicsight respectively. The increase in the ratio from 2006 to 2007 was due to the increasedcash holdings after the private placement and Medicsight IPO.

 

*Valuationof investments held at fair value*

 

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

 

The adoption of SFAS 157 alsorequires the Company to attribute our investments using the fair valuehierarchy defined in the statement. The hierarchy consists of the followingthree levels with associated definitions:

 

Level 1 inputs are unadjusted, quoted prices in active markets foridentical assets or liabilities.

 

Level 2 inputs are inputs other than quoted prices included withinLevel 1 that are observable for the asset or liability, either directly orindirectly.  Level 2 inputs includequoted prices for identical assets or liabilities in markets that are notactive, that is, markets in which there are few transactions.

 

Level 3 inputs are unobservable inputs that are supported by little orno market activity.  These inputs require significant management judgementand reflect our estimate of assumptions that market participants would use inpricing the asset.

 

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We hold investments inHipCricket Inc and various marketable securities at fair value.

 

We have valued HipCricket Incusing its closing price on the AIM market of the London Stock Exchange as ofDecember 31, 2008. Due to the low number of market transactions for HipCricketInc each transaction can potentially and has historically had a significanteffect on the share price. It is for this reason we deem these to be a Level 2input in the fair value hierarchy. However, we still believe that this is thebest price at which to determine the current value.

 

HipCricket Inc is a very thinlytraded stock and since December 31, 2008 the share price has fallen from$2.50 to $0.50 per share.  We believethat the small number of shares traded has affected the price and does notreflect the long term potential of the investment.

 

Our investments in othermarketable securities relate to holdings in corporate bonds issued by highlyrated companies.  We have valued theseinvestments at market prices as of December 31, 2008 and consider these tobe Level 1 inputs as these are active markets.

 

*Impairmentreview of investments held at cost*

 

We account for ourinvestments in Eurindia Limited and XShares LLC at cost subject to impairment.

 

We carried out an impairmentreview of our holdings in Eurindia Limited as of December 31, 2008.  Eurindia Limited’s management has informed usthat they intend to pay a liquidating dividend of between 30 cents and 50 centsper share.  We have assumed to thedividend to be the lower of these two values and have impaired our holding tothe value of 30 cents a share.  We considerthe input to this approximation of fair value to be a Level 3 input under theSFAS 157 fair value hierarchy, which is a significant unobservable input.

 

We also reviewed thecarrying value of our investment in XShares LLC as of December 31,2008.  XShares LLC is currently in theprocess of raising funds to drive the business forward.  As this process has not yet been completed wehave impaired this investment to $600.

 

Weestimated this impairment based on management’s review and discussion of the strategyand business plan of X Shares LLC and review of draft Fiscal 2008 financialaccounts prepared by an independent accountant. These inputs are subject tomanagement’s judgement and we have therefore deemed them to be Level 3 inputsin the fair value hierarchy. The Value of our investment has reduced aspreviously invested cash has been used to fund business operations and as yetthe business is not generating sufficient cash. However, we have reviewed Xshares business plan and we have adjusted our investment to a level we believereflects the future market valuation and with no active market we believe thisis the best method at which to determine the value of our investment.

 

*Investmentin Medicsight*

 

MGT Capital Investments, Inc.’sconsolidated financial statements include the results and financial conditionof its subsidiary, Medicsight.  MGTCapital Investments, Inc.’s holding in Medicsight is 86,000,000 shares outof Medicsight’s issued share capital of 155,524,504 shares.  As of December 31, 2008 Medicsight’sshare price closed at £0.235 ($0.34), valuing the holding at £20,210 ($29,262).

 

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As of March 27, 2009Medicsight’s share price was £0.069 ($0.099) valuing the Company’s investmentat £5,934 ($8,483), assuming a $:£ exchange rate of 0.699.

 

*Additionalcapital funding requirements*

 

On June 21, 2007Medicsight plc completed its initial public offering on the AIM Market of theLondon Stock Exchange.  Approximately 29,000,000 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.  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 proceedswas used to repay debt (between Medicsight plc and the Company).  Theremaining £24,900 ($49,800) cash inflow from the IPO was to 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 the Medicsight IPO.  Gross proceeds on theprivate placement were approximately £12,845 ($25,736).  We incurred feeswith Asia IT Capital Investments Ltd (a related party) of approximately £578($1,167).

 

To date we have primarilyfinanced our operations through private placements of equity securities.  In the future we expect to fund ouroperations by growing revenues and generating profits and a positiveoperational cashflow.

 

*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 be given,however, that we will have access to the capital markets in the future, or thatfinancing will be available on acceptable terms to satisfy the Company’s cashrequirements to implement its business strategies.

 

If we are unable to accessthe capital markets or obtain acceptable financing, our results of operationsand financial conditions could be materially and adversely affected.  Wemay be required to raise substantial additional funds through other means.

 

Our technology has not yetbeen 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 thatif so 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.

 

*Capital commitments*

 

On August 25, 2006 weexecuted 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.

 

Under this lease agreementour UK property rent, services and related costs will be approximately £330($478) per annum, paid quarterly in advance.  We have the right toterminate this agreement on the expiration of the fifth year of thelease.  Our annual rent is subject to upward only review on August 24,2011.  We have two 10-month rent-freeperiods: the first commencing August 25, 2006; the second commencing August 25,2011.

 

We have satellite offices inTokyo (Japan) and Beijing (China) — which are on three and two year rentalagreements respectively.

 

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In July 2008we entered into an agreement with a partner to develop interfaces for oursoftware.  We have committed to pay Euros 1,445 ($2,087) over an expectedthirty-six month period.  As at December 31, 3008 we have paid Euros639 ($939).  These payments will be recovered against future royaltypayments, should the products be successfully commercialized.

 

The followingtable analyses our contractual obligations.

 
| ** **                       | ** ** | **Payments due by period** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| **Contractual obligations** | ** ** | **Total**                                 | ** ** | **Less than 1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** |
| Operating lease obligations      |       | $                                         | 1,580      |   | $ | 692 |   | $ | 882 |   | $ | 6 |   |
| Purchase obligations             |       | $                                         | 1,148      |   | $ | 1,148 |   | $ | — |   | $ | — |   |
|                             |       |                                      |       |   |   |   |   |   |   |
| Total                            |       | $                                         | 2,728      |   | $ | 1,840 |   | $ | 882 |   | $ | 6 |   |

 

**Recent accountingpronouncements.**

 

In December 2007, the FASB issued Statement of FinancialAccounting Standards No. 141(R) “Business Combinations”(SFAS 141(R)). This Statement retains the fundamental requirements inStatement of Financial Accounting Standards No. 141 “Business Combinations”,that the acquisition method of accounting, previously known as the purchasemethod, be used for all business combinations and for an acquirer to beidentified for each business combination. SFAS 141(R) establishesprinciples and requirements for how the acquirer recognizes and measures in itsfinancial statements the identifiable assets acquired, the liabilities assumed,and any noncontrolling interest in the acquiree; recognizes and measures thegoodwill acquired in the business combination or a gain from a bargainpurchase; and determines what information to disclose to enable users of thefinancial statements to evaluate the nature and financial effects of thebusiness combination. SFAS 141(R) requires contingent considerationto be recognized at its fair value on the acquisition date and, for certainarrangements, changes in fair value to be recognized in earnings untilsettled. SFAS 141(R) also requires acquisition-related transactionand restructuring costs to be expensed rather than treated as part of the costof the acquisition. The provisions for SFAS 141(R) are effective forthe Company beginning January 1, 2009. SFAS 141(R) will be appliedprospectively and early adoption is prohibited. We do not expect the adoptionof SFAS 141(R) to have a material impact on our financial position or resultsof operations.

 

In December 2007, the FASB issued SFAS No. 160, “NoncontrollingInterests in Consolidated Financial Statements”, an amendment of ARB No. 51,which will become effective for the Company January 1, 2009, withretroactive adoption of the Statement’s presentation and disclosurerequirements for existing minority interests. This standard will requireownership interests in subsidiaries held by parties other than the parent to bepresented within the equity section of the consolidated balance sheet butseparate from the parent’s equity. It will also require the amount ofconsolidated net income attributable to the parent and the noncontrollinginterest to be clearly identified and presented on the face of the consolidatedincome statement. Certain changes in a parent’s ownership interest are to beaccounted for as equity transactions and when a subsidiary is deconsolidated,any noncontrolling equity investment in the former subsidiary is to beinitially measured at fair value. We do not expect the adoption of SFAS 160 tohave a material impact on our financial position or results of operations.

 

In April 2008, the FASB issued Staff Position FSP 142-3, “Determinationof the Useful Life of Intangible Assets” (FSP 142-3). FSP 142-3 amends the factorsthat should be considered in developing renewal or extension assumptions usedto determine the useful life of a recognized intangible asset under FASBStatement No. 142, “Goodwill and Other Intangible Assets.” FSP 142-3 iseffective for financial statements issued after December 15, 2008. TheCompany does not expect the adoption of FSP 142-3 to have a material effect onits condensed consolidated financial statements.

 

In May 2008 the FASB issued FASB Staff Position No. APB 14-1,“Accounting for Convertible Debt Instruments That May Be Settled in Cashupon Conversion (including Partial Cash Settlement)” (“APB 14-1”). APB 14-1requires that issuers of certain convertible debt instruments that may besettled in cash upon conversion to separately account for the liability andequity components in a manner that will reflect the entity’s nonconvertibledebt borrowing rate when interest cost is recognized in subsequentperiods.  The accounting for these types of instruments under APB 14-1 isintended to appropriately reflect the underlying economics by capturing thevalue of the conversion options as borrowing costs; therefore, recognizingtheir potential dilutive effects on earnings per share. The effective date ofAPB 14-1 is for financial statements issued for fiscal years and interimperiods beginning after December 15, 2008 and does not permit earlierapplication. However, the transition guidance requires retrospectiveapplication to all periods presented and does not grandfather existing 

 

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instruments.  TheCompany is currently evaluating the potential impact, if any, the adoption ofAPB 14-1 may have on its condensed consolidated financial statements.

 

In June 2008 the FASB issued FASB Staff PositionEITF 03-6-1, “Determining Whether Instruments Granted in Share-Based PaymentTransactions are Participating Securities” (“EITF 03-6-1”). EITF 03-6-1 appliesto the calculation of earnings per share for share-based payment awards withrights to dividends or dividend equivalents under Statement No. 128,Earnings Per Share. Unvested share-based payment awards that containnonforfeitable rights to dividends or dividend equivalents will be consideredparticipating securities and will be included in the computation of earning pershare pursuant to the two-class method. The effective date of EITF 03-6-1 isfor financial statements issued for fiscal years beginning after December 15,2008, and all interim periods within those years. Early adoption is notpermitted. Once effective, all prior period earnings per share data presentedwill be adjusted retrospectively.  The Company is currently evaluating thepotential impact, if any, the adoption of EITF 03-6-1 may have on itscondensed consolidated financial statements.

 

On January 1, 2008, the Company adopted theprovisions of SFAS No. 157, “Fair Value Measurements,” for financial assets andfinancial liabilities. In accordance with Financial Accounting Standards BoardStaff Position (FSP) No. SFAS 157-2, “Effective Date of FASB Statement No.157,” the Company will delay application of SFAS 157 for non-financial assetsand non-financial liabilities, until January 1, 2009. SFAS 157 defines fairvalue, establishes a framework for measuring fair value and expands disclosureabout fair value measurements.  SFAS No.157 became effective for the Company in the first quarter of 2008 for financialassets and liabilities. The Company is currently evaluating the impact on theCompany’s financial position and operating results of the application of SFAS157 for non-financial assets and liabilities.

 

On October 10, 2008 the FASB issued FASB Staff Position No. FAS157-3 “Determining the Fair Value of a Financial Asset When the Market for ThatAsset Is Not Active”.  FAS 157-3clarifies the application of FASB Statement No. 157, Fair ValueMeasurements , in a market that is not active and provides an example toillustrate key considerations in determining the fair value of a financialasset when the market for that financial asset is not active.  This FSP was effective upon issuance,including prior periods for which financial statements had not been issued.  The Company does not expect the adoption of FASB157-3 to have a material effect on its condensed financial statements.

 
| **ITEM 7A.** | **QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** |
|--------------|-----------------------------------------------------------------|

 

*InterestRate and Marketable Security Prices Risk -* Our exposure to market rate risk for changesin interest rates relates primarily to our investment portfolio. We place ourinvestments in a mixture of (a) cash deposits on either overnight or 30day rates and (b) highly liquid blue chip market securities. A decline ininterest rates or a decline in equity and fixed income markets would have anadverse impact on interest income.  We do not have any debt and we do notuse derivative financial instruments.

 

Based upon the balance ofour cash, cash equivalents and marketable securities at December 31, 2008,for each one percentage point reduction in interest rates, the Company wouldsuffer a reduction of approximately $383 in interest income.  A severedecline in equity and fixed income markets would be likely to reduce thecapital value of the securities held.

 

*ForeignCurrency Risk -* We are exposed to foreign currency exchange rate fluctuations relatingto the operation of our international subsidiaries.  Our main operatingcurrency is UK sterling (£).  We also have subsidiary operations in Japanand China which operate in their local currencies.  At the end of eachreporting period, expenses of the subsidiaries are converted into US dollarsusing the average currency rate in effect for the period and assets andliabilities are converted into US dollars using either historical rates or theexchange rate in effect at the end of the period.  Additionally, we areexposed to foreign currency exchange rate fluctuations relating to payments wemake to vendors and suppliers using foreign currencies.  We currently donot hedge against this foreign currency risk. Fluctuations in exchange rates may impact our financial condition andresults of operations.

 

Our operating costs inFiscal 2008 were predominantly in UK sterling; we do not foresee any change inFiscal 2009.  A ten percent increase or decline in the US dollar exchangerate against UK sterling would have created an decline or increase in ourFiscal 2008 operating costs of approximately $2,645.

 
| **ITEM 8** | **FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA** |
|------------|--------------------------------------------------|

 

See Financial Statements andSchedules attached hereto.

 
| **ITEM 9** | **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND  FINANCIAL DISCLOSURE.** |
|------------|--------------------------------------------------------------------------------------------|

 

None.

 
| **ITEM 9A**. | **CONTROLS  AND PROCEDURES.** |
|--------------|-------------------------------|

 

**DisclosureControls and Procedures**

 

The Company has establishedcontrols and procedures designed to ensure that information required to bedisclosed in the reports that the Company files or submits under the ExchangeAct is recorded, processed, summarized and reported, within the time periodsspecified in the Commission’s rules and forms and is accumulated andcommunicated to management, including the principal executive officer andprincipal financial officer, to allow timely decisions regarding requireddisclosure.  The Company’s management, with the participation of our ChiefExecutive Officer and Chief Financial Officer conducted an evaluation of theeffectiveness of the design and operation of our disclosure controls andprocedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of theend of the period covered by this report (the “Evaluation Date”).  Thereare inherent limitations to the effectiveness 

 

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of any system of disclosurecontrols and procedures, including the possibility of human error and thecircumvention or overriding of the controls and procedures.  Accordingly,even effective disclosure controls and procedures can only provide reasonableassurance of achieving their control objectives.  Based on suchevaluation, the Chief Executive Officer and Chief Financial Officer concludedthat, as of the Evaluation Date, our disclosure controls and procedures wereeffective at a reasonable assurance level.

 

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

 

Management of the Company isresponsible for establishing and maintaining adequate internal control overfinancial reporting as defined in Rule 13a-15(f) under the ExchangeAct. The Company’s internal control over financial reporting consists ofpolicies and procedures that are designed and operated to provide reasonableassurance about the reliability of the Company’s financial reporting and itsprocess for preparing financial statements in accordance with generallyaccepted accounting principles (“GAAP”). Because of its inherent limitations,internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because ofchanges in conditions or that the degree of compliance with the policies orprocedures may deteriorate.

 

Management, with the participation of the Company’s Chief ExecutiveOfficer and Chief Financial Officer (Principal Financial Officer), assessed theeffectiveness of the Company’s internal control over financial reporting as of December 31,2008. In making this assessment, management used the criteria described in *Internal Control — Integrated Framework*issued by The Committee of Sponsoring Organizations of the Treadway Commission.Based on the results of this assessment, management (including our ChiefExecutive Officer and our Chief Financial Officer (Principal FinancialOfficer)) has concluded that, as of December 31, 2008, our internalcontrol over financial reporting was effective at a reasonable assurance level.

 

**Changes inInternal Control Over Financial Reporting**

 

No changes in the Company’sinternal control over financial reporting have occurred during the quarterended December 31, 2008 that have materially affected, or are reasonablylikely to materially affect, the Company’s internal control over financialreporting.

 
| **Item 9A (T).** | **Controls and Procedures** |
|------------------|-----------------------------|

 

Duringthe year ended December 31, 2008, there were no changes in the Company’sinternal control over financial reporting that have materially affected, or arereasonably likely to materially affect our internal control over financialreporting. 

 

TheCompany’s Chief Executive Office, and Chief Financial Officer carried out anevaluation of the effectiveness of the Company’s disclosure controls andprocedures, as of the end of the period covered by this Annual Report on Form10-K. Based upon that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that, as of the end of the period covered by thisreport, the Company’s disclosure controls and procedures were effective suchthat information relating to the Company (including its combined subsidiaries)required to be disclosed in the Company’s SEC reports (1) is recorded,processed, summarized and reported within the time periods specified in the SECrules and forms and (2) is accumulated and communicated to the Company’smanagement, including the Chief Executive Officer and Chief Financial Officer,as appropriate, to allow timely decisions regarding required disclosure. 

