**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

| **x** | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

 

**For the quarterly period ended March 31, 2008.**

 

**OR**

 

| **o** | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|-------|------------|----------------------------------------------------------------------------------------------------------|

 

**For the transition period from             to**

 

**Commission file number: 0-26886**

 

**MGT CAPITAL INVESTMENTS, INC.**

(Exact name ofRegistrant as specified in its charter)

 

| **Delaware**              | ** ** | **13-4148725**                        |
|---------------------------|------------|---------------------------------------|
| (State of  Incorporation) |       | (I.R.S.  Employer Identification No.) |

 

**Kensington Centre, 66 Hammersmith Road, London, W14 8UD, UNITED KINGDOM**

(Address ofprincipal executive offices, including zip code)

 

Registrant’stelephone number, including area code: **011-44-20-7605-1151**

 

Indicate by check whether the Registrant (1) hasfiled all reports to be filed by Section 13 or 15(d) of theSecurities and Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90days.    Yes     x    No     o

 

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“large accelerated filer,” “accelerated filer,” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the ExchangeAct).    Yes    o     No    x

 

As of May 9, 2008 the registrant had outstanding 32,632,711shares of common stock, $0.001 par value, (excludes 6,267,672 shares of commonshares held as treasury stock).

 

 

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NOTE REGARDINGFORWARD LOOKING STATEMENTS

 

This Form 10-Q, including “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inItem 2, contains forward-looking statements that involve risks anduncertainties, as well as assumptions that, if they never materialize or proveincorrect, could cause the results of MGT Capital Investments, Inc and its consolidatedsubsidiaries (the “Company”) to differ materially from those expressed orimplied by such forward-looking statements. All statements other thanstatements of historical fact are statements that could be deemedforward-looking statements, including any projections of revenue, gross margin,expenses, earnings or losses from operations, synergies or other financialitems; any statements of the plans, strategies and objectives of management forfuture operations, including the rate of market development and acceptance ofmedical imaging technology; the execution of restructuring plans; any statementconcerning developments, performance or industry rankings relating to productsor services; any statements regarding future economic conditions or performance;any statements of expectation or belief; and any statements of assumptionsunderlying any of the foregoing. The risks, uncertainties and assumptionsreferred to above include the performance of contracts by suppliers, customersand partners; employee management issues; the difficulty of aligning expenselevels with revenue changes; and other risks that are described herein,including but not limited to the specific risks areas discussed in “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inItem 2 of this report, and that are otherwise described from time to timein the Company’s Securities and Exchange Commission reports filed after thisreport. The Company assumes no obligation and does not intend to update theseforward-looking statements.

 

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

 

2

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**INDEX**

 
| **PART I — FINANCIAL INFORMATION** |                                                                                                                                     |
|----------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                   | ** **                                                                                                                               | ** ** |
| Item  1                                      | Condensed Consolidated Balance Sheets — March 31,  2008 (unaudited) and December 31, 2007                                 | 4 |
|                                         |                                                                                                                                     |   |
|                                         | Condensed  Consolidated Statements of Operations — for the three months ended  March 31, 2008 (unaudited) and 2007 (unaudited) | 5 |
|                                         |                                                                                                                                     |   |
|                                         | Condensed  Consolidated Statements of Cash Flows — for the three months ended  March 31, 2008 (unaudited) and 2007 (unaudited) | 6 |
|                                         |                                                                                                                                     |   |
|                                         | Notes to Condensed Consolidated Financial Statements                                                                                     | 7 |
|                                         |                                                                                                                                     |   |
| Item 2                                       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                              | 15 |
|                                         |                                                                                                                                     |   |
| Item 3                                       | Quantitative  and Qualitative Disclosure About Market Risk                                                                               | 19 |
|                                         |                                                                                                                                     |   |
| Item 4                                       | Controls &  Procedures                                                                                                          | 19 |
|                                         |                                                                                                                                     |   |
| **PART II  — OTHER INFORMATION**   | ** **                                                                                                                               |
| ** **                                   | ** **                                                                                                                               |   |
| Item 1                                       | Legal Proceedings                                                                                                                        | 20 |
|                                         |                                                                                                                                     |   |
| Item  1A                                     | Risk  Factors                                                                                                                            | 20 |
|                                         |                                                                                                                                     |   |
| Item 2                                       | Unregistered  Sale of Equity Securities and Use of Proceeds                                                                              | 21 |
|                                         |                                                                                                                                     |   |
| Item 3                                       | Defaults  Upon Senior Securities                                                                                                         | 22 |
|                                         |                                                                                                                                     |   |
| Item 4                                       | Submission  of Matters to a Vote of Security Holders                                                                                     | 22 |
|                                         |                                                                                                                                     |   |
| Item 5                                       | Other Information                                                                                                                        | 22 |
|                                         |                                                                                                                                     |   |
| Item 6                                       | Exhibits                                                                                                                                 | 23 |
|                                         |                                                                                                                                     |   |
| SIGNATURES                                   | 24                                                                                                                                       |