 

**Management’sReport on Internal Control over Financial Reporting**

 

SECrules implementing Section 404 of the Sarbanes-Oxley Act of 2002 require our2008 Annual Report on Form 10-K to contain management’s report regarding theeffectiveness of internal control over financial reporting. As a basis for ourreport, we tested and evaluated the design, documentation, and operatingeffectiveness of internal control. 

 

Managementis responsible for establishing and maintaining effective internal control overfinancial reporting of MGT Capital Investments, Inc. and its subsidiaries.There are inherent limitations in the effectiveness of any internal control,including the possibility of human error and the circumvention or overriding ofcontrols. Accordingly, even effective internal controls can provide onlyreasonable assurance with respect to financial statement preparation. Further,because of changes in conditions, the effectiveness of internal control mayvary over time. 

 

Managementhas evaluated the Company’s internal control over financial reporting as ofDecember 31, 2008. This assessment was based on criteria for effective internalcontrol over financial reporting described in the standards promulgated by thePCAOB and in the Internal Control—Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission. Based on thisassessment, management believes that MGT Capital Investments, Inc. maintainedeffective internal control over financial reporting as of December 31, 2008. 

 

Thisannual report does not include an attestation report of the Company’s registeredpublic accounting firm regarding internal control over financial reporting.Management’s report was not subject to attestation by the Company’s registeredpublic accounting firm pursuant to temporary rules of the Securities andExchange Commission that permit the Company to provide only management’s reportin this annual report. 

 
| **ITEM 9B.** | **OTHER  INFORMATION.** |
|--------------|-------------------------|
| None         | ** **              |

 

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**PART III**

 
| **ITEM 10** | **DIRECTORS,  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.** |
|-------------|--------------------------------------------------------------|

 

The following table setsforth the current officers and directors of MGT.

 
| **Name**              | ** ** | **Age** | ** ** | **Position**                                                                                      |
|-----------------------|------------|---------|------------|---------------------------------------------------------------------------------------------------|
|                  |       |    |       |                                                                                              |
| Tim Paterson-Brown    |       | 48      |       | Chief Executive Officer  and Director                                                             |
| Allan Rowley          |       | 40      |       | Chief Financial Officer  and Director                                                             |
| Neal Wyman            |       | 56      |       | Independent Director,  Audit Committee Member and Remuneration and Nominations Committee Chairman |
| Dr L. Peter Fielding  |       | 69      |       | Independent Director and  Audit Committee Member                                                  |
| Peter Venton          |       | 66      |       | Independent Director,  Audit Committee Chairman and Remuneration and Nominations Committee Member |
| Sir Christopher Paine |       | 74      |       | Independent Director                                                                              |
| Dr Allan Miller       |       | 73      |       | Independent Director                                                                              |

 

Directors are elected inaccordance with the Company’s by-laws to serve until the next annualstockholders meeting and until their successors are elected in theirstead.  Officers are appointed by the Board of Directors and hold officeuntil their successors are chosen and qualified, until their death or untilthey resign or have been removed from office. All corporate officers serve atthe discretion of the Board of Directors. There are no family relationshipsbetween any director or executive officer and any other director or executiveofficer of the Company.

 

*TimPaterson-Brown* joined the Company in December 2003 as a director, was appointedChief Executive Officer in September 2004 and Chairman in June 2007. Tim is also a director of Medicsight and chairman of Medicexchange.  Hequalified as a Chartered Surveyor with Strutt and Parker in 1984 followingdegrees at London University and Magdalene College, Cambridge. In 1987 Timjoined Leisure Investments PLC.  Between 1990 and 2003 Tim worked in avariety of capacities to assist and invest in a number of leisure andtechnology businesses, including Accsys Technologies plc, a UK-listed company,of which Tim is a non-executive Director.

 

*AllanRowley*joined the Company in April 2006 as Finance Director of both Medicsightand Medicexchange and was appointed the Company’s Chief Financial Officer in August 2006. Asof March 19, 2009 he resigned as Finance Director of Medicsight plc andwas appointed Chief Executive Officer of Medicsight plc.  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 severalyears of experience in public accounting in the United Kingdom and UnitedStates with Arthur Andersen and Ernst & Young, respectively. He is amember of the Institute of Chartered Accountants in England and Wales and holdsa Master of Philosophy and a Bachelor of Science degree from AberystwythUniversity College of Wales.

 

*NealWyman*trained as a Chartered Accountant with Coopers and Lybrand before moving toKPMG where he worked in the Far East. He moved into the recruitment industry inLondon specializing in financial services, gaining experience with a diverserange of clients. He entered executive search in 1981, initially specializingin the financial services industry before broadening into general appointmentsand professional services. He now focuses on general management, finance andnon-executive appointments in both private and quoted companies, withparticular focus on venture capital. He is a graduate of the London School ofEconomics. Neal was appointed an independent director of the Company and amember of the Audit Committee in November 2004.

 

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*DrL. Peter Fielding* , M.D. is an experienced physician who provides consulting services tohealthcare and academic organizations, in addition to his departmental andinstitutional responsibilities at WellSpan Surgical Associates. His clients inthe past five years have included, in the U.S.A. National Cancer Institute;American Joint Committee on Cancer; Taiko Post University — Connecticut; PurelyCotton Inc. — Seattle; Musculoskeletal Systems Inc. - Pittsburgh; University ofConnecticut Medical School, and, in the U.K.: Imperial College for Science,Technology and Medicine and the Association of Surgeons in the United Kingdomand Ireland.  Dr Fielding specializes in healthcare strategic planning,organizational structure and operational issues. He has participated in theorganization and development of the Pain Relief Center; Hyperbaric Medicine andAdvanced Wound Care Center; Clinical Weight Reduction Center; York HospitalHuman Motion Institute and the Molecular Biology Research Laboratory. Peter wasappointed an independent director of the Company and a member of the AuditCommittee in July 2005.

 

*PeterVenton, OBE*has over 30 years’ experience in the computing and telecommunications industryand holds several patents in the sector. He is a former Chief Executive ofPlessey Radar and of GEC-Marconi Prime Contracts. Peter currently serves as theTechnical Audit Chairman for the Defence Evaluation & Research Agencyand joined the Board of Medicsight as an independent director in April 2007. He was also an independent director of Medicsight between November 2001and July 2005.  Peter was appointed an independent director of theCompany and a member of the Audit Committee in November 2004.

 

*SirChristopher Paine* was the President of the British Medical Association until 2001. He iscurrently the chairman of the Medical Advisory Board of the InternationalHospitals Group, chairman of Royal Society of Medicine Support Services Ltd anda trustee of the London Clinic.  He was Medical Director of the AdvisoryCommittee on Distinction Awards for the National Health Service until the endof 1999 and has been President of the Royal College of Radiologists and The RoyalSociety of Medicine. Sir Christopher is a Medical Oncologist. He was aconsultant clinical oncologist from 1970 at the Churchill Hospital inOxford.  He also served as director of clinical studies at the medicalschool. He was district general manager of the Oxford Health Authority from1984-88. In addition, he has served on the Animal Welfare Council and ImperialCancer Research Fund. Sir Christopher was appointed an independent director ofthe Company in November 2004.

 

*DrAllan Miller*qualified in medicine at St Bartholomew’s Hospital Medical School, London in1961. In 1965 Allan was admitted to the Royal College of Physicians. Afterspending eight years in general practice he joined Hoffman La Roche where heheld the positions of Head of Clinical Cardiovascular Research Worldwide, Headof Dermatological Research Worldwide and Head of Clinical Research UK.  Allan spent 14 years as Medical Director for Napp Pharmaceuticals Ltd and fouryears as European Medical Research Director of the Purdue Pharma, Mundipharma,Napp group based in Cambridge, England.   Allan is a Member of the BritishMedical Association and a Fellow of the Royal Society of Medicine. Allan wasappointed an independent director of the Company in December 2002.

 

**CorporateCode of Ethics**

 

On December 28, 2007the Board of Directors adopted a new Code of Business Conduct and Ethics whichapplies to all directors and employees including the Company’s principalexecutive officer, principal financial officer and principal accounting officeror persons performing similar functions.

 

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

 

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

 

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Copies of the Code ofBusiness Conduct and Ethics, the Anti-Fraud Policy, the Whistleblowing Policy,the MGT Share Dealing Code and the Medicsight Share Dealing Code can beobtained, without charge by writing to the Corporate Secretary at MGT CapitalInvestments, Inc., Kensington Centre, 66 Hammersmith Road, London W14 8UD,United Kingdom.

 

**Section 16(a) BeneficialOwnership Reporting Compliance**

 

Under the securities laws ofthe United States, the Company’s directors, its executive officers, and anypersons holding more than five percent of the Company’s common stock arerequired to report their initial ownership of the Company’s common stock andany subsequent changes in that ownership to the Securities and ExchangeCommission (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 that there were no delinquent filingsto report in Fiscal 2009.

 

**AuditCommittee and Audit Committee Financial Expert**

 

On November 25, 2004the Company’s Board of Directors established an Audit Committee to carry outits audit functions.  At December 31, 2008 the membership of theAudit Committee was Peter Venton as Chairman and Neal Wyman and Dr L PeterFielding as members.

 

The Company’s Board ofDirectors has determined that Peter Venton, an independent director, is theaudit committee financial expert, as defined in Regulation S-K promulgatedunder the Securities and Exchange Act of 1934, serving on its audit committee.

 
| **ITEM 11** | **EXECUTIVE  COMPENSATION.** |
|-------------|------------------------------|

 

**CompensationDiscussion 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 excellentexecutives who are appropriate for the Company’s needs;

 

·                                   Motivate and reward executiveswhose knowledge, skills and performance are critical to the Company’s success;

 

·                                   Motivate the executives toincrease shareholder value for both the Company and its subsidiary operationsthrough the use of options; and

 

·                                   Tie compensation to corporate andindividual performance.

 

We use various elements ofcompensation to reward specific types of performance. Our employment agreementsfor each for our named executive officers determine the salary of each officer,which provides the basic level of compensation for performing the job expectedof them. We use cash bonus awards as an incentive that

 

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provides a timely reward forattainment of exemplary corporate and individual performance in aparticular period. We use stock options to provide a long term incentive, whichadds value to compensation packages if the value of our common stock rises andaligns the interest 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.

 

*NamedExecutive Officers*

 

We have the following namedexecutive officers:

 

·                                    Tim Paterson-Brown - Chairman andChief Executive Officer, MGT Capital Investments, Inc; Non-executive Director,Medicsight plc; and Chairman, Medicexchange Limited.

 

·                                    Allan Rowley - Chief FinancialOfficer, MGT Capital Investments, Inc.; Chief Executive Officer, Medicsightplc; and Chief Financial Officer, Medicexchange plc.

 

·                                    David Sumner - Executive Chairman,Medicsight plc

 

·                                    Alex Van Klaveren — ChiefExecutive Officer, Medicexchange Limited.

 

*Salary*

 

Each named executive officer’semployment agreement determines his salary which varies with the scope of hisresponsibilities.  These agreements provide for an annual base salary of$347 (£240) for Tim Paterson-Brown; $232 (£160) for Allan Rowley; $290 (£200)for David Sumner and $71 for Alex Van Klaveren.  We believe that theannual salary must be competitive with the market with respect to the skillsand experience that are necessary to meet the requirements of the named executiveofficers’ position with us.

 

*Bonus*

 

The employment agreement ineffect for each named executive officer provides for the possibility of a cashperformance 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 throughfuture appreciation of our stock price. The options provide a long termincentive because they vest over a period of time (typically three years) andremain outstanding for ten years, encouraging executives to focus energies onlong term corporate performance. The vesting periods are designed to encourageretention of our officers.

 

In Fiscal 2008 none of thenamed executive officers exercised any of their stock options that had vested.

 

*Pensionand retirement benefits*

 

Our named executive officersdo not participate in any deferred benefit retirement plans such as a pensionplan.

 

*Non-qualifieddeferred compensation*

 

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

 

*Otherbenefits*

 

We provide private healthcare insurance to some of our named executives.

 

*Performanceawards*

 

Our named executive officersare entitled to cash bonuses, as determined by our Remuneration and NominationsCommittees and Board of Directors, based upon the attainment of commercialgoals conveyed to that executive.

 

*OurCompensation process*

 

We have a Remuneration andNominations Committee that is comprised of Neal Wyman and Peter Venton (two ofthe 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 ownRemuneration and Nominations Committee and Board of Directors that determinesthe executive compensation for David Sumner (Executive Chairman) and AllanRowley (Chief Executive Officer).  The Medicexchange Chairman determinesthe executive compensation for the Chief Executive Officer of Medicexchange(Alex Van Klaveren).

 

We do not formally benchmarkour compensation against any peer group. However we informally considercompetitive 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 may immediatelyterminate the employment of any named executive officer for grossmisconduct.  Both Tim Paterson-Brown and Allan Rowley have change incontrol provisions in their service contracts.  On a change in controlevent, Tim Paterson-Brown would be entitled to an immediate payment of 3 years’basic salary and all stock options would become immediately vested andexercisable within the following 3 years.  On a change in control event,Allan Rowley would be entitled to an immediate payment of 2 years’ basic salaryand all stock options would become immediately vested and exercisable withinthe following 2 years.

 

*Stockownership guidelines*

 

We have not implemented anystock ownership requirements for our named executive officers. We have issuedstock 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.

 

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**SummaryCompensation Table**

 

The following tablesummarizes Fiscal Years 2008, 2007 and 2006 compensation for services in allcapacities of the Company’s named executive officers and other individuals:

 
| **Name  Principal Position**                      | ** ** | **Year** | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **Option  Awards (4)** | ** ** | **All Other  Compensation** | ** ** | **Total  Compensation** | ** ** |
|--------------------------------------------------------|------------|----------|------------|------------|------------|-----------|------------|-----------------------------|------------|----------------------------------|------------|-------------------------|------------|
|                                                   |       |     |       |       |       |      |       |                        |       |                             |       |                    |       |
| **Tim Paterson-Brown**                                 |       | 2008     |       | $          | 443        |      | $          | 277                         |       | $                                | 850        |                    | $          | — |   | $ | 1,570 |   |
| Chairman and CEO (1)                                   |       | 2007     |       | $          | 300        |      | $          | 500                         |       | $                                | 207        |                    | $          | — |   | $ | 1,007 |   |
|                                                   |       | 2006     |       | $          | 222        |      | $          | 11                          |       | $                                | 7          |                    | $          | — |   | $ | 240 |   |
|                                                   |       |     |       |       |       |      |       |                        |       |                             |       |                    |       |
| **Allan Rowley**                                       |       | 2008     |       | $          | 295        |      | $          | 231                         |       | $                                | 483        |                    | $          | — |   | $ | 1,009 |   |
| CFO (2)                                                |       | 2007     |       | $          | 230        |      | $          | 380                         |       | $                                | 168        |                    | $          | — |   | $ | 778 |   |
|                                                   |       | 2006     |       | $          | 77         |      | $          | 6                           |       | $                                | 38         |                    | $          | — |   | $ | 121 |   |
|                                                   |       |     |       |       |       |      |       |                        |       |                             |       |                    |       |
| **David Sumner**                                       |       | 2008     |       | $          | 370        |      | $          | 185                         |       | $                                | 274        |                    | $          | — |   | $ | 829 |   |
| Executive Chairman, Medicsight plc                     |       | 2007     |       | $          | 280        |      | $          | 430                         |       | $                                | 140        |                    | $          | 18 |   | $ | 868 |   |
|                                                   |       | 2006     |       | $          | 178        |      | $          | 27                          |       | $                                | 11         |                    | $          | — |   | $ | 216 |   |
|                                                   |       |     |       |       |       |      |       |                        |       |                             |       |                    |       |
| **Adam Boyse**                                         |       | 2008     |       | $          | 185        |      | $          | —                      |       | $                                | 85         |                    | $          | — |   | $ | 270 |   |
| CEO, Medicexchange Limited (3)                         |       | 2007     |       | $          | 240        |      | $          | 12                          |       | $                                | 87         |                    | $          | — |   | $ | 339 |   |
|                                                   |       | 2006     |       | $          | 211        |      | $          | 11                          |       | $                                | 48         |                    | $          | — |   | $ | 270 |   |
|                                                   |       |     |       |       |       |      |       |                        |       |                             |       |                    |       |
| **Alex Van Klaveren**                                  |       | 2008     |       | $          | 32         |      | $          | —                      |       | $                                | 54         |                    | $          | 80 |   | $ | 166 |   |
| CEO, Medicexchange Limited                             |       | 2007     |       | $          | —     |      | $          | —                      |       | $                                | —     |                    | $          | 80 |   | $ | 80 |   |
|                                                   |       | 2006     |       | $          | —     |      | $          | —                      |       | $                                | —     |                    | $          | — |   | $ | — |   |
|                                                   |       |     |       |       |       |      |       |                        |       |                             |       |                    |       |
| **Dr Ravi Bickram Shrestha**                           |       | 2008     |       | $          | 203        |      | $          | 35                          |       | $                                | 100        |                    | $          | — |   | $ | 338 |   |
| VP, Strategy  and Business Development, Medicsight plc |       | 2007     |       | $          | 200        |      | $          | 80                          |       | $                                | 99         |                    | $          | — |   | $ | 379 |   |
|                                                   |       | 2006     |       | $          | 117        |      | $          | 18                          |       | $                                | 54         |                    | $          | — |   | $ | 189 |   |
|                                                   |       |     |       |       |       |      |       |                        |       |                             |       |                    |       |
| **Kenichi Nakagawa**                                   |       | 2008     |       | $          | 210        |      | $          | 35                          |       | $                                | 37         |                    | $          | 12 |   | $ | 294 |   |
| Managing Director, Medicsight Japan                    |       | 2007     |       | $          | 145        |      | $          | 31                          |       | $                                | 35         |                    | $          | 11 |   | $ | 222 |   |
|                                                   |       | 2006     |       | $          | 107        |      | $          | —                      |       | $                                | —     |                    | $          | — |   | $ | 107 |   |

 

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| (1) | Tim  Paterson-Brown was appointed Chief Executive Officer on September 21,  2004 and Chairman on June 21, 2007.                                            |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Allan Rowley  was appointed Chief Financial Officer on August 4, 2006.                                                                                          |
| (3) | Adam Boyse  resigned as Chief Executive Officer of Medicexchange on August 4, 2008  and Alex Van Klaveren was appointed to the post on September 15, 2008. |
| (4) | This column  discloses the dollar amount recognized for financial reporting purposes in  accordance with FAS 123(R).                                                 |

 

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**OutstandingEquity Awards at December 31, 2008**

 
| **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 Limited         |       | Plan A     |       | 100,000                                                                       |       | 50,000                                                                         |       | £0.40 ($0.58)                    |       | June 30,  2016           |       |
| Medicsight plc                |       | Plan E     |       | 333,333                                                                       |       | 666,667                                                                        |       | £0.50 ($0.72)                    |       | December 31,  2016       |       |
|                          |       | Plan F     |       | 83,333                                                                        |       | 166,667                                                                        |       | £0.75 ($1.09)                    |       | March 31,  2017          |       |
|                          |       | Plan G     |       | 166,666                                                                       |       | 333,334                                                                        |       | £1.10 ($1.59)                    |       | November 30,  2017       |       |
| MGT Capital Investments, Inc. |       | 2007 Plan  |       | 333,333                                                                       |       | 666,667                                                                        |       | $3.69                                 |       | December 5,  2017        |       |
|                          |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| **Allan Rowley**              |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
|                          |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| Medicexchange Limited         |       | Plan A     |       | 100,000                                                                       |       | 50,000                                                                         |       | £0.40 ($0.58)                    |       | June 30,  2016           |       |
| Medicsight plc                |       | Plan D     |       | 166,666                                                                       |       | 83,334                                                                         |       | £0.83 ($1.20)                    |       | June 30,  2016           |       |
|                          |       | Plan E     |       | 166,666                                                                       |       | 333,334                                                                        |       | £0.50 ($0.72)                    |       | December 31,  2016       |       |
|                          |       | Plan G     |       | 83,333                                                                        |       | 166,667                                                                        |       | £1.10 ($1.59)                    |       | November 30,  2017       |       |
| MGT Capital Investments, Inc. |       | 2007 Plan  |       | 166,663                                                                       |       | 333,334                                                                        |       | $3.69                                 |       | December 5,  2017        |       |
|                          |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| **David Sumner**              |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
|                          |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| Medicexchange Limited         |       | Plan A     |       | 100,000                                                                       |       | 50,000                                                                         |       | £0.40 ($0.58)                    |       | June 30,  2016           |       |
| Medicsight plc                |       | Plan A     |       | 50,000                                                                        |       | —                                                                         |       | £0.75 ($1.09)                    |       | September 30,  2012      |       |
|                          |       | Plan B     |       | 50,000                                                                        |       | —                                                                         |       | £0.75 ($1.09)                    |       | June 30,  2014           |       |
|                          |       | Plan E     |       | 300,000                                                                       |       | 600,000                                                                        |       | £0.50 ($0.72)                    |       | December 31,  2016       |       |
|                          |       | Plan G     |       | 166,666                                                                       |       | 333,334                                                                        |       | £1.10 ($1.59)                    |       | November 30,  2017       |       |
|                          |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| **Adam Boyse**                |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
|                          |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| Medicexchange Limited         |       | Plan A     |       | 100,000                                                                       |       | —                                                                         |       | £0.40 ($0.58)                    |       | June 30,  2016           |       |
| Medicsight plc                |       | Plan C     |       | 100,000                                                                       |       | —                                                                         |       | £0.75 ($1.09)                    |       | June 30,  2015           |       |
|                          |       | Plan D     |       | 100,000                                                                       |       | 50,000                                                                         |       | £0.83 ($1.20)                    |       | June 30,  2016           |       |
|                          |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| **Alex Van Klaveren**         |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
|                          |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| MGT Capital Investments, Inc. |       | 2007 Plan  |       | 33,333                                                                        |       | 66,667                                                                         |       | $3.69                                 |       | December 5,  2017        |       |
|                          |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| **Dr Ravi Bickram Shrestha**  |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
|                          |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| Medicexchange Limited         |       | Plan A     |       | 66,666                                                                        |       | 33,334                                                                         |       | £0.40 ($0.58)                    |       | June 30,  2016           |       |
| Medicsight plc                |       | Plan D     |       | 166,666                                                                       |       | 83,334                                                                         |       | £0.83 ($1.20)                    |       | June 30,  2016           |       |
| Medicsight plc                |       | Plan E     |       | 50,000                                                                        |       | 100,000                                                                        |       | £0.50 ($0.72)                    |       | December 31,  2016       |       |
| Medicsight plc                |       | Plan I     |       | —                                                                        |       | 50,000                                                                         |       | £0.24 ($0.35)                    |       | December 16,  2018       |       |
|                          |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| **Kenichi Nakagawa**          |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
|                          |       |       |       |                                                                          |       |                                                                           |       |                                  |       |                          |       |
| Medicsight plc                |       | Plan E     |       | 100,000                                                                       |       | 200,000                                                                        |       | £0.50 ($0.72)                    |       | December 31,  2016       |       |
| Medicsight plc                |       | Plan I     |       | —                                                                        |       | 300,000                                                                        |       | £0.24 ($0.35)                    |       | December 16,  2018       |       |

 

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**Grants ofPlan-Based Awards**

 
| **Name**                      | ** ** | **Option Grant Dates (1)** | ** ** | **Number of  options** | ** ** | **Option Exercise  Price** | ** ** | **Grant Date  Fair Value (2)** | ** ** |
|-------------------------------|------------|-------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|-----------------------------------------------|------------|
|                          |       |                                      |       |                        |       |                            |       |                                          |       |
| **Tim Paterson-Brown**        |       |                                      |       |                        |       |                            |       |                                          |       |
|                          |       |                                      |       |                        |       |                            |       |                                          |       |
| Medicexchange Limited         |       | July 20,  2006                       |       | 150,000                     |       | £0.40 ($0.58)              |       | $                                             | 60         |   |
| Medicsight plc                |       | February 22,  2007                   |       | 1,000,000                   |       | £0.50 ($0.72)              |       | $                                             | 520        |   |
|                          |       | May 16, 2007                         |       | 250,000                     |       | £0.75 ($1.09)              |       | $                                             | 165        |   |
|                          |       | December 18, 2007                    |       | 500,000                     |       | £1.10 ($1.59)              |       | $                                             | 430        |   |
| MGT Capital Investments, Inc. |       | December 5,  2007                    |       | 1,000,000                   |       | $3.69                           |       | $                                             | 1,600      |   |
|                          |       |                                      |       |                        |       |                            |       |                                          |       |
| **Allan Rowley**              |       |                                      |       |                        |       |                            |       |                                          |       |
|                          |       |                                      |       |                        |       |                            |       |                                          |       |
| Medicexchange Limited         |       | July 20,  2006                       |       | 150,000                     |       | £0.40 ($0.58)              |       | $                                             | 60         |   |
| Medicsight plc                |       | July 13,  2006                       |       | 250,000                     |       | £0.83 ($1.20)              |       | $                                             | 275        |   |
|                          |       | February 22, 2007                    |       | 500,000                     |       | £0.50 ($0.72)              |       | $                                             | 260        |   |
|                          |       | December 18, 2007                    |       | 250,000                     |       | £1.10 ($1.59)              |       | $                                             | 215        |   |
| MGT Capital Investments, Inc. |       | December 5,  2007                    |       | 500,000                     |       | $3.69                           |       | $                                             | 800        |   |
|                          |       |                                      |       |                        |       |                            |       |                                          |       |
| **David Sumner**              |       |                                      |       |                        |       |                            |       |                                          |       |
|                          |       |                                      |       |                        |       |                            |       |                                          |       |
| Medicexchange Limited         |       | July 20,  2006                       |       | 150,000                     |       | £0.40 ($0.58)              |       | $                                             | 60         |   |
| Medicsight plc                |       | March 20,  2003 (*)                  |       | 50,000                      |       | £0.75 ($1.09)              |       | $                                             | 38         |   |
|                          |       | September 9, 2004 (*)                |       | 50,000                      |       | £0.75 ($1.09)              |       | $                                             | 38         |   |
|                          |       | February 22, 2007                    |       | 900,000                     |       | £0.50 ($0.72)              |       | $                                             | 468        |   |
|                          |       | December 18, 2007                    |       | 500,000                     |       | £1.10 ($1.59)              |       | $                                             | 430        |   |
|                          |       |                                      |       |                        |       |                            |       |                                          |       |
| **Adam Boyse**                |       |                                      |       |                        |       |                            |       |                                          |       |
|                          |       |                                      |       |                        |       |                            |       |                                          |       |
| Medicexchange Limited         |       | July 20,  2006                       |       | 150,000                     |       | £0.40 ($0.58)              |       | $                                             | 60         |   |
| Medicsight plc                |       | June 30,  2005 (*)                   |       | 100,000                     |       | £0.75 ($1.09)              |       | $                                             | 94         |   |
|                          |       | July 13, 2006                        |       | 150,000                     |       | £0.83 ($1.20)              |       | $                                             | 165        |   |
|                          |       |                                      |       |                        |       |                            |       |                                          |       |
| **Alex Van Klaveren**         |       |                                      |       |                        |       |                            |       |                                          |       |
|                          |       |                                      |       |                        |       |                            |       |                                          |       |
| MGT Capital Investments, Inc. |       | December 5,  2007                    |       | 100,000                     |       | $3.69                           |       | $                                             | 160        |   |
|                          |       |                                      |       |                        |       |                            |       |                                          |       |
| **Dr Ravi Bickram Shrestha**  |       |                                      |       |                        |       |                            |       |                                          |       |
|                          |       |                                      |       |                        |       |                            |       |                                          |       |
| Medicsight plc                |       | July 13,  2006                       |       | 250,000                     |       | £0.83 ($1.20)              |       | $                                             | 275        |   |
| Medicsight plc                |       | February 22,  2007                   |       | 150,000                     |       | £0.50 ($0.72)              |       | $                                             | 78         |   |
| Medicsight plc                |       | December 16,  2008                   |       | 50,000                      |       | £0.24 ($0.35)              |       | $                                             | 10         |   |
| Medicexchange Limited         |       | July 20,  2006                       |       | 150,000                     |       | £0.40 ($0.58)              |       | $                                             | 60         |   |
|                          |       |                                      |       |                        |       |                            |       |                                          |       |
| **Kenichi Nakagawa**          |       |                                      |       |                        |       |                            |       |                                          |       |
|                          |       |                                      |       |                        |       |                            |       |                                          |       |
| Medicsight plc                |       | February 22,  2007                   |       | 300,000                     |       | £0.50 ($0.72)              |       | $                                             | 330        |   |
| Medicsight plc                |       | December 16,  2008                   |       | 100,000                     |       | £0.24 ($0.35)              |       | $                                             | 52         |   |

 

----

| (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, 2008. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                   |
| (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.                    |

 

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**Discussionof Summary Compensation and Grant of Plan Based Award Tables.**

 

*Employmentagreements*

 

Pursuant to their employmentagreements, Tim Paterson-Brown and Allan Rowley received an annual salary of$347 (£240) and $232 (£160) respectively, plus a bonus each year as determinedby our Board of Directors based on attainment of performance goals conveyed tothe employee.  Tim-Paterson Brown is on 12 months notice to the Companyand 36 months notice from the Company.  Allan Rowley is on 6 months noticeto the Company and 24 months from the Company.

 

*PotentialPayments on Termination or Change in Control*

 

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

 

**Insider Participation**

 

We have a Remuneration andNominations Committee that is comprised of Neal Wyman and Peter Venton (two ofour independent directors) that determines the compensation of the MGT CapitalInvestments Inc.’s executive officers.  The Board of Directors generallyfollows these recommendations.  Each of Tim Paterson-Brown, the Company’sChief Executive Officer, and Allan Rowley, the Company’s Chief FinancialOfficer, is a member of the Company’s Board of Directors. Tim Paterson-Browndoes not participate in board deliberations of his compensation.  AllanRowley does not participate in board deliberations of his compensation or thatof Tim Paterson-Brown.

 

Medicsight PLC has its ownRemuneration and Nominations Committee that determines the executivecompensation for its Executive Chairman (David Sumner) and Chief ExecutiveOfficer (Allan Rowley).  The Medicexchange Chairman determines theexecutive compensation for the Chief Executive Officer of Medicexchange PLC(Alex Van Klaveren).

 

**Report**

 

The Board of Directors hasreviewed and discussed the Company’s Compensation Discussion and Analysis withmanagement.  Based on the review and discussions, those Directors haveapproved the inclusion of the Compensation Discussion and Analysis in ourannual 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

 

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**DirectorCompensation**

 
| **Name**              | ** ** | **Fees Earned or  Paid in Cash (1)** | ** ** | **Option  Awards** | ** ** | **All Other**

**Compensation** | ** ** | **Total** | ** ** |
|-----------------------|------------|---------------------------------------------------------------|------------|--------------------|------------|--------------------------------------|------------|-----------|------------|
|                  |       |                                                          |       |               |       |                                 |       |      |       |
| Neal Wyman            |       | $                                                             | 40         |               | $          | —                               |       | $         | —     |   | $ | 40 |   |
| Dr L. Peter Fielding  |       | $                                                             | 30         |               | $          | —                               |       | $         | —     |   | $ | 30 |   |
| Peter Venton (2)      |       | $                                                             | 93         |               | $          | —                               |       | $         | —     |   | $ | 93 |   |
| Sir Christopher Paine |       | $                                                             | 20         |               | $          | —                               |       | $         | —     |   | $ | 20 |   |
| Dr Allan Miller       |       | $                                                             | 20         |               | $          | —                               |       | $         | —     |   | $ | 20 |   |

 

All the Directors will bereimbursed for their out-of-pocket expenses incurred in connection with theperformance of Board duties.

 

----

| (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  2008 and are therefore not included in the table. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Includes fees for services to the Company and to  Medicsight plc.                                                                                                                                                                                                      |

 

**IndependentDirector Compensation**

 

From January 1, 2008the Company increased fees for its independent directors.  Eachindependent director receives annual compensation of $20.  Members of the audit committee and/orremuneration committee receive and extra $10 for each committee they serveon.  For the fiscal year 2009, theCompany does not propose any change in fees for its independent directors.

 

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| **ITEM 12** | **SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND  RELATED STOCKHOLDER MATTERS.** |
|-------------|------------------------------------------------------------------------------------------------------|

 

The following table setsforth certain information regarding beneficial ownership of the Company’scommon stock as of March 17, 2009:

 

·                                          each person known by the Companyto be the beneficial owner of more than 5% of the outstanding common stock;

 

·                                          each person serving as a directoror executive officer of the Company; and

 

·                                          all executive officers anddirectors of the Company as a group.

 

Beneficial ownership isdetermined 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.

 

Percentage beneficiallyowned is based upon 32,500,893 shares of common stock issued and outstanding asof March 27, 2009.

 
| **Name and address of Beneficial Owner** | ** ** | **Number of Shares  Beneficially Owned** | ** ** | **Percentage of Common  Equity Beneficially Owned** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
|                                                              |       |                                                    |       |                                                                    |       |
| **5% Beneficial Owners**                                          |       |                                                    |       |                                                                    |       |
| Columbia Partners LLC Investment Management                       |       | 1,655,645                                               |       | 5.1                                                                     | %          |
|                                                              |       |                                                    |       |                                                                    |       |
| **Directors and Officers**                                        |       |                                                    |       |                                                                    |       |
| Tim Paterson-Brown                                                |       | 2,000,000                                               |       | 6.2                                                                     | %          |
| 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                                               |       | 6.2                                                                     | %          |

 

----

* Less than 1%.

 

Addresses for thesedirectors and officers are care of the Company at Kensington Centre, 66Hammersmith Road, London W14 8UD, United Kingdom.

 

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| **ITEM 13** | **CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND  DIRECTOR INDEPENDENCE.** |
|-------------|--------------------------------------------------------------------------------|

 

*AsiaIT Capital Investments Ltd (a related party)*

 

On December 29, 2000,the Company acquired all of the issued and outstanding shares of HTTP InsightsLimited (“Insights”).  Asia IT Capital Investments Limited (“Asia IT”) wasa shareholder in Insights as well as the Company at the time of theacquisition, and had provided a credit facility 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 Medicsight plc. This facility was cancelled by mutual agreement and with no financial impact inJune 2007.