 

All financialamounts are in thousands except share and per share data.

 

3

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**MGT CAPITAL INVESTMENTS, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

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

 
| ** **                                                                                                                                                                                         | ** ** | **March 31  2008** | ** ** | **December 31  2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                                                         | ** ** | **(unaudited)**         | ** ** | **(audited)**              | ** ** |
| **Assets**                                                                                                                                                                                         |       |                    |       |                       |       |
| Current assets:                                                                                                                                                                                    |       |                    |       |                       |       |
| Cash and cash equivalents                                                                                                                                                                          |       | $                       | 78,207     |                       | $          | 92,373 |   |
| Cash short term deposits                                                                                                                                                                           |       | 2,000                   |       | —                     |       |
| Marketable securities                                                                                                                                                                              |       | 5,762                   |       | 2,219                      |       |
| Accounts receivable                                                                                                                                                                                |       | 51                      |       | 7                          |       |
| Other receivables – related party                                                                                                                                                             |       | 49                      |       | 16                         |       |
| Prepaid expenses and other current assets                                                                                                                                                          |       | 844                     |       | 704                        |       |
| Total current assets                                                                                                                                                                               |       | 86,913                  |       | 95,319                     |       |
|                                                                                                                                                                                               |       |                    |       |                       |       |
| Property equipment, at cost, net                                                                                                                                                                   |       | 1,062                   |       | 903                        |       |
| Investments, at cost                                                                                                                                                                               |       | 1,319                   |       | 1,319                      |       |
| Security deposits                                                                                                                                                                                  |       | 308                     |       | 279                        |       |
| Goodwill                                                                                                                                                                                           |       | 11,283                  |       | 11,200                     |       |
| Total assets                                                                                                                                                                                       |       | $                       | 100,885    |                       | $          | 109,020 |   |
|                                                                                                                                                                                               |       |                    |       |                       |       |
| **Liabilities**                                                                                                                                                                                    |       |                    |       |                       |       |
| Current liabilities:                                                                                                                                                                               |       |                    |       |                       |       |
| Accounts payable                                                                                                                                                                                   |       | $                       | 1,701      |                       | $          | 2,931 |   |
| Accrued expenses                                                                                                                                                                                   |       | 1,453                   |       | 1,469                      |       |
| Deferred revenue                                                                                                                                                                                   |       | 23                      |       | 20                         |       |
| Total current liabilities                                                                                                                                                                          |       | 3,177                   |       | 4,420                      |       |
|                                                                                                                                                                                               |       |                    |       |                       |       |
| **Minority interest**                                                                                                                                                                              |       | 90,914                  |       | 93,504                     |       |
|                                                                                                                                                                                               |       |                    |       |                       |       |
| Commitments and contingencies                                                                                                                                                                      |       | —                  |       | —                     |       |
|                                                                                                                                                                                               |       |                    |       |                       |       |
| **Stockholders’ equity:**                                                                                                                                                                     |       |                    |       |                       |       |
| Common stock, $0.001 par value, 75,000,000  shares authorized; 38,900,383 shares issued; and 38,289,482 and 38,900,383  outstanding at March 31, 2008 and December 31, 2007 respectively |       | 39                      |       | 39                         |       |
| Additional paid in capital                                                                                                                                                                         |       | 230,519                 |       | 229,428                    |       |
| Accumulated other comprehensive income                                                                                                                                                             |       | 1,341                   |       | 1,078                      |       |
| Accumulated deficit                                                                                                                                                                                |       | (223,228                | )          | (219,449                   | )          |
|                                                                                                                                                                                               |       | 8,671                   |       | 11,096                     |       |
| Treasury stock, at cost, 610,901 shares of  common stock                                                                                                                                           |       | (1,877                  | )          | —                     |       |
| Total stockholders’ equity                                                                                                                                                                    |       | 6,794                   |       | 11,096                     |       |
|                                                                                                                                                                                               |       |                    |       |                       |       |
| Total stockholders’ equity, liabilities and  minority interest                                                                                                                                |       | $                       | 100,885    |                       | $          | 109,020 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