 

A director of Asia IT is abrother of Tim Paterson-Brown (our Chairman and Chief Executive Officer). In addition to the loan facilities made available by Asia IT to the Company andMedicsight plc, Asia IT received commissions on shares issuances andtransactions in Fiscal 2007, 2006 and 2005.

 

During Fiscal 2007,Medicsight plc completed its Initial Public Offering on the AIM Market of theLondon Stock Exchange.  Approximately 29,000,000 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.  We incurred fees of approximately£1,550 ($3,096), including approximately £149 ($298) with Asia IT. Immediately prior to the Medicsight IPO, the Company sold down, by privateplacement via Asia IT, approximately 11,700,000 million of its Medicsightshares.  The shares were priced at £1.10 ($2.20) — the same price as theMedicsight plc IPO. Gross proceeds on the private placement were approximately£12,845 ($25,736).  We incurred fees with Asia IT of approximately £578($1,167).

 

During Fiscal 2006 theCompany 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 2005 theCompany raised $12,035, net of commissions and expenses, in a private placementof restricted common stock at $4.00 per share. Asia IT received commissions of$1,230.

 

During the year ended December 31,2008, the Company placed monies on deposit with Asia IT. These monies earninterest at a range of annual rates between 5% to 10%. The funds are on call atany time. At December 31, 2008 the balance of monies on deposit with AsiaIT was $1,234 which included $337 of interest income earned in the year ended December 31,2008.

 

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

 

During the year ended December 31,2006 the Company placed monies on deposit with Asia IT. These monies earninterest at an annual rate of 5%. The funds are on call at any time. At December 31,2006 the balance of monies on deposit with Asia IT was $5,993 which included$116 of interest 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 HipCricket, Inc.,and XShares Group LLC respectively. Both of these investments were introducedto the Company by Asia IT.  A brother of Tim Paterson-Brown is annon-executive director of HipCricket Inc. In the year ended December 31,2008 the Company acquired furthershares in XShares to the value $2,040 bringing the total investment to $3,000.

 

Tim Paterson-Brown is also anon-executive director of Accsys Technologies plc, which has a subsidiarycompany Titan Wood Limited. Titan Wood Limited rents space in 66 HammersmithRoad.  In the year ended December 31,2008, $180 of office related costs were recharged to Titan Wood Limited. At December 31,2008 there was a balance receivable from Titan Wood Limited of $49, of which noneremains unpaid. This is payable within 30 days under the terms of the invoice.

 

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.

 

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*Purchaseof Shares*

 

In the year ended December 31,2008 Tim Paterson-Brown (our Chief Executive Officer) Allan Rowley (our ChiefFinancial Officer) and David Sumner (Medicsight’s Executive Chairman) purchased,on the open market, 110,000, 118,500 and 82,000 ordinary shares respectively inMedicsight plc.

 

In the year ended December 31,2006 Allan Rowley purchased 15,000 ordinary shares in Medicexchange plc for £15($30) which was received in full.

 

*Directorindependence*

 

Each of the Company’sindependent directors: Neal Wyman, Dr. L. Peter Fielding, Peter Venton,Sir Christopher Paine and Dr. Allan Miller is considered independent underSection 803A of the NYSE AMEX stock exchange rules to which theCompany must comply.

 

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**PART IV**

 
| **ITEM 14**            | **PRINCIPAL ACCOUNTING FEES AND SERVICES.**                                                        |
|------------------------|----------------------------------------------------------------------------------------------------|
| ** **             | ** **                                                                                         |
| *Audit  Fees.*         | Fees billed by  our principal accountant amounted to $226 in Fiscal 2008 and $212 in Fiscal  2007. |
| ** **             | ** **                                                                                         |
| *Audit  Related Fees.* | Fees billed by  our principal accountant amounted to $58 in Fiscal 2008 and $0 in Fiscal  2007.    |
| ** **             | ** **                                                                                         |
| *Tax  Fees.*           | Fees billed by  our principal accountant amounted to $60 in Fiscal 2008 and $135 in Fiscal  2007.  |
| * *               |                                                                                               |
| *All  Other Fees.*     | Fees billed by  our principal accountant amounted to $0 in Fiscal 2008 and $0 in Fiscal 2007.      |

 

The Company’s AuditCommittee has approved the Company’s audit fees.

 

As of November 25,2004, the Audit Committee is directly responsible for the appointment,compensation, retention and oversight of the work of any independent auditorengaged (including resolution of disagreements between management and theauditor regarding financial reporting) for the purpose of preparing or issuingan audit report or performing other audit, review or attest services for theCompany.  Each such firm shall report directly to the Company’s AuditCommittee.  The Audit Committee also is responsible for overseeing theaccounting and financial reporting processes of the Company and the audits ofthe financial statements of the Company.

 

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| **ITEM 15** | **EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.** |
|-------------|-------------------------------------------------|

 

**FinancialStatements**

 

The financial statements ofthe Company for the fiscal years covered by this Annual Report are located on pages F-1to F-27 of this 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 the Company’s Current Report on Form 8-K filed on  January 19, 2007.         |
|--------|----------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                             |
| (2)    | Incorporated herein by  reference to the Company’s Current Report on Form 8-K filed on  May 23, 2000.             |
|   |                                                                                                                             |
| (3)    | Incorporated herein by  reference to the Company’s Current Report on Form 8-K filed  March 7, 2001.               |
|   |                                                                                                                             |
| (4)    | Incorporated herein by  reference to the Company’s Registration Statement on Form SB-2, filed  December 26, 2001. |
|   |                                                                                                                             |
| (5)    | Incorporated herein by  reference to the Company’s Annual Report on Form 10-KSB, filed  April 19, 2002.           |

 

41

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**SIGNATURES**

 

In accordance with Section 13or 15(d) of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 
|          | MGT CAPITAL INVESTMENTS,  INC |
|---------------|-------------------------------|
| April 2, 2009 |                          |   |
|          | By:                           | /s/ TIM PATERSON-BROWN |
| * *      |                          | *Chief  Executive Officer (Principal Executive Officer)* |
| April 2, 2009 |                          |   |
|          | By:                           | /s/ ALLAN ROWLEY |
| * *      |                          | *Chief  Financial Officer (Principal Financial Officer)* |

 

In accordance with theExchange 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   |       | April 2, 2009 |
| Tim Paterson-Brown        |       |       |       |               |
|                      |       |       |       |               |
| /s/ ALLAN ROWLEY          |       | Director   |       | April 2, 2009 |
| Allan Rowley              |       |       |       |               |
|                      |       |       |       |               |
| /s/ NEAL WYMAN            |       | Director   |       | April 2, 2009 |
| Neal Wyman                |       |       |       |               |
|                      |       |       |       |               |
| /s/ L. PETER FIELDING     |       | Director   |       | April 2, 2009 |
| L. Peter Fielding         |       |       |       |               |
|                      |       |       |       |               |
| /s/ PETER VENTON          |       | Director   |       | April 2, 2009 |
| Peter Venton              |       |       |       |               |
|                      |       |       |       |               |
| /s/ SIR CHRISTOPHER PAINE |       | Director   |       | April 2, 2009 |
| Sir Christopher Paine     |       |       |       |               |
|                      |       |       |       |               |
| /s/ ALLAN MILLER          |       | Director   |       | April 2, 2009 |
| Allan Miller              |       |       |       |               |

 

42

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Table of Contents

 

**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, 2008 and December 31, 2007                                                                                                            | F-3         |
|                                                                                                                                                                                            |        |
| Consolidated Statements of Operations for the years  ended December 31, 2008, December 31, 2007 and December 31,  2006                                                           | F-4         |
|                                                                                                                                                                                            |        |
| Consolidated Statements of Changes in Stockholders’  Equity and Comprehensive Income/(Loss) for the years ended December 31,  2008, December 31, 2007 and December 31, 2006 | F-5         |
|                                                                                                                                                                                            |        |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2008, December 31, 2007 and December 31,  2006                                                           | F-6         |
|                                                                                                                                                                                            |        |
| Notes to the Consolidated Financial Statements                                                                                                                                                  | F-7 to F-27 |

 

F-1

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Tableof Contents

 

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

The Board of Directors andStockholders

MGT Capital Investments, Inc.and Subsidiaries

 

We have audited theaccompanying balance sheets of MGT Capital Investments, Inc. andSubsidiaries as of December 31, 2008 and 2007, and the related statementsof operations, stockholders’ equity and comprehensive income (loss), and cashflows for each of the years in the three-year period ended December 31,2008.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audits to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  The Company is not required to have, nor werewe engaged to perform, an audit of its internal control over financialreporting.  Our audits includedconsideration of internal control over financial reporting as a basis fordesigning audits procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, as wellas evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

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, 2008 and 2007, and the results of theiroperations and their cash flows for each of the years in the three-year periodended December 31, 2008, in conformity with U.S.  generally accepted accounting principles.

 

As discussed in Note 2 tothe consolidated financial statements, effective January 1, 2008, theCorporation adopted Statement of Financial Accounting Standards No. 157,“Fair Value Measurements.” In 2007, the Company adopted the provisions of FIN48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASBStatement No. 109.”

 

In connection with ouraudits of the financial statements referred to above, we also audited ScheduleII — Valuation and Qualifying Accounts for each of the three years in theperiod ended December 31, 2008.  In ouropinion, this financial schedule, when considered in relation to the financialstatements taken as a whole, presents fairly, in all material respects, theinformation stated therein.

 

Amper, Politziner &Mattia LLP

 

April 2, 2009

Edison, New Jersey

 

F-2

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Tableof Contents

 

**MGT CAPITAL INVESTMENTS, INC ANDSUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

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

 
| ** **                                                                                                                                                                                                                                    | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                    | ** ** | **2008**              | ** ** | **2007** | ** ** |
|                                                                                                                                                                                                                                          |       |                  |       |   |   |
| **Assets**                                                                                                                                                                                                                                    |       |                  |       |   |   |
| Current assets:                                                                                                                                                                                                                               |       |                  |       |   |   |
| Cash and cash equivalents                                                                                                                                                                                                                     |       | $                     | 38,294     |   | $ | 92,373 |   |
| Marketable securities                                                                                                                                                                                                                         |       | 1,884                 |       | 2,219 |   |
| Accounts receivable                                                                                                                                                                                                                           |       | 134                   |       | 7 |   |
| Other receivables — related party                                                                                                                                                                                                        |       | 49                    |       | 16 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                     |       | 851                   |       | 704 |   |
| Total current assets                                                                                                                                                                                                                          |       | 41,212                |       | 95,319 |   |
|                                                                                                                                                                                                                                          |       |                  |       |   |   |
| Property and equipment, at cost, net                                                                                                                                                                                                          |       | 706                   |       | 903 |   |
| Intangible assets                                                                                                                                                                                                                             |       | 299                   |       | — |   |
| Investments at cost                                                                                                                                                                                                                           |       | 776                   |       | 1,319 |   |
| Security deposits                                                                                                                                                                                                                             |       | 301                   |       | 279 |   |
| Goodwill                                                                                                                                                                                                                                      |       | 12,157                |       | 11,200 |   |
| Total assets                                                                                                                                                                                                                                  |       | $                     | 55,451     |   | $ | 109,020 |   |
|                                                                                                                                                                                                                                          |       |                  |       |   |   |
| **Liabilities**                                                                                                                                                                                                                               |       |                  |       |   |   |
| Current liabilities:                                                                                                                                                                                                                          |       |                  |       |   |   |
| Accounts payable                                                                                                                                                                                                                              |       | $                     | 2,877      |   | $ | 2,931 |   |
| Accrued expenses                                                                                                                                                                                                                              |       | 1,386                 |       | 1,469 |   |
| Deferred revenue                                                                                                                                                                                                                              |       | 77                    |       | 20 |   |
| Total current liabilities                                                                                                                                                                                                                     |       |                  | 4,340      |   |   | 4,420 |   |
|                                                                                                                                                                                                                                          |       |                  |       |   |   |
| **Minority interest**                                                                                                                                                                                                                         |       | 16,017                |       | 93,504 |   |
|                                                                                                                                                                                                                                          |       |                  |       |   |   |
| Commitments and contingencies                                                                                                                                                                                                                 |       |                  |       |   |   |
|                                                                                                                                                                                                                                          |       |                  |       |   |   |
| **Equity**                                                                                                                                                                                                                                    | ** ** | ** **            | ** ** | ** ** | ** ** |
| Stockholders’ equity                                                                                                                                                                                                                     |       |                  |       |   |   |
| Common stock, $0.001 par value:  December 31, 2008, 75,000,000 shares authorized; 38,900,383 issued and  32,550,590 shares outstanding (December 31, 2007, 75,000,000 shares  authorized, 38,900,383 shares issued and outstanding) |       | 39                    |       | 39 |   |
| Additional paid-in capital                                                                                                                                                                                                                    |       | 298,376               |       | 229,428 |   |
| Accumulated other comprehensive (loss)/income                                                                                                                                                                                                 |       | (4,959                | )          | 1,078 |   |
| Accumulated deficit                                                                                                                                                                                                                           |       | (239,450              | )          | (219,449 | ) |
|                                                                                                                                                                                                                                          |       | 54,006                |       | 11,096 |   |
| Treasury stock, at cost, 6,349,793 shares  of common stock                                                                                                                                                                                    |       | (18,912               | )          | — |   |
| Total stockholders’ equity                                                                                                                                                                                                               |       | 35,094                |       | 11,096 |   |
|                                                                                                                                                                                                                                          |       |                  |       |   |   |
| Total stockholders’ equity, liabilities and  minority interest                                                                                                                                                                           |       | $                     | 55,451     |   | $ | 109,020 |   |

 

The accompanying notes are an integral part of these statements.

 

F-3

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Tableof Contents

 

**MGT CAPITAL INVESTMENTS, INC AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

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

 
| ** **                                            | ** ** | **For the Years Ended December 31,** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                            | ** ** | **2008**                                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                  |       |                                                          |       |   |   |   |   |
| Revenues                                              |       | $                                                             | 354        |   | $ | 89 |   | $ | — |   |
| Cost of revenue                                       |       | (116                                                          | )          | (35 | ) | — |   |
| Gross margin                                          |       | 238                                                           |       | 54 |   | — |   |
|                                                  |       |                                                          |       |   |   |   |   |
| Operating expenses                                    |       |                                                          |       |   |   |   |   |
| Selling, general and administrative                   |       | 26,066                                                        |       | 19,307 |   | 12,842 |   |
| Research and development cost                         |       | 3,665                                                         |       | 2,670 |   | 2,870 |   |
|                                                  |       | 29,731                                                        |       | 21,977 |   | 15,712 |   |
|                                                  |       |                                                          |       |   |   |   |   |
| Operating loss                                        |       | (29,493                                                       | )          | (21,923 | ) | (15,712 | ) |
|                                                  |       |                                                          |       |   |   |   |   |
| Interest and other income                             |       | 1,842                                                         |       | 4,048 |   | 300 |   |
| Loss before minority interest                         |       | (27,651                                                       | )          | (17,875 | ) | (15,412 | ) |
|                                                  |       |                                                          |       |   |   |   |   |
| Minority interest                                     |       | 7,650                                                         |       | 4,075 |   | 477 |   |
|                                                  |       |                                                          |       |   |   |   |   |
| Net loss                                              |       | $                                                             | (20,001    | ) | $ | (13,800 | ) | $ | (14,935 | ) |
|                                                  |       |                                                          |       |   |   |   |   |
| Basic and diluted loss per share                      |       | $                                                             | (0.60      | ) | $ | (0.35 | ) | $ | (0.39 | ) |
|                                                  |       |                                                          |       |   |   |   |   |
| Weighted average number of common shares  outstanding |       | 33,188,294                                                    |       | 38,900,383 |   | 38,092,965 |   |

 

The accompanying notes are an integral part of these statements.

 

F-4

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Tableof Contents

 

**MGT CAPITAL INVESTMENTS, INC AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME/(LOSS)**

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

 
| ** **                                  | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | **Shares**        | ** ** | **Accumulated**        | ** ** | ** **   | ** ** | ** **             | ** ** | **Total**  | ** ** |
|---------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|-------------------|------------|------------------------|------------|--------------|------------|------------------------|------------|------------|------------|
| ** **                                  | ** ** | **Common stock** | ** ** | **Paid-In** | ** ** | **to be** | ** ** | **Comprehensive** | ** ** | **Accumulated**        | ** ** | **Treasury** | ** ** | **Stockholders’** | ** ** |
| ** **                                  | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Issued**        | ** ** | **Income (Loss)** | ** ** | **Deficit**  | ** ** | **Stock**              | ** ** | **Equity** | ** ** |
|                                        |       |                  |       |        |       |           |       |              |       |                   |       |         |       |                   |       |       |       |
| BALANCE, JANUARY 1, 2006                    |       | 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        |       |
| Unrealized 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     |       |
|                                        |       |                  |       |        |       |           |       |              |       |                   |       |         |       |                   |       |       |       |
| Proceeds from sale 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        |       |
| Unrealized 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     |       |
|                                        |       |                  |       |        |       |           |       |              |       |                   |       |         |       |                   |       |       |       |
| Reclassification from minority interest     |       | —                |       | —      |       | 66,132         |       | —            |       | —                 |       | —       |       | —                 |       | 66,132     |       |
| Purchase of own stock                       |       | —                |       | —      |       | —         |       | —            |       | —                 |       | —       |       | (18,912                | )          | (18,912    | )          |
| Stock-based compensation                    |       | —                |       | —      |       | 2,816          |       | —            |       | —                 |       | —       |       | —                 |       | 2,816      |       |
| COMPREHENSIVE LOSS                          |       |                  |       |        |       |           |       |              |       |                   |       |         |       |                   |       |       |       |
| Net loss for the year                       |       | —                |       | —      |       | —         |       | —            |       | —                 |       | (20,001      | )          | —                 |       | (20,001    | )          |
| Translation adjustment                      |       | —                |       | —      |       | —         |       | —            |       | (5,956                 | )          | —       |       | —                 |       | (5,956     | )          |
| Unrealized loss on marketable securities    |       | —                |       | —      |       | —         |       | —            |       | (81                    | )          | —       |       | —                 |       | (81        | )          |
| Total comprehensive loss                    |       | —                |       | —      |       | —         |       | —            |       | (6,037                 | )          | (20,001      | )          | —                 |       | (26,038    | )          |
|                                        |       |                  |       |        |       |           |       |              |       |                   |       |         |       |                   |       |       |       |
| BALANCE, DECEMBER 31, 2008                  |       | 38,900                |       | $           | 39         |           | $          | 298,376           |       | $                      | —     |         | $          | (4,959                 | )          | $          | (239,450   | ) | $ | (18,912 | ) | $ | 35,094 |   |

 

The accompanying notes are an integral part of these statements.

 

F-5

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Tableof Contents

 

**MGT CAPITAL INVESTMENTS, INC AND SUBSIDIARIES**

**CONSOLIDATED STATEMENT OF CASHFLOWS**

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

 
| ** **                                                                        | ** ** | **For the Years Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2008**                                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                              |       |                                                          |       |   |   |   |   |
| Cash flows from operating activities                                              |       |                                                          |       |   |   |   |   |
| Net loss                                                                          |       | $                                                             | (20,001    | ) | $ | (13,800 | ) | $ | (14,935 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:      |       |                                                          |       |   |   |   |   |
| Loss attributable to minority interests                                           |       | (7,650                                                        | )          | (4,075 | ) | (477 | ) |
| Stock-based compensation expense                                                  |       | 3,932                                                         |       | 1,541 |   | 440 |   |
| Depreciation                                                                      |       | 468                                                           |       | 367 |   | 278 |   |
| Amortization of intangible fixed asset                                            |       | 100                                                           |       | — |   | — |   |
| Loss on disposal of fixed assets                                                  |       | 158                                                           |       | 6 |   | 13 |   |
| Realized loss on investments                                                      |       | 33                                                            |       | — |   | — |   |
| Loss on impairment deemed other than  temporary                                   |       | 1,101                                                         |       | — |   | — |   |
| Loss on impairment of investments held at  cost                                   |       | 2,583                                                         |       | — |   | — |   |
| Unrealized currency (gain)/loss on foreign  denominated intercompany transactions |       | (747                                                          | )          | — |   | — |   |
| (Increase)/decrease in assets                                                     |       |                                                          |       |   |   |   |   |
| Accounts receivable                                                               |       | (166                                                          | )          | (7 | ) | — |   |
| Other receivable — related party                                             |       | (47                                                           | )          | 58 |   | — |   |
| Prepaid expenses and other current assets                                         |       | (354                                                          | )          | 435 |   | 47 |   |
| Increase/(decrease) in liabilities                                                |       |                                                          |       |   |   |   |   |
| Accounts payable                                                                  |       | 309                                                           |       | 945 |   | 814 |   |
| Accounts payable — related party                                             |       | —                                                        |       | — |   | (1,151 | ) |
| Accrued expenses                                                                  |       | 167                                                           |       | 84 |   | 981 |   |
| Deferred revenue                                                                  |       | 75                                                            |       | 20 |   | — |   |
| Net cash used in operating activities                                             |       | (20,039                                                       | )          | (14,426 | ) | (13,990 | ) |
|                                                                              |       |                                                          |       |   |   |   |   |
| Cash flows from investing activities:                                             |       |                                                          |       |   |   |   |   |
| Cash held for common stock subscribed but  unissued                               |       | —                                                        |       | — |   | 4,000 |   |
| Purchase of investments at cost                                                   |       | (2,040                                                        | )          | (960 | ) | — |   |
| Purchase of marketable securities                                                 |       | (4,585                                                        | )          | (2,000 | ) | (4,533 | ) |
| Sale of marketable securities                                                     |       | 3,588                                                         |       | 4,395 |   | — |   |
| Purchase of property and equipment                                                |       | (515                                                          | )          | (593 | ) | (722 | ) |
| Purchase of Chinese subsidiary                                                    |       | (220                                                          | )          | — |   | — |   |
| Net cash (used in)/provided by investing  activities                              |       | (3,772                                                        | )          | 842 |   | (1,255 | ) |
|                                                                              |       |                                                          |       |   |   |   |   |
| Cash flows from financing activities:                                             |       |                                                          |       |   |   |   |   |
| Principal payments under capital lease  obligations                               |       | —                                                        |       | (7 | ) | (18 | ) |
| Purchase of own stock                                                             |       | (18,912                                                       | )          | — |   | — |   |
| Repurchase of subsidiary company stock                                            |       | (1,251                                                        | )          | — |   | — |   |
| Proceeds from sale of common stock (net of  commissions)                          |       | —                                                        |       | — |   | 9,017 |   |
| Proceeds from sale of subsidiary company  stock                                   |       | —                                                        |       | 24,569 |   | — |   |
| Proceeds from issue of subsidiary company  stock                                  |       | —                                                        |       | 61,049 |   | 22,187 |   |
| (Decrease) from sale of common stock to be  issued (net of commissions)           |       | —                                                        |       | — |   | (3,600 | ) |
| Net cash (used in)/provided by financing  activities                              |       | (20,163                                                       | )          | 85,611 |   | 27,586 |   |
|                                                                              |       |                                                          |       |   |   |   |   |
| Effects of exchange rates on cash and cash  equivalents                           |       | (10,105                                                       | )          | 589 |   | 167 |   |
| Net change in cash and cash equivalents                                           |       | (54,079                                                       | )          | 72,616 |   | 12,508 |   |
| Cash and cash equivalents, beginning of  year                                     |       | 92,373                                                        |       | 19,757 |   | 7,249 |   |
| Cash and cash equivalents, end of year                                            |       | $                                                             | 38,294     |   | $ | 92,373 |   | $ | 19,757 |   |
|                                                                              |       |                                                          |       |   |   |   |   |
| Supplemental disclosures of cash  paid                                            |       |                                                          |       |   |   |   |   |
| Interest paid                                                                     |       | $                                                             | —     |   | $ | 3 |   | $ | 2 |   |
|                                                                                   |            |                                                               |            |  |  |  |  |  |  |  |  |  |  |

 

The accompanying notes are an integral part of these statements.

 

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**MGT CAPITAL INVESTMENTS, INC AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIALSTATEMENTS**

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

 

**1.     Organization, basis of presentation andliquidity**

 

MGT Capital Investments, Inc(“MGT”, “we”, “the Company”, “the Group”, “us”) is a holding Company in theglobal Healthcare Information Technology sector (“HCIT”).  We currentlyhave a controlling interest in our two main operating subsidiaries: Medicsight plc(“Medicsight”) and Medicexchange Limited (“Medicexchange”). We also have whollyowned subsidiaries MGT Capital Investments (UK) Limited, MGT Investments(Gibraltar) Limited, Medicexchange Inc., Medicsight Nominees Limited, HTTP TechInc. 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”) applicationswhich analyze Computer Tomography (“CT”) scans for the early detection andmeasurement of colorectal polyps and lung lesions.  The Company holds 86million shares (55%) of the 155 million shares issued capital of Medicsight.

 

·                                   Medicexchange and its majorityowned subsidiaries provide medical imaging professionals with a global webportal containing an online sales channel for diagnostic, treatment and surgeryplanning solutions.  This combined with a variety of relevant clinicalpapers, training materials and content gives these professionals access toinformation and products that they otherwise would have difficultyaccessing.  The Company holds 22.5 million shares (73%) of the 30.8million issued share capital of Medicexchange.  Medicexchange’s shares arenot publicly traded.

 

The Company has incurredsignificant operating losses since inception and has just commenced generatingrevenue from operations. As a result, the Company has generated negative cashflows from operations and has an accumulated deficit of $239,450 at December 31,2008. The Company is operating in a developing industry based on new technologyand its primary source of funds to date has been through the issuance ofsecurities. While the Company is optimistic and believes appropriate actionsare being taken, there can be no assurance that management’s efforts will besuccessful or that the products the Company develops and markets will beaccepted by consumers.

 

**2.     Summary of significant accountingpolicies:**

 

*Principlesof Consolidation*

 

The financial statementsinclude the accounts of our Company and our wholly and majority ownedsubsidiaries. Our main operating subsidiaries are Medicsight and Medicexchange.The functional currencies of our subsidiaries are their local currencies. All intercompany transactions and balances have been eliminated.  Allforeign currency translation gains and losses arising on consolidation wererecorded in stockholders’ equity as a component of accumulated othercomprehensive income (loss) in accordance with Statement of FinancialAccounting Standards No. 52, *ForeignCurrency Translation.*   Minority Interest represents theminority equity investment in any of the MGT Capital Investments Inc. group ofcompanies, plus the minorities share of the net operating result.

 

*Useof Estimates*

 

The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the amounts of assets

 

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and liabilities anddisclosure of contingent liabilities at the date of the financial statementsand the reported amounts of revenue and expenses during the reporting period.Actual results could differ from those estimates.

* *

*Fairvalue of financial instruments*

 

On January 1,2008, the Company adopted the provisions of SFAS No. 157, “Fair ValueMeasurements,” for financial assets and financial liabilities. In accordancewith Financial Accounting Standards Board Staff Position (FSP) No. SFAS 157-2,“Effective Date of FASB Statement No. 157,” the Company will delay applicationof SFAS 157 for non-financial assets and non-financial liabilities, untilJanuary 1, 2009. SFAS 157 defines fair value, establishes a framework formeasuring fair value and expands disclosure about fair value measurements.  SFAS No. 157 became effective for the Companyin the first quarter of 2008 for financial assets and liabilities. The Companyis currently evaluating the impact on the Company’s financial position andoperating results of the application of SFAS 157 for non-financial assets andliabilities.

 

The Company’s financialinstruments consist primarily of cash, cash equivalents and marketablesecurities, for which the current carrying amounts approximate fair marketvalues. Investments held at cost are also subject to SFAS 157 if they deemed tobe impaired as the result of an impairment review.

 

*Cashand cash equivalents*

 

The Company considersinvestments with original maturities of three months or less to be cashequivalents.

 

*Marketablesecurities*

 

The Company invests some ofits cash balances in short-term highly liquid available for sale marketablesecurities, which are carried in our balance sheet at fair value in accordancewith Statement of Financial Accounting Standards (“SFAS”) No. 115 *Accounting for Certain Investments in Debt and EquitySecurities,* with unrealized gains and losses reported instockholders’ equity as a component of accumulated other comprehensive income(loss) - unless the Company concludes that unrealized losses represent another-than-temporary impairment. In that circumstance, such losses would bereflected in the consolidated statements of operations. Realized gains andlosses are included in other income. Fair value is based upon quoted marketprices for these or similar instruments.

 

*Investments*

 

Investments consists ofequity ownership in various corporations where our investment is less than 20%of issued share capital. The Company records these investments at historicalcost, subject to any provision for impairment.

* *

*Propertyand equipment*

 

Property and equipment arestated at cost. Depreciation is calculated using the straight line method onthe various asset classes over their estimated useful lives, which range fromtwo to five years. Leasehold improvements are depreciated over the term of thelease.

 

*Goodwill*

 

Goodwill represents theexcess of acquisition purchase price over the fair value of the net assetsacquired. In accordance with SFAS No. 142 “Goodwill and Other IntangibleAssets,” goodwill is tested for impairment on an annual basis or wheneverindicators of impairment arise. An impairment analysis was performed as of December 31,2008 and 2007 and the Company concluded there was no impairment loss.

 

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

 

The Company evaluates thecarrying value of long-lived assets for impairment whenever events or changesin circumstances indicate that the carrying amount of an asset may not berecoverable. The Company’s assessment for impairment of an asset involvesestimating the undiscounted cash flows expected to result from use of the assetand its eventual disposition. An impairment loss recognized is measured as theamount by which the carrying amount of the asset exceeds the fair value of theasset.

 

*Foreigncurrency translation*

 

The accounts of the Company’sforeign subsidiaries are maintained using the local currency as the functionalcurrency. For these subsidiaries, assets and liabilities are translated into USdollars 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.

 

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Gains and losses on foreigncurrency transactions are reflected in selling, general and administrativeexpenses in the income statement.

 

*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 reportsdetailing 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”).

 

As at December 31, 2008we have $20 of deferred revenue relating to support and maintenance servicesand $42 relating to deferred license revenue.

 

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.

 

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 established based on renewal rates. In softwarearrangements for which the Company does not have vendor-specific objectiveevidence of fair value for all elements, revenue is deferred until the earlierof when vendor-specific objective evidence is determined for the undeliveredelements (residual method) or when all elements for which the Company does nothave vendor-specific objective evidence of fair value have been delivered.

 

*Medicexchange*

 

We recognize revenue whenthe following revenue recognition criteria are met: persuasive evidence of anarrangement exists, services have been rendered, the selling price is fixed ordeterminable,

 

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and collectability isreasonably assured. Deferred revenue is recorded when payments are received inadvance of performing our service obligations.

 

As at December 31, 2008we have $15 of deferred revenue.

 

*Researchand development*

 

Costs incurred in connectionwith the development of software products that are intended for sale areaccounted for in accordance with SFAS No. 86, “Accounting for the Costs ofComputer Software to be Sold, Leased, or Otherwise Marketed”. Costs incurredprior to technological feasibility being established for the product are expensedas incurred.

 

Technological feasibility isestablished upon completion of a detailed program design or, in its absence,completion of a working model. Thereafter, all software production costs can becapitalized and subsequently reported at the lower of un-amortized cost or netrealizable value. Capitalized costs are amortized based on current and futurerevenue for each product with an annual minimum equal to the straight-lineamortization over the remaining estimated economic life of the product. Amortizationcommences when the product is available for general release to customers.

 

The Company concluded thatno such expenditures needed to be capitalized because the Company did not incurany material software production costs and all such costs incurred representresearch and development costs. The Company’s research and development costsare comprised of staff cost, consultancy costs and expensed research anddevelopment software costs expensed on the Medicsight CAD system.

 

For the years ended December 31,2008, December 31, 2007 and December 31, 2006, the Company expended$3,665, $2,670 and $2,870 respectively, for research and development expensesfor Medicsight CAD and its products.

 

*Incometaxes*

 

Effective January 1,2007 the Company adopted FASB Interpretation No. 48, *Accounting for Uncertainty in Income Taxes, aninterpretation of FASB Statement No. 109, Accounting for Income Taxes*(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxesrecognized in financial statements and requires the impact of a tax position tobe recognized in the financial statements if that position is more likely thannot of being sustained by the taxing authority.  At the adoption date of January 1,2007 and also as of December 31, 2008, the Company did not have anyunrecognized tax benefits. We do not expect that the amount of unrecognized taxbenefits will significantly increase or decrease within the next twelvemonths.  The Company’s policy is to recognize interest and penaltiesrelated to tax matters in the income tax provision in the ConsolidatedStatements of Operations.  There was no interest and penalties for theyear ended December 31, 2007 and 2008. Tax years beginning in 2004 aregenerally subject to examination by taxing authorities, although net operatinglosses from all years are subject to examinations and adjustments for at leastthree years following the year in which the attributes are used.

 

Deferred taxes are computedbased on the tax liability or benefit in future years of the reversal oftemporary 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 per share iscalculated by dividing net loss attributable to the ordinary shareholders bythe weighted average number of common shares outstanding during the period.Diluted loss per share is calculated by dividing the

 

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net loss attributable to theordinary shareholders by the sum of the weighted average number of commonshares outstanding and the diluted potential ordinary shares.

 

The computation of dilutedloss per share excludes all options because they are anti-dilutive. For theyear ended December 31, 2008, there were 16,137,500 options excluded witha weighted average exercise price of $1.04 per share.  For the year ended December 31, 2007there were 14,757,500 options excluded with a weighted average exercise priceof $1.72.  For the year ended December 31, 2006 there were 5,040,000options excluded with a weighted average exercise price of $1.79.

 

*Comprehensive(loss)*

 

Comprehensive loss asdefined by SFAS No. 130, “Reporting Comprehensive Loss,” includes net lossand items defined as other comprehensive (loss). SFAS No. 130 requiresthat items defined as other comprehensive (loss), such as foreign currencytranslation adjustments and unrealized gains and losses on certain marketablesecurities, be separately classified in the financial statements. Such itemsare reported in the consolidated statements of stockholders’ equity ascomprehensive (loss).

 

*Segmentreporting*

 

The Company follows theprovisions of SFAS No. 131, “Disclosure About Segments of an Enterpriseand Related Information”. The approach designates the internal organizationthat is used by management for making operating decisions and assessingperformance 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 two segments.

 

*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.  SFAS No 123(R) alsorequires that forfeitures be estimated and recorded over the vesting period ofthe instrument.

 

The Company has adopted SFASNo 123(R) using the modified prospective method which requires thatshare-based expense recognized includes: (a) share-based expense for allawards granted prior to, but not yet vested, as of the adoption date; and (b) share-basedexpense for all award granted subsequent to the adoption date.