4

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**MGT CAPITAL INVESTMENTS, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

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

**(unaudited)**

 
| ** **                                            | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                            | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
|                                                  |       |                                                 |       |   |   |
| Revenues                                              |       | $                                                    | 52         |   | $ | — |   |
| Cost of revenue                                       |       | 12                                                   |       | — |   |
| Gross margin                                          |       | 40                                                   |       | — |   |
|                                                  |       |                                                 |       |   |   |
| Operating expenses                                    |       |                                                 |       |   |   |
| Selling, general and administrative  expenses         |       | 5,505                                                |       | 3,457 |   |
| Research and development cost                         |       | 595                                                  |       | 546 |   |
|                                                  |       | 6,100                                                |       | 4,003 |   |
|                                                  |       |                                                 |       |   |   |
| Operating loss                                        |       | (6,060                                               | )          | (4,003 | ) |
|                                                  |       |                                                 |       |   |   |
| Interest and other income                             |       | 508                                                  |       | 273 |   |
|                                                  |       |                                                 |       |   |   |
| Net loss before income taxes and minority  interest   |       | (5,552                                               | )          | (3,730 | ) |
|                                                  |       |                                                 |       |   |   |
| Income taxes                                          |       | —                                               |       | — |   |
| Minority interest                                     |       | 1,773                                                |       | 523 |   |
|                                                  |       |                                                 |       |   |   |
| Net loss                                              |       | $                                                    | (3,779     | ) | $ | (3,207 | ) |
|                                                  |       |                                                 |       |   |   |
| Per share data:                                       |       |                                                 |       |   |   |
|                                                  |       |                                                 |       |   |   |
| Basic and diluted loss per share                      |       | $                                                    | (0.10      | ) | $ | (0.08 | ) |
|                                                  |       |                                                 |       |   |   |
| Weighted average number of common shares  outstanding |       | 38,846,986                                           |       | 38,900,383 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

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**MGT CAPITAL INVESTMENTS, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

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

**(unaudited)**

 
| ** **                                                                   | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
|                                                                         |       |                                                 |       |   |   |
| Cash flows from operating activities                                         |       |                                                 |       |   |   |
| Net loss                                                                     |       | $                                                    | (3,779     | ) | $ | (3,207 | ) |
|                                                                         |       |                                                 |       |   |   |
| Adjustments to reconcile net loss to net  cash used in operating activities: |       |                                                 |       |   |   |
| Loss attributable to minority interest                                       |       | (1,773                                               | )          | (523 | ) |
| Stock based compensation expense                                             |       | 1,091                                                |       | 375 |   |
| Depreciation                                                                 |       | 110                                                  |       | 120 |   |
| Loss on disposal of fixed assets                                             |       | —                                               |       | 6 |   |
| (Increase)/decrease in assets                                                |       |                                                 |       |   |   |
| Accounts receivable                                                          |       | (44                                                  | )          | — |   |
| Accounts receivable — related parties                                   |       | (33                                                  | )          | — |   |
| Prepaid expenses and other current assets                                    |       | (111                                                 | )          | (188 | ) |
| Value added tax receivable                                                   |       | (58                                                  | )          | 195 |   |
| Increase/(decrease) in liabilities                                           |       |                                                 |       |   |   |
| Accounts payable                                                             |       | (1,230                                               | )          | (883 | ) |
| Accrued expenses                                                             |       | (16                                                  | )          | 341 |   |
| Deferred revenue                                                             |       | 3                                                    |       | — |   |
| Net cash used in operating activities                                        |       | (5,840                                               | )          | (3,764 | ) |
|                                                                         |       |                                                 |       |   |   |
| Cash flows from investing activities:                                        |       |                                                 |       |   |   |
| Cash short term deposits                                                     |       | (2,000                                               | )          | — |   |
| Purchase of marketable securities                                            |       | (3,688                                               | )          | (350 | ) |
| Sale of marketable securities                                                |       | 276                                                  |       | — |   |
| Purchase of fixed assets                                                     |       | (269                                                 | )          | (290 | ) |
| Purchase of common stock in subsidiary (net  of commissions)                 |       | (900                                                 | )          | — |   |
| Net cash used in investing activities                                        |       | (6,581                                               | )          | (640 | ) |
|                                                                         |       |                                                 |       |   |   |
| Cash flows from financing activities:                                        |       |                                                 |       |   |   |
| Purchase of common stock (net of commissions)                                |       | (1,877                                               | )          | — |   |
| Principal payments under capital lease  obligations                          |       | —                                               |       | (7 | ) |
| Proceeds from sale of common stock in  subsidiary (net of commissions)       |       | —                                               |       | 30 |   |
| Net cash (used in) provided by financing  activities                         |       | (1,877                                               | )          | 23 |   |
|                                                                         |       |                                                 |       |   |   |
| Effects of exchange rates on cash                                            |       | 132                                                  |       | 28 |   |
| Net change in cash and cash equivalents                                      |       | (14,166                                              | )          | (4,353 | ) |
| Cash and cash equivalents, beginning of  period                              |       | 92,373                                               |       | 19,757 |   |
| Cash and cash equivalents, end of period                                     |       | $                                                    | 78,207     |   | $ | 15,404 |   |
|                                                                         |       |                                                 |       |   |   |
| Supplemental disclosures of cash received                                    |       |                                                 |       |   |   |
| Interest received                                                            |       | $                                                    | 508        |   | $ | 56 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