 

The Company uses the samevaluation methodologies and assumptions in estimating the fair value of theoptions under both SFAS No 123(R) and the pro forma disclosures under SFASNo. 123.

 

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*Recentaccounting pronouncements*

 

In December 2007 the FASB issued Statement of Financial AccountingStandards No. 141(R) “Business Combinations” (SFAS 141(R)). ThisStatement retains the fundamental requirements in Statement of FinancialAccounting Standards No. 141 “Business Combinations”, that the acquisitionmethod of accounting, previously known as the purchase method, be used for allbusiness combinations and for an acquirer to be identified for each businesscombination. SFAS 141(R) establishes principles and requirements for howthe acquirer recognizes and measures in its financial statements theidentifiable assets acquired, the liabilities assumed, and any noncontrollinginterest in the acquiree; recognizes and measures the goodwill acquired in thebusiness combination or a gain from a bargain purchase; and determines whatinformation to disclose to enable users of the financial statements to evaluatethe nature and financial effects of the business combination. SFAS 141(R) requirescontingent consideration to be recognized at its fair value on the acquisitiondate and, for certain arrangements, changes in fair value to be recognized inearnings until settled. SFAS 141(R) also requires acquisition-relatedtransaction and restructuring costs to be expensed rather than treated as partof the cost of the acquisition. The provisions for SFAS 141(R) areeffective for the Company beginning January 1, 2009. SFAS 141(R) willbe applied prospectively and early adoption is prohibited. We do not expect theadoption of SFAS 141(R) to have a material impact on our financialposition or results of operations.

 

In December 2007 the FASB issued SFAS No. 160, “NoncontrollingInterests in Consolidated Financial Statements”, an amendment of ARB No. 51,which will become effective for the Company January 1, 2009, withretroactive adoption of the Statement’s presentation and disclosurerequirements for existing minority interests. This standard will requireownership interests in subsidiaries held by parties other than the parent to bepresented within the equity section of the consolidated balance sheet butseparate from the parent’s equity. It will also require the amount ofconsolidated net income attributable to the parent and the noncontrollinginterest to be clearly identified and presented on the face of the consolidatedincome statement. Certain changes in a parent’s ownership interest are to beaccounted for as equity transactions and when a subsidiary is deconsolidated,any noncontrolling equity investment in the former subsidiary is to beinitially measured at fair value. We do not expect the adoption of SFAS 160 tohave a material impact on our financial position or results of operations.

 

In April 2008 the FASB issued Staff Position FSP 142-3, “Determinationof the Useful Life of Intangible Assets” (FSP 142-3). FSP 142-3 amends thefactors that should be considered in developing renewal or extensionassumptions used to determine the useful life of a recognized intangible assetunder FASB Statement No. 142, “Goodwill and Other Intangible Assets.” FSP142-3 is effective for financial statements issued after December 15,2008. The Company does not expect the adoption of FSP 142-3 to have a materialeffect on its condensed consolidated financial statements.

 

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In June 2008 the FASB issued FASB Staff Position EITF 03-6-1, “DeterminingWhether Instruments Granted in Share-Based Payment Transactions areParticipating Securities” (“EITF 03-6-1”). EITF 03-6-1 applies to thecalculation of earnings per share for share-based payment awards with rights todividends or dividend equivalents under Statement No. 128, Earnings PerShare. Unvested share-based payment awards that contain nonforfeitable rightsto dividends or dividend equivalents will be considered participatingsecurities and will be included in the computation of earning per sharepursuant to the two-class method. The effective date of EITF 03-6-1 is forfinancial statements issued for fiscal years beginning after December 15,2008, and all interim periods within those years. Early adoption is notpermitted. Once effective, all prior period earnings per share data presentedwill be adjusted retrospectively.  The Company is currently evaluating thepotential impact, if any, the adoption of EITF 03-6-1 may have on itscondensed consolidated financial statements.

 

On January 1, 2008, the Company adopted theprovisions of SFAS No. 157, “Fair Value Measurements,” for financial assets andfinancial liabilities. In accordance with Financial Accounting Standards BoardStaff Position (FSP) No. SFAS 157-2, “Effective Date of FASB Statement No.157,” the Company will delay application of SFAS 157 for non-financial assetsand non-financial liabilities, until January 1, 2009. SFAS 157 defines fairvalue, establishes a framework for measuring fair value and expands disclosureabout fair value measurements.  SFAS No.157 became effective for the Company in the first quarter of 2008 for financialassets and liabilities. The Company is currently evaluating the impact on theCompany’s financial position and operating results of the application of SFAS157 for non-financial assets and liabilities.

 

On October 10, 2008 the FASB issued FASB Staff Position No. FAS157-3 “Determining the Fair Value of a Financial Asset When the Market for ThatAsset Is Not Active”.  FAS 157-3clarifies the application of FASB Statement No. 157, Fair ValueMeasurements , in a market that is not active and provides an example toillustrate key considerations in determining the fair value of a financialasset when the market for that financial asset is not active.  This FSP was effective upon issuance,including prior periods for which financial statements had not been issued.  The Company does not expect the adoption ofFASB 157-3 to have a material effect on its condensed financial statements.

 

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**4.     Marketable securities**

 

Investments in marketablesecurities consisting of HipCricket Inc. and a fund managed by Bank Sarasin &Company Limited as of December 31 were as follows:

 
| ** **                | ** ** | **Market  value** | ** ** | **Cost** | ** ** | **Unrealized  gains** | ** ** | **Transfer to net  loss** | ** ** |
|---------------------------|------------|-------------------|------------|----------|------------|-----------------------|------------|-------------------------------------|------------|
|                      |       |              |       |     |       |                  |       |                                |       |
| At December 31, 2007 |       | 2,219             |       | 2,138    |       | 81                    |       | —                              |       |
| At December 31, 2008 |       | $                 | 1,884      |     | $          | 2,985                 |       | $                                   | —     |   | $ | (1,101 | ) |
|                           |            |                   |            |          |            |                       |            |                                     |            |  |  |  |  |

 

The reduction in netunrealized holding gains on available-for-sale securities of $81 in 2008 wascharged to accumulated other comprehensive income.  In the year ended December 31, 2008 weaccounted for further unrealized losses in net income as we considered thereduction in value to be other than temporary.

 

*Valuationof investments held at fair value*

 

On January 1, 2008, the Company adopted theprovisions of SFAS No. 157, “Fair Value Measurements,” for financial assets andfinancial liabilities. In accordance with Financial Accounting Standards BoardStaff Position (FSP) No. SFAS 157-2, “Effective Date of FASB Statement No.157,” the Company will delay application of SFAS 157 for non-financial assetsand non-financial liabilities, until January 1, 2009. SFAS 157 defines fairvalue, establishes a framework for measuring fair value and expands disclosureabout fair value measurements.  SFAS No.157 became effective for the Company in the first quarter of 2008 for financialassets and liabilities. The Company is currently evaluating the impact on theCompany’s financial position and operating results of the application of SFAS157 for non-financial assets and liabilities.

 

The adoption of SFAS 157 alsorequires the Company to attribute our investments using the fair valuehierarchy defined in the statement. The hierarchy consists of the followingthree levels with associated definitions:

 

Level 1 inputs are unadjusted, quoted prices in active markets foridentical assets or liabilities

 

Level 2 inputs are inputs other than quoted prices included withinLevel 1 that are observable for the asset or liability, either directly orindirectly.  Level 2 inputs includequoted prices for identical assets or liabilities in markets that are notactive, that is, markets in which there are few transactions.

 

Level 3 inputs are unobservable inputs that are supported by little orno market activity.  These inputs require significant management judgementand reflect our estimate of assumptions that market participants would use inpricing the asset.

 

We have valued HipCricket Inc using its closing price on the AIM marketof the London Stock Exchange as of December 31, 2008. Due to the low number ofmarket transactions for HipCricket Inc each transaction can potentially and hashistorically had a significant effect on the share price. It is for this reasonwe deem these to be a Level 2 input in the fair value hierarchy. However, westill believe that this is the best price at which to determine the currentvalue.

 

Our investments in othermarketable securities relate to holdings in corporate bonds issued by highlyrated companies.  We have valued theseinvestments at market prices as of December 31, 2008 and consider these tobe Level 1 inputs as these are active markets.

 

The following tableanalyses our investments holdings using the fair value hierarchy.

 
| ** **                  | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Total** | ** ** |
|-----------------------------|------------|------------------|------------|------------------|------------|-----------|------------|
|                        |       |             |       |             |       |      |       |
| HipCricket Inc              |       | $                | —     |             | 925        |      | $          | 925 |   |
| Other marketable securities |       | 959              |       | —           |       | 959       |       |
| Total                       |       | $                | 959        |             | 925        |      | $          | 1,884 |   |

 

The following table analyses the losses incurred on the investments during2008.  The realized losses recorded onother marketable securities relate to losses made on securities disposed of inthe year.

 
| ** **                  | ** ** | **Loss on  impairment  deemed  other than  temporary** | ** ** | **Realized  losses** | ** ** | **Total** | ** ** |
|-----------------------------|------------|-------------------------------------------------------------|------------|----------------------|------------|-----------|------------|
|                        |       |                                                        |       |                 |       |      |       |
| HipCricket Inc              |       | $                                                           | 1,075      |                 | —     |      | $          | 1,075 |   |
| Other marketable securities |       | 26                                                          |       | 33                   |       | 59        |       |
| Total                       |       | $                                                           | 1,101      |                 | 33         |      | $          | 1,134 |   |

 

**5.     Investments at cost**

 

We account for investmentsin non-marketable securities under the cost method of accounting where 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, MGT invested inEurindia PLC, (“Eurindia”) a UK company that invested in IT start-up companies. MGT has a 6% holding in Eurindia and accounts for this investment on a costbasis. During 2007, we received two dividends totalling $423 ($0.72 per share)which we recorded in Other Income.  EurindiaLimited’s management has informed us that they intend to pay a liquidatingdividend of between 30 cents and 50 cents per share during the first half of2009.  We have assumed the dividend to bethe lower of these two values and have impaired our holding to the value of 30cents a share.  We consider the input tothis approximation of fair value to be a Level 3 input under the SFAS 157 fairvalue hierarchy, which is a significant unobservable input.  This had the effect of reducing the value of theinvestment from $359 to $176 and recognizing the $183 impairment in net lossfor the year.

 

        In 2007, the Company invested $960 in C preference shares ofXShares Group LLC, an investment advisor that creates, issues and supportsexchange traded funds with a particular healthcare speciality. In the yearended December 31, 2008 the Company invested an additional $2,040 inshares of XShares Group LLC bringing the total invested to $3,000. We accountfor these investments on a cost basis as our total holdings are less than 20%.We reviewed the carrying value of our investment in XShares LLC as ofDecember 31, 2008. XShares LLC is currently in the process of attemptingto raise funds to drive the business forward. As this process has not yet beencompleted we have impaired this investment to $600.

 

We estimated this impairment based on management’s review anddiscussion of the strategy and business plan of X Shares LLC and review ofdraft Fiscal 2008 financial accounts prepared by an independent accountant.These inputs are subject to management’s judgement and we have therefore deemedthem to be Level 3 inputs in the fair value hierarchy. The Value of ourinvestment has reduced as previously invested cash has been used to fundbusiness operations and as yet the business is not generating sufficient cash.However, we have reviewed X shares business plan and we have adjusted ourinvestment to a level we believe reflects the future market valuation and withno active market we believe this is the best method at which to determine thevalue of our investment.

 

The following table presentsthe changes in Level 3 instruments for the year ended December 31, 2008.

 
| ** **       | ** ** | **January 1, 2008** | ** ** | **Purchases** | ** ** | **Impairment  losses  included in  earnings** | ** ** | **December 31,  2008** | ** ** | **Change in  impairment  losses relating  to instruments  still held at  December 31,  2008** | ** ** |
|------------------|------------|-------------------------------|------------|---------------|------------|----------------------------------------------------|------------|-----------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|------------|
|             |       |                          |       |          |       |                                               |       |                        |       |                                                                                                                        |       |
| Eurindia Limited |       | $                             | 359        |          | —     |                                               | (183       | )                           | $          | 176                                                                                                                         |       | $ | (183 | ) |
| XShares LLC      |       | 960                           |       | 2,040         |       | (2,400                                             | )          | 600                         |       | (2,400                                                                                                                      | )          |
|             |       | $                             | 1,319      |          | 2,040      |                                               | (2,583     | )                           | $          | 776                                                                                                                         |       | $ | (2,583 | ) |

 

**6.     Goodwill**

 
| Balance at December 31, 2007                                      |   | $   | 11,200 |   |
|------------------------------------------------------------------------|--------|-----|--------|--------|
| Purchase of Medicsight shares                                          |   | 87  |   |
| Addition of goodwill relating to the  purchase of Medicsight shares(1) |   | 870 |   |
| Balance at December 31, 2008                                      |   | $   | 12,157 |   |

 

In March and April 2008we purchased a total of 1,000,000 shares in Medicsight for £634 ($1,251). The acquisition of these shares was accounted for under the purchasemethod of accounting. The excess of the acquisition cost over the associatedminority interest of these shares was added to goodwill.

 

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(1) In the fourth quarter of2008 we reviewed the value attributed to goodwill on the purchase of theMedicsight shares.  We concluded that theexcess of acquisition cost over the associated minority interest was greaterthan initially determined and have therefore adjusted upwards the value of thegoodwill generated by the transactions by $870. We have reviewed our 2008 10Q filings and concluded that, due to the immaterialnature of the adjustment, there is no requirement to amend these filings.

 

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**7.     Property and equipment**

 

Property and equipmentconsist of the following as of December 31:

 
| ** **                     | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
|                           |       |     |       |     |       |
| Computer hardware and software |       | $        | 1,212      |     | $          | 1,272 |   |
| Leasehold improvements         |       | 452      |       | 529      |       |
| Furniture and fixtures         |       | 237      |       | 193      |       |
|                           |       |     |       |     |       |
|                           |       | 1,901    |       | 1,994    |       |
| Less: Accumulated depreciation |       | (1,195   | )          | (1,091   | )          |
|                           |       | $        | 706        |     | $          | 903 |   |

 

**8.     Intangible assets**

 

Intangible assets consist ofthe following as of December 31:

 
| ** **                     | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
|                           |       |     |       |     |       |
| Maydeal website                |       | $        | 399        |     | $          | — |   |
|                           |       |     |       |     |       |
| Less: Accumulated depreciation |       | (100     | )          | —   |       |
|                           |       | $        | 299        |     | $          | — |   |

 

We acquired the business ofa Chinese website operator during the year and we allocated $399 to the websiteintangible asset as we believe that this amount approximates its fair value.

 

We areamortizing the cost of this asset on a straight line basis over thirty-sixmonths so it will be fully amortized within three years.

 

**9.     Accrued expenses**

 
| ** **                            | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
|                                  |       |     |       |     |       |
| Professional fees                     |       | $        | 352        |     | $          | 405 |   |
| Suppliers with deferred payment terms |       | 493      |       | 529      |       |
| Rent, rates and property related      |       | 162      |       | 316      |       |
| Other                                 |       | 379      |       | 219      |       |
|                                  |       |     |       |     |       |
| Total Accruals                        |       | $        | 1,386      |     | $          | 1,469 |   |

 

**10.  Stockholders’ equity and minority interest**

 

*MGTCapital Investments Inc.*

 

*Treasury stock*

 

In the first quarter of 2008MGT’s Board of Directors authorized the repurchase of up to 6,350,000 shares ofits common stock. 1,000,000 of which were under a publicly announcedprogram.  In the following seven monthswe purchased 6,349,793 shares, which are now classified as treasury stock inequity.  The following table details the transactions.

 
| ** **                                    | ** ** | **Shares purchased** | ** ** | **Average cost** | ** ** | **Shares purchased  under publicly  announced  programs** | ** ** | **Shares that  may yet be  purchased** | ** ** |
|-----------------------------------------------|------------|---------------------------|------------|-----------------------|------------|---------------------------------------------------------------------|------------|-------------------------------------------------------|------------|
|                                          |       |                      |       |                  |       |                                                                |       |                                                  |       |
| February 1 – February 28, 2008 |       | 271,401                   |       | $                     | 3.16       |                                                                | 271,401    |                                                  | 728,599    |   |
| March 1 – March 31, 2008       |       | 339,500                   |       | 3.00                  |       | 339,500                                                             |       | 389,099                                               |       |
| April 1 – April 30, 2008       |       | 5,643,759                 |       | 2.98                  |       | 293,966                                                             |       | 95,133                                                |       |
| May 1 – May 31, 2008           |       | 50,212                    |       | 2.12                  |       | 50,212                                                              |       | 44,921                                                |       |
| June 1 – June 30, 2008         |       | 39,014                    |       | 1.91                  |       | 39,014                                                              |       | 5,907                                                 |       |
| July 1 – July 31, 2008         |       | 5,805                     |       | 2.05                  |       | 5,805                                                               |       | 102                                                   |       |
| August 1 – August 31, 2008     |       | 102                       |       | 1.83                  |       | 102                                                                 |       | —                                                |       |
|                                          |       |                      |       |                  |       |                                                                |       |                                                  |       |
| Total                                         |       | 6,349,793                 |       | $                     | 2.98       |                                                                | 1,000,000  |                                                  |       |   |

 

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Asof December 31, 2008, therefore, the Company had repurchased a total of6,349,793 shares at an average price of $2.98 per share, for a total of $18,912.