6

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**MGT CAPITAL INVESTMENTS, INC.**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

**(unaudited)**

 

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

 

The accompanying unauditedcondensed consolidated financial statements of MGT Capital Investments, Inc.have been prepared in accordance with generally accepted accounting principlesfor interim financial information and with the instructions to Form 10-Qand Rule 10-01 of Regulation S-X. Accordingly, they do not include all ofthe information and notes required by accounting principles generally acceptedin the United States of America. In the opinion of management, all adjustments,consisting only of normal recurring adjustments, for a fair statement have beenincluded. Operating results for the three months ended March 31, 2008 arenot necessarily indicative of the results that may be expected for anysubsequent quarter or for the year ending December 31, 2008. Thesefinancial statements should be read in conjunction with the financialstatements and notes thereto included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2007.  The condensed consolidatedfinancial statements include the accounts of the Company and its majority ownedsubsidiaries. All intercompany accounts and transactions have been eliminated.

 

MGT Capital Investments, Inc.(“MGT”, “we”, “the Company”, “us”) is a technology holding Company in theglobal Healthcare Information Technology sector (“HCIT”).  We currentlyhave a controlling interest in our two main operating subsidiaries: MedicsightPLC (“Medicsight”) and Medicexchange PLC (“Medicexchange”).

 

·           Medicsight and its wholly ownedsubsidiaries is a medical imaging software development company listed on theAIM market of the London Stock Exchange (Ticker symbol “MDST”) that developsand commercializes enterprise-wide Computer-Aided Detection (“CAD”)applications which analyze Computer Tomography (“CT”) scans for the earlydetection and measurement of colorectal polyps and lung lesions.  TheCompany holds 85.7 million shares (55%) of the 155.5 million issued sharecapital of Medicsight at March 31, 2008.

 

·           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 at March 31, 2008. Medicexchange’s shares are not 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 $223,228 at March 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. Summaryof Significant Accounting Policies**

 

**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.

 

7

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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”).

 

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.

 

As at March 31, 2008 werecorded $6 of deferred revenue relating to support and maintenance services,compared with nil at March 31, 2007.

 

*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, and collectability is reasonably assured. Deferred revenue isrecorded when payments are received in advance of performing our serviceobligations.

 

As at March 31, 2008 werecorded $17 of deferred revenue, compared with nil at March 31, 2007.

 

*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 areexpensed as 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.Amortization commences when the product is available for general release tocustomers.

 

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 three months ended March 31,2008 and March 31, 2007, the Company expended $595 and $546 respectively,for research and development expenses for Medicsight CAD and its products.

 

8

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**3. Principal activities**

 

MGT is a holding company inthe global HCIT sector.  We currently have a controlling interest in twocompanies: Medicsight and Medicexchange.