 

*Fundraising*

 

During the year ended December 31,2006 we raised $10,030 (gross before commissions) by issuing 2,507,500restricted shares of our common stock.  We incurred commission of $1,003to Asia IT Capital Investments Limited (a related party) raising a net amountof $9,017.

 

*Medicsightplc*

 

In March and April 2008we purchased a total of 1,000,000 shares in Medicsight for £634 ($1,251),bringing our total holding in Medicsight to 86,000,000 (55%) of the 155,524,904issued share capital of Medicsight.  Theacquisition of these shares was accounted for under the purchase method ofaccounting and the excess of the acquisition cost over the associated minorityinterest of the investment was added to goodwill.  On December 31, 2008 Medicsight shares closedat a price of £0.24 ($0.34), valuing MGT’s 86,000,000 shares at $29,262.

 

On June 21, 2007Medicsight plc completed its initial public offering on the AIM Market of theLondon Stock Exchange.  Approximately 29,000,000 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.  We incurred fees of approximately£1,550 ($3,096), including £149 ($298) with Asia IT Capital Investments Ltd (arelated party).  Approximately £5,500 ($11,100) of the net proceeds wereused to repay debt (between Medicsight plc and the Company).  Theremaining £24,900 ($49,800) cash inflow from the IPO is 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 the Medicsight IPO.  Gross proceeds on theprivate placement were approximately £12,845 ($25,736).  We incurred feeswith Asia IT Capital Investments Ltd (a related party) of approximately £578($1,167).

 

During the year ended December 31,2006 we raised £7,000 ($13,752) (gross before commissions) by issuing14,000,000 ordinary shares of Medicsight.  We paid commission of £700($1,367) to Asia IT Capital Investments Limited (a related party) and we paidlegal fees of $6, raising a net cash amount of £6,297 ($12,379).

 

*MedicexchangeLtd*

 

On July 10, 2006 weincorporated Medicexchange with a 10% (approximately $10) minorityshareholder.  We subsequently raised £5,508 ($10,314) (gross beforecommissions) by issuing 5,507,511 ordinary shares of Medicexchange.  Wepaid commission of £275 ($516) and issued 275,326 ordinary shares to Asia IT CapitalInvestments Limited (a related party), raising a net cash amount of £5,232($9,798).  At December 31, 2008 the Company owned 22,500,000 ordinaryshares in Medicexchange, constituting 73.1% of the outstanding shares.

 

*Minorityinterest*

 

The Company has minority investorsin both Medicsight and Medicexchange as follows:

 
| ** **                                                   | ** ** | **Medicsight** | ** ** | **Medicexchange** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------|------------|----------------|------------|-------------------|------------|-----------|------------|
|                                                         |       |           |       |              |       |      |       |
| Minority interest at  January 1, 2007                   |       | $              | 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 interest share of operating losses             |       | (3,347         | )          | (728              | )          | (4,075    | )          |
| Minority interest at  December 31, 2007                 |       | $              | 84,851     |              | $          | 8,653     |       | $ | 93,504 |   |
| Purchase of stock in subsidiary                              |       | (294           | )          | —            |       | (294      | )          |
| Transfer to APIC                                             |       | (58,985        | )          | (7,147            | )          | (66,132   | )          |
| Less minority interest share of operating losses             |       | (7,029         | )          | (621              | )          | (7,650    | )          |
| Minority interest share of  stock-based compensation expense |       | 1,063          |       | 53                |       | 1,116     |       |
| Minority interest share of  other comprehensive income       |       | (4,570         | )          | 43                |       | (4,527    | )          |
|                                                         |       |           |       |              |       |      |       |
| Minority interest at  December 31, 2008                 |       | $              | 15,036     |              | $          | 981       |       | $ | 16,017 |   |

 

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During the year ended December 31,2008, we completed an analysis of our accounting for the sale ofsubsidiary shares.  Specifically, in December 2006, Medicsight PLCsold 14.0 million shares for approximately $12,379 net of fees, to unrelatedthird parties.  Based upon our interpretation of SAB No. 51, Topic5-H no gain or loss was recognized since this transaction was part of a broadercorporate reorganization, as defined, and therefore this amount was originallyrecorded as minority interest.

 

During June 2007 wesold 11.7 million Medicsight shares to a minority interest.  No gain wasrecognized on the sale and the proceeds were originally apportioned between minority interest and additional paidin capital.

 

Also in June 2007Medicsight sold 29.1 million shares in an IPO for approximately $61,019 net offees.  Accordingly, no gain was recognized on this sale and the proceedswere originally recorded as minority interest.

 

In August 2006, as partof the capitalization of Medicexchange, $9,798 of the capital received wasoriginally recorded as minority interest.

 

During 2008 we reconsideredour initial accounting interpretation of SAB No. 51, Topic 5-H and otheraccounting guidance with respect to these transactions and concluded that thechange in our investment in Medicsight should be reflected as a capitaltransaction.  The change in our investment in Medicsight as a result ofthe two private placements is $10,104, and $14,820 respectively, and the changerelated to the issuance of shares in an IPO is approximately $34,061.  Thechange related to the capitalization of Medicexchange is $7,147. Accordingly we have reduced minority interest by approximately $66,132 and have increasedadditional paid in capital by the same amount.

 

The reclassification fromminority interest to additional paid in capital had no effect on assets,liabilities, operating result, earnings per share or cash flows from operations,so the adjustments are accounted for in the current year.

 

**11.  Interest and other income**

 

We had the followinginterest and other income amounts:

 
| ** **                             | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                   |       |     |       |     |       |     |       |
| Dividend income                        |       | $        | —     |     | $          | 467      |       | $ | — |   |
| Interest Income                        |       | 1,678    |       | 2,755    |       | 300      |       |
| Foreign exchange gain                  |       | 3,881    |       | —   |       | —   |       |
| (Loss) gain on marketable securities   |       | (1,134   | )          | 826      |       | —   |       |
| Impairment of investments held at cost |       | (2,583   | )          | —   |       | —   |       |
| Total                                  |       | $        | 1,842      |     | $          | 4,048    |       | $ | 300 |   |

 

During 2008 Medicsightrecorded a foreign exchange gain on the cash balances it held in US dollars ontranslation to pounds sterling.  Thisgain has been accounted for in interest and other income.

 

**12.  Comprehensive loss**

 

Comprehensive losses for theyears ended December 31, 2008 and 2007 are as follows:

 
| ** **                                                                   | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                         |       |     |       |     |       |
| Net loss as reported                                                         |       | $        | (20,001    | )        | $          | (13,800 | ) |
| Other comprehensive (loss)                                                   |       |     |       |     |       |
| Foreign currency translation                                                 |       | (10,483  | )          | 589      |       |
| Unrealized holding gains arising during the  period                          |       | —   |       | 462      |       |
| Less: Reclassification adjustment for gains  (losses) included in net income |       | —   |       | (826     | )          |
| Impairment of marketable securities                                          |       | (81      | )          | —   |       |
| Minority interest share of comprehensive  loss                               |       | 4,527    |       | —   |       |
| Other comprehensive income (loss)                                            |       | (6,037   | )          | 225      |       |
| Comprehensive loss                                                           |       | $        | (26,038    | )        | $          | (13,575 | ) |

 

Theaccumulated balances related to each component of other comprehensive losseswere as follows:

 
| ** **                        | ** ** | **Foreign  currency  translation** | ** ** | **Unrealized  gain (loss) on  investments** | ** ** | **Accumulated other  comprehensive loss** | ** ** |
|-----------------------------------|------------|------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| Balance at December 31, 2006 |       | $                                  | 408        |                                                  | $          | 445                                                 |       | $ | 853 |   |
| Other comprehensive gain (loss)   |       | 589                                |       | (364                                                  | )          | 225                                                 |       |
| Balance at December 31, 2007 |       | 997                                |       | 81                                                    |       | 1,078                                               |       |
| Other comprehensive (loss)        |       | (5,956                             | )          | (81                                                   | )          | (6,037                                              | )          |
| Balance at December 31, 2008 |       | $                                  | (4,959     | )                                                     | $          | —                                              |       | $ | (4,959 | ) |

 

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**13.  Stock option plans**

 

We have a number of StockOption Plans as follows.

 

*MGTStock Option Plan*

 

On December 5, 2007 weapproved the 2007 MGT stock option plan and granted options for 1,975,000 sharesunder this plan.  At December 31, 2008 there were 1,975,000 optionsoutstanding and 658,333 of the options issued were exercisable.  Optionsissued under this plan vest in equal one-thirds after employees have beenemployed for 12, 24 and 36 months from the date of grant.

 

*MedicsightStock Option Plans*

 

We have nine Stock OptionPlans in Medicsight.  The shares of this company were listed on the AIMMarket of the London Stock Exchange on June 21, 2007.

 

Plan A - on February 26,2003 we approved stock option plan “A” and in the period ended June 30,2003 we granted options for 2,971,000 shares under this plan.  At December 31,2008 there were 276,500 options outstanding, all of which were exercisable.

 

Plan B - on August 15,2005 we approved stock option plan “B” and between July 1, 2003 and March 31,2005 we granted options for 3,420,500 shares under this plan.  At December 31,2008 there were 453,500 options outstanding all of which were exercisable.

 

Plan C — on August 15,2005 we approved stock option plan “C” and between April 1, 2005 and June 30,2006 we granted options for 515,000 shares under this plan.  Optionsissued under this plan vest in equal one-thirds after employees have beenemployed for 12, 24 and 36 months from date of grant.  At December 31,2008 there were 285,000 options outstanding and 235,000 of the options issuedwere exercisable.

 

Plan D - On July 13,2006 we approved stock option plan “D” and granted options for 1,375,000 sharesunder this plan.  Options under this plan vest in equal one-thirds afteremployees have been employed for 12, 24 and 36 months from the date of grant.At December 31, 2008 there were 875,000 options outstanding and 583,333 ofthe options issued were exercisable.

 

Plan E - on February 22,2007 we approved and granted options for 5,900,000 shares under stock optionplan “E”.  Options under this plan vest in equal one thirds afteremployees have been employed for 12, 24 and 36 months.  At December 31, 2008 there were5,567,500 options outstanding and 1,855,833 of the options issued wereexercisable.

 

Plan F - on May 16,2007 we approved and subsequently granted options for 350,000 shares understock option plan “F”.  Options under this plan vest in equal one thirdsafter employees have been employed for 12, 24 and 36 months from the grantdate.  At December 31, 2008 there were 350,000 options outstandingand 116,667 of the options issued were exercisable.

 

Plan G - on December 18,2007 we approved and subsequently granted options for 3,025,000 shares understock option plan “G”.  Options under this plan vest in equal one thirdsafter employees have been employed for 12, 24 and 36 months from the grantdate.  At December 31, 2008 there were 2,950,000 options outstandingand 983,333 of the options issued were exercisable.

 

Plan H - on June 2,2008 we approved and subsequently granted options for 750,000 shares understock option plan “H”. Options under this plan vest in equal one thirds afteremployees have been employed for 12, 24 and 36 months from the grant date. At December 31, 2008 there were 750,000 options outstanding and none ofthe options were exercisable.

 

Plan I - on December 16,2008 we approved and subsequently granted options for 1,805,000 shares understock option plan “I”. Options under this plan vest in equal one thirds afteremployees have been employed for 12, 24 and 36 months from the grantdate.  At December 31, 2008 all the options were outstanding and noneof the options were exercisable.

 

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*MedicexchangeStock Option Plans*

 

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

 

Plan A - on July 20,2006 we approved Medicexchange stock option plan “A” and granted options for950,000 shares under this plan.  Options issued under this plan vest inequal one-thirds after employees have been employed for 12, 24 and 36 monthsfrom the date of grant. At December 31, 2008 there were 700,000 optionsoutstanding and 466,667 of the options issued were exercisable.

 

Plan B — on July 26,2007 we approved Medicexchange stock option plan “B” and granted options for300,000 shares under this plan. Options issued under this plan vest equalone-thirds after employees have been employed for 12, 24 and 36 months from thedate of grant.  At December 31, 2008 there were 150,000 optionsoutstanding and 50,000 of the options issued were exercisable.

 

The following weightedaverage assumptions were used to estimate the fair value of stock optionsgranted in the years ended December 31:

 
| ** **                                                                                  | ** ** | **2008**          | ** ** | **2007**          | ** ** | **2006**          | ** ** |
|---------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
|                                                                                        |       |              |       |              |       |              |       |
| Dividend yield                                                                              |       | nil               |       | nil               |       | nil               |       |
| Expected volatility                                                                         |       | 39% to 66         | %          | 57%-65            | %          | 60.0              | %          |
| Risk-free interest rate                                                                     |       | 2.0% to 5.0       | %          | 4.65%-5.75        | %          | 4.75              | %          |
| Expected life of options                                                                    |       | 3 to 6 years      |       | Up to 4 Years     |       | 4 years           |       |
| Weighted average fair value of options  granted                                             |       | —            |       | —            |       | £0.41 ($0.81 | )          |
| 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             |       | —            |       |
| Weighted-average grant-date fair value —  Medicsight Plan H                            |       | £0.20 ($0.29 | )          | —            |       | —            |       |
| Weighted-average grant-date fair value —  Medicsight Plan I                            |       | £0.14 ($0.20 | )          | —            |       | —            |       |

 

The assumptions above are based on multiple factors including 10-yearUnited Kingdom treasury bonds for the risk-free rate at the time of grant,expected future exercising patterns (we cannot base the estimate on thehistorical exercise patterns as no options have been exercised) and thevolatility of the MGT Capital Investments Inc. own stock price.

 

The assumptions used in theBlack-Scholes option valuation model are highly subjective, and can materiallyaffect the resulting valuation.

 

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The following tablesummarizes stock option activity for the three years ended December 31,2008, 2007 and 2006 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                      |       | £1.09 ($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 | ) |
|                                  |       |                           |       |                                      |       |   |   |   |   |
| Granted                               |       | 2,555,000                      |       | £0.37 ($0.54                         | )          |   |   |   |   |
| Exercised                             |       | —                         |       | —                                    |       |   |   |   |   |
| Forfeited                             |       | (1,175,000                     | )          | £0.83 ($1.21                         | )          |   |   |   |   |
|                                  |       |                           |       |                                      |       |   |   |   |   |
| Outstanding at December 31, 2008 |       | 16,137,500                     |       | £0.91 ($1.31                         | )          | 5,679,166 |   | £0.98 ($1.42 | ) |

 

The following is a summaryof the status of stock options outstanding at December 31, 2008:

 
| ** **           | ** ** | **Outstanding Options** | ** ** | **Exercisable Options**                  | ** ** |
|----------------------|------------|------------------------------|------------|-----------------------------------------------|------------|
| ** **           | ** ** | **Number**                   | ** ** | **Remaining  Contractual Life  (years)** | ** ** | **Average  Exercise  Price** | ** ** | **Number** | ** ** | **Average  Exercise  price** | ** ** |
| MGT 2007 Plan        |       | 1,975,000                    |       | 8.9                                           |       | $3.69 |   | 658,333 |   | $3.69 |   |
|                 |       |                         |       |                                          |       |   |   |   |   |   |   |
| Medicsight Plan A    |       | 276,500                      |       | 4.5                                           |       | £0.75 ($1.09 | ) | 276,500 |   | £0.75 ($1.50 | ) |
| Medicsight Plan B    |       | 453,500                      |       | 5.8                                           |       | £0.75 ($1.09 | ) | 453,500 |   | £0.75 ($1.50 | ) |
| Medicsight Plan C    |       | 285,000                      |       | 6.5                                           |       | £0.75 ($1.09 | ) | 235,000 |   | £0.75 ($1.50 | ) |
| Medicsight Plan D    |       | 875,000                      |       | 7.5                                           |       | £0.83 ($1.20 | ) | 583,333 |   | £0.83 ($1.66 | ) |
| Medicsight Plan E    |       | 5,567,500                    |       | 8.2                                           |       | £0.50 ($0.72 | ) | 1,855,833 |   | £0.50 ($0.72 | ) |
| Medicsight Plan F    |       | 350,000                      |       | 8.4                                           |       | £0.75 ($1.09 | ) | 116,667 |   | £0.75 ($1.09 | ) |
| Medicsight Plan G    |       | 2,950,000                    |       | 9.0                                           |       | £1.10 ($1.59 | ) | 983,333 |   | £1.10 ($1.59 | ) |
| Medicsight Plan H    |       | 750,000                      |       | 9.4                                           |       | £0.69 ($1.00 | ) | — |   | — |   |
| Medicsight Plan I    |       | 1,805,000                    |       | 10.0                                          |       | £0.24 ($0.34 | ) | — |   | — |   |
|                 |       |                         |       |                                          |       |   |   |   |   |   |   |
| Medicexchange Plan A |       | 700,000                      |       | 7.8                                           |       | £0.40 ($0.58 | ) | 466,667 |   | £0.40 ($0.58 | ) |
| Medicexchange Plan B |       | 150,000                      |       | 8.6                                           |       | £1.00 ($1.45 | ) | 50,000 |   | £1.00 ($1.45 | ) |

 

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During 2008 we modified theplans of four employees who left the Company, to extend the period in whichthey could exercise their options after leaving.  After the death of an employee, we modifiedthe plan by transferring it to his estate and extending the period that theestate could benefit from the options. These modifications increased the stock based compensation charge by$709.

 

On February 22, 2007 wemodified the exercise price of 50% of the shares in Medicsight plc under plans “A”through to “C” from £1.00 to £0.50 per share. On February 22, 2007 wemodified the exercise price of 50% of the shares in Medicsight plc under plan “D”from £1.10 to £0.50 per share. No other terms and conditions of the shareswithin these plans were modified. The total modification charge for the yearended December 31 2007 was $192.

 

The Company has recorded thefollowing amounts related to its share-based compensation expense in theaccompanying Statements of Operations:

 
| ** **                          | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Selling, general and administrative |       | $        | 3,732      |     | $          | 1,334    |       | 405 |   |
| Research and development            |       | 200      |       | 207      |       | 35       |       |
| Total                               |       | $        | 3,932      |     | $          | 1,541    |       | 440 |   |

 

Of the $3,932stock based expense for the year, $1,116 was allocated to minority interest

 

No compensation costs werecapitalized.

 

The aggregate intrinsicvalue for options outstanding and exercisable at December 31, 2008 was$nil (December 31, 2007: $1,487).

 

The average grant date fairvalue of options was $0.23, $0.96 and $0.81 for options granted during theyears ended December 31, 2008, 2007 and 2006 respectively.

 

A summary of non-vestedoptions at December 31, 2008 and the change during the years ended December 31,2008, 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   |       | £0.61 ($0.81                                           | )          |
| Vested                                                        |       | (444,550    | )          | £0.39 ($0.79                                           | )          |
| Fortfeited                                                    |       | (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 ($0.81                                           | )          |
| Vested                                                        |       | (990,467    | )          | £0.42 ($0.72                                           | )          |
| Forfeited                                                     |       | (652,500    | )          | £0.41 ($0.92                                           | )          |
| Nonvested options at December 31, 2007                   |       | 12,690,833  |       | £0.41 ($0.81                                           | )          |
| Granted                                                       |       | 2,555,000   |       | £0.16 ($0.23                                           | )          |
| Vested                                                        |       | (4,386,667  | )          | £0.34 ($0.49                                           | )          |
| Forfeited                                                     |       | (400,832    | )          | £0.28 ($0.41                                           | )          |
| Nonvested options at December 31, 2008                   |       | 10,458,334  |       | £0.35 ($0.51                                           | )          |

 

As of December 31, 2008there was $5,571 of total unrecognized compensation cost related to non-vestedshare-based compensation arrangement granted under the option plans. That costis expected to be recognized over a weighted average period of 1.2 years.

 

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**14.  Income Taxes**

 

Significant components ofdeferred tax assets were as follows as of December 31:

 
| **Deferred Tax Assets**          | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
| Tax loss carry-forward                     |       | $        | 19,902     |     | $          | 20,433 |   |
| Capital loss carry-forward                 |       | —   |       | 92       |       |
| Fixed asset depreciation methods and other |       | 1,869    |       | 2,672    |       |
| Total                                      |       | 21,771   |       | 23,197   |       |
| Valuation Allowance                        |       | (21,771  | )          | (23,197  | )          |
| Net deferred tax asset                     |       | $        | —     |     | $          | — |   |

 

The Company has netoperating loss carry-forwards for United States tax purposes to offset futuretaxable income of approximately $3,020 expiring through 2023. As it is not morelikely than not that the resulting deferred tax benefits will be realized, afull valuation allowance has been recognized for such deferred tax assets. Theutilization of net operating loss carry forwards may be significantly limitedunder the Internal Revenue Code as a result of ownership changes due to theCompany’s stock and other equity offerings.

 

Under United Kingdomtaxation, Medicsight has $50,734 (£35,040) 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 for income taxdiffers from the amount computed by applying the statutory federal income taxrate to income before the provision for income taxes. The sources and taxeffects of the differences are as follows for the year ended December 31:

 
| ** **                                  | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Income taxes at the federal statutory rates |       | (35      | )%         | (35      | )%         | (35      | )%         |
| Foreign rate differential                   |       | 10       |       | 15       |       | 5        |       |
| Change in valuation allowance               |       | 25       |       | 20       |       | 30       |       |
| Effective rate of income tax                |       | 0        | %          | 0        | %          | 0        | %          |

 

The Company or one of itssubsidiaries files income tax returns in the U.S. federal jurisdiction, andvarious states and foreign jurisdictions. With few exceptions, the Company isno longer subject to U.S. federal, state and local, or non-U.S. income taxexaminations by tax authorities for years before 2003.

 

**15.  Operating leases, commitments and securitydeposit**

 

On August 25, 2006 weexecuted 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.

 

Under this lease agreementour UK property rent, services and related costs will be approximately £330 ($478)per annum, paid quarterly in advance.  We have the right to terminate thisagreement on the expiration of the fifth year of the lease.  Our annualrent is subject to upward only review on August 24, 2011.

 

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We have two 10-monthrent-free periods: the first commencing August 25, 2006; the secondcommencing August 25, 2011.  We have accounted for this lease as anoperating lease, and have accounted for the lease rental expenses on a straightline basis over the period of the lease.  At December 31, 2008 and2007, deferred rent which is included in accrued expenses was $156 and $316 respectively.

 

We have satellite offices inTokyo (Japan) and Beijing (China) — which are on three and two year rentalagreements respectively.  At December 31, 2008 we have paid in total$301 in deposit for these office rentals.

 

The following is a scheduleof the future minimum rental payments required under operating leases that haveinitial or remaining non-cancellable terms in excess of one year:

 
| **Year Ending** | ** ** | ** ** | ** ** |
|----------------------|------------|------------|------------|
|                 |       |       |       |
| 2009                 |       | $          | 692        |   |
| 2010                 |       | 638        |       |
| 2011                 |       | 244        |       |
| 2012                 |       | 5          |       |
| 2013                 |       | 1          |       |
| Total                |       | $          | 1,580      |   |

 

Total rent expense was $770, $659, and $1,056 for the years ended December 31,2008, 2007, and 2006 respectively.

 

In July 2008we entered into an agreement with a partner to develop interfaces for oursoftware.  We have committed to pay Euros 1,445 ($2,087) over an expectedthirty-six month period.  As of December 31, 3008 we have paid Euros639 ($939).  These payments will be recovered against future royaltypayments, should the products be successfully commercialized.  They havebeen expensed to the income statement and classified as research anddevelopment.

 

**16.  Segment reporting**

 

Under SFAS no. 131, “Disclosuresabout Segments of an Enterprise and Related Information”, operating segmentsare defined as components of an enterprise about which separate financialinformation is available that is  evaluated regularly by the chiefoperating decision maker, or decision making group in deciding how to allocateresources and in assessing performance. Our chief operating decision makinggroup is composed of the chief executive officer and members of seniormanagement. The Company’s reportable operating segments are Medicsight andMedicexchange.

 

The accounting policies ofthe segments are the same as those described in the summary of significantaccounting policies. We evaluate performance of our operating segments based onrevenue and operating (loss). Segments information for 2008, 2007 and 2006 areas follows (in thousands):

 

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| ** **                                    | ** ** | **Medicsight** | ** ** | **Medicexchange** | ** ** | **Corporate  and Other** | ** ** | **Total** | ** ** |
|-----------------------------------------------|------------|----------------|------------|-------------------|------------|-------------------------------|------------|-----------|------------|
|                                          |       |           |       |              |       |                          |       |      |       |
| **2008**                                      |       |           |       |              |       |                          |       |      |       |
| Revenue from external customers               |       | $              | 191        |              | $          | 163                           |       | $         | —     |   | $ | 354 |   |
| Cost of revenue                               |       | —         |       | 116               |       | —                        |       | 116       |       |
| Gross Margin                                  |       | 191            |       | 47                |       | —                        |       | 238       |       |
| Operating Expenses                            |       | 20,790         |       | 3,643             |       | 5,298                         |       | 29,731    |       |
| Operating loss                                |       | (20,149        | )          | (3,522            | )          | (5,822                        | )          | (29,493   | )          |
| Interest receivable                           |       | 4,937          |       | 99                |       | 523                           |       | 5,559     |       |
| Depreciation                                  |       | 269            |       | 240               |       | 58                            |       | 567       |       |
| Stock-based compensation                      |       | 2,379          |       | 195               |       | 1,358                         |       | 3,932     |       |
| Assets                                        |       | 28,897         |       | 2,326             |       | 24,228                        |       | 55,451    |       |
| Expenditure for property plant and  equipment |       | 304            |       | 35                |       | 176                           |       | 515       |       |
|                                          |       |           |       |              |       |                          |       |      |       |
| **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   | )          |
| Interest receivable                           |       | 1,226          |       | 241               |       | 1,288                         |       | 2,755     |       |
| 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   | )          |
| Interest receivable                           |       | 117            |       | 116               |       | 67                            |       | 300       |       |
| 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       |       |

 

The Company’s mainoperations and fixed assets are in the UK.

 

Medicsight listed on the AIMMarket of the London Stock Exchange on June 21, 2007.  AIM listing rules requireMedicsight to publish results under International Financial Reporting Standards(“IFRS”) in UK Sterling (“GBP”).

 

The following is areconciliation between Medicsight published financial statements and the USGAAP consolidated results (in thousands):

 
| ** **                                | ** ** | **Medicsight  plc** | ** ** | **Medicsight  plc** | ** ** | **Medicsight  plc** | ** ** | **Medicexchange**  | ** ** | **Corporate  and Other** | ** ** | **Total**          | ** ** |
|-------------------------------------------|------------|---------------------|------------|---------------------|------------|---------------------|------------|--------------------|------------|-------------------------------|------------|--------------------|------------|
| ** **                                | ** ** | **(IFRS)**          | ** ** | **GAAP**            | ** ** | **(US GAAP)**  | ** ** | **(US GAAP)** | ** ** | **(US GAAP)**            | ** ** | **(US GAAP)** | ** ** |
| ** **                                | ** ** | ** **          | ** ** | **Adjustments**     | ** ** | ** **          | ** ** | ** **         | ** ** | ** **                    | ** ** | ** **         | ** ** |
|                                      |       |                |       |                |       |                |       |               |       |                          |       |               |       |
| **Twelve months  December 31, 2008** |       |                |       |                |       |                |       |               |       |                          |       |               |       |
| Net revenue from external customers       |       | 191                 |       | —              |       | 191                 |       | 163                |       | —                        |       | 354                |       |
| Operating loss                            |       | (20,149             | )          | (450                | )          | (20,599             | )          | (3,522             | )          | (5,372                        | )          | (29,493            | )          |
| Assets                                    |       | 28,897              |       | —              |       | 28,897              |       | 2,326              |       | 24,228                        |       | 55,451             |       |
|                                      |       |                |       |                |       |                |       |               |       |                          |       |               |       |
| **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            |       |

 

The principal GAAPadjustments are the accounting for stock options and cumulative translationadjustments.

 

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**17.  Concentrations**

 

The Company maintains itscash and cash equivalents at major financial institutions in Europe.  Cashheld in foreign institutions is not insured by the FDIC and amounted to $38,294and $92,373 at December 31, 2008 and 2007 respectively.  The Companyperiodically evaluates the relative credit standing of financial institutionsconsidered in its cash investment strategy.

 

**18.  Acquisition of Maydeal.com**

 

On April 3, 2008,through our subsidiary Medicexchange, we acquired Maydeal.com, a Chinese webbusiness that offers an online portal for radiologists in China.  Theacquisition was accounted for under purchase accounting and, accordingly, theassets and liabilities acquired were recorded at their estimated fair values atthe date of acquisition and the results of operations have been included in theconsolidated statement of operations since the day of acquisition.

 

We acquired the trade andassets of Shanghai Shenjie Digital Technology Co. Limited, and the domain name,Maydeal.com.  The total purchase price was $440 of which $220 has beenpaid and the remaining $220 is deferred and will be paid on completion ofdefined milestones.  This $220 is classified in accounts payable on thebalance sheet.  The allocation of the purchase price is as follows:

 
| Net assets acquired            |   | $   | 42     |   |
|--------------------------------|--------|-----|--------|--------|
| Intangible asset (domain name) |   | 398 |   |
| Total                          |   | $   | 440    |   |

 

We have not recognized anygoodwill on the acquisition as we estimate that we purchased the assets anddomain name at their fair values.

 

The domain name is subjectto amortization and will be expensed, using the straight-line method, overthirty six months.  The net assets acquired relate to receivables and someequipment.  We have recognized these assets at their net asset value as webelieve there is no material difference to fair value.

 

**19.  Related Party Transactions**

 

*AsiaIT Capital Investments Ltd (a related party)*

 

On December 29, 2000,the Company acquired all of the issued and outstanding shares of HTTP InsightsLimited (“Insights”).  Asia IT Capital Investments Limited (“Asia IT”) wasa shareholder in Insights as well as the Company at the time of theacquisition, and had provided a credit facility 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 Medicsight plc. This facility was cancelled by mutual agreement and with no financial impact inJune 2007.

 

A director of Asia IT is abrother of Tim Paterson-Brown (our Chairman and Chief Executive Officer). In addition to the loan facilities made available by Asia IT to the Company andMedicsight PLC, Asia IT received commissions on shares issuances andtransactions in Fiscal 2007, 2006 and 2005.

 

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On June 21, 2007Medicsight plc completed its initial public offering on the AIM Market of theLondon Stock Exchange.  Approximately 29,000,000 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.  We incurred fees of approximately£1,550 ($3,096), including approximately £149 ($298) with Asia IT CapitalInvestments Ltd (a related party).  Immediately prior to the Medicsight plcIPO, the Company sold down, by private placement approximately 11,700,000 ofits Medicsight plc shares.  The shares were priced at £1.10 ($2.20) — thesame price as the Medicsight IPO.  Gross proceeds on the private placementwere approximately £12,845 ($25,736).  We incurred fees with Asia ITCapital Investments Ltd (a related party) of approximately £578 ($1,167).

 

During Fiscal 2006 theCompany 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 2005 theCompany raised $12,035, net of commissions and expenses, in a private placementof restricted common stock at $4.00 per share. Asia IT received commissions of$1,230.

 

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

 

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

 

During the year ended December 31,2008 the Company acquired shares valued at $2,040 in XShares Group LLC.  In December 31, 2007 the Companyinvested $960 in XShares Group LLC and $2,000 in HipCricket Inc. Both of theseinvestments were introduced to the Company by Asia IT.  A brother of TimPaterson-Brown is a non-executive director of HipCricket Inc.

 

Tim Paterson-Brown is also anon-executive director of Accsys Technologies PLC, which has a subsidiarycompany Titan Wood Limited.  Titan Wood Limited rents space in 66Hammersmith Road.  In the year ended December 31, 2008 $171 of officerelated costs were recharged to Titan Wood Limited.  At December 31, 2008 there was a balancereceivable of $49 from Titan Wood, all of which has been paid since the yearend.  This is payable within 30 daysunder the terms of the invoice.  In theyear ended December 31, 2007 $222 of costs were recharged to Titan Wood.

 

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

 

The tables below summarizethe Company’s unaudited quarterly operating results for Fiscal 2008 and 2007:

 
| ** **                       | ** ** | **First Quarter** | ** ** | **Second Quarter** | ** ** | **Third Quarter** | ** ** | **Fourth Quarter** | ** ** |
|----------------------------------|------------|------------------------|------------|-------------------------|------------|------------------------|------------|-------------------------|------------|
|                             |       |                   |       |                    |       |                   |       |                    |       |
| **2008**                         |       |                   |       |                    |       |                   |       |                    |       |
| Revenues                         |       | $                      | 52         |                    | $          | 85                     |       | $                       | 120        |   | $ | 97 |   |
| Gross Margin                     |       | 40                     |       | 67                      |       | 34                     |       | 97                      |       |
| Net loss                         |       | (3,779                 | )          | (5,136                  | )          | (1,300                 | )          | (9,786                  | )          |
| Basic and diluted loss per share |       | (0.10                  | )          | (0.14                   | )          | (0.04                  | )          | (0.30                   | )          |
|                             |       |                   |       |                    |       |                   |       |                    |       |
| **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                   | )          |

 

F-27

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**ScheduleII**

 

**MGT Capital Investments, Inc.**

 

Valuation and Qualifying Accounts

 
| ** **                                          | ** ** | **Balance at** | ** ** | ** **    | ** ** | ** **     | ** ** | ** **                | ** ** |
|-----------------------------------------------------|------------|---------------------|------------|---------------|------------|----------------|------------|---------------------------|------------|
| ** **                                          | ** ** | **Beginning**       | ** ** | ** **    | ** ** | ** **     | ** ** | **Balance at**       | ** ** |
| **Deferred Tax Valuation Allowance** | ** ** | **of year**    | ** ** | **Additions** | ** ** | **Write-offs** | ** ** | **end of year** | ** ** |
|                                                |       |                |       |          |       |           |       |                      |       |
| 2006                                                |       | $                   | 52,176     |          | $          | 4,480          |       | $                         | —     |   | $ | 56,656 |   |
| 2007                                                |       | 56,656              |       | 3,921         |       | (37,380        | )          | 23,197                    |       |
| 2008                                                |       | 23,197              |       | (1,334        | )          | (92            | )          | 21,771                    |       |
|                                                     |            |                     |            |               |            |                |            |                           |            |  |  |  |  |

 

The deferred tax valuationallowance applies to both operating loss carry-forwards and capital lossesincurred by the Company and other temporary timing differences.

 

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