 

*Medicsight PLC*

 

Medicsight is a medicalimaging software development company listed on the AIM Market of the LondonStock Exchange (Ticker symbol “MDST”) that develops and commercializesenterprise-wide CAD applications which analyze CT scans for the early detectionand measurement of colorectal polyps and lung lesions.

 

MGT holds 85.7 million (55%)of the 155.5 million issued share capital of Medicsight.  On March 31,2008, (the first quarter’s last trading day), Medicsight shares closed at aprice of £0.60 ($1.20), valuing MGT’s 85.7 million shares at $102,537.

 

*Medicexchange*

 

Medicexchange provides medicalimaging professionals with a global web portal containing an online saleschannel for diagnostic, treatment and surgery planning solutions.  Thiscombined with a variety of relevant clinical papers, training materials andcontent gives these professionals access to information and products that theyotherwise would have difficulty accessing.

 

Medical imaging vendors areprovided with a global online channel through which they can access a largecommunity of medical imaging professionals in order to market and sell theirproduct solutions.  The Medicexchange portal was launched in November 2006,and is a leading medical imaging news and product information provider in thefollowing sectors: Breast, Cardiology, Abdominal-Pelvic, Neurology, Thoracicand Musculoskeletal.

 

MGT holds 22.5 millionshares (73%) of the 30.8 million issued share capital of Medicexchange. Medicexchange’s shares are not publicly traded.

 

*Investmentsat 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-upcompanies.  MGT has a 6% holding in Eurindia and accounts for thisinvestment on a cost basis.  Eurindia has advised us that they intend topay an additional dividend and then liquidate the company during the late 2008early 2009 timeframe.

 

In 2007 the Company invested$960 in C preference shares of XShares Group LLC, a pre-IPO investment advisorthat creates, issues and supports exchange traded funds (ETF) with a particularhealthcare specialty. We account for this investment on a cost basis as ourtotal holding is less than 5%.

 

*Marketablesecurities*

 

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

 
| ** **             | ** ** | **Market  Value** | ** ** | **Cost**   | ** ** | **Unrealized  Gains** | ** ** |
|------------------------|------------|-------------------|------------|------------|------------|-----------------------|------------|
| ** **             | ** ** | ** **        | ** ** | ** ** | ** ** | ** **            | ** ** |
| At March 31, 2008 |       |              | 5,762      |       |       | 5,550                 |       |   | 212 |   |
| At March 31, 2007 |       |              | 2,219      |       |       | 2,138                 |       |   | 81 |   |

 

The increase in netunrealized holding gains on available-for-sale securities for the quarter endedMarch 31, 2008 and 2007 was $131 and $20 respectively which was charged toaccumulated other comprehensive income.

 

9

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**4. Cash andcash equivalents**

 

We invest our cash in shortterm deposits with major banks.  At March 31, 2008 we held $78,207 incash and cash equivalents.  Cash and cash equivalents consist of cash and temporary investmentswith maturities of 90 days or less when purchased.

 

**5. Cashshort term deposits**

 

Cash shortterm deposits consists of cash and temporary investments with maturities ofmore than 90 days when purchased.  At March 31,2008 we held $2,000 in cash short term deposits, all of which mature on orbefore September 30, 2008.

 

**6. Goodwill**

 
| January 1, 2008          |   | $  | 11,200 |   |
|-------------------------------|--------|----|--------|--------|
| Purchase of Medicsight shares |   | 83 |   |
| March 31, 2008           |   | $  | 11,283 |   |

 

In March 2008 we commenced a program topurchase an additional 1,000,000 shares in Medicsight.  At March 31, 2008 we had purchased 700,000Medicsight PLC shares for a total cost of $900.  The acquisition of these shares is beingaccounted for under the purchase method of accounting.  The excess of the acquisition cost over theassociated minority interest of these shares was added to goodwill.

 

**7. Interestand other income**

 

We had the followinginterest and other income amounts:

 
| ** **      | ** ** | **Three Months ended  March 31,** | ** ** |
|-----------------|------------|--------------------------------------------------|------------|
| ** **      | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
|            |       |                                             |       |   |   |
| Dividend income |       | $                                                | —     |   | $ | 217 |   |
| Interest income |       | 508                                              |       | 56 |   |
| Total           |       | $                                                | 508        |   | $ | 273 |   |

 

**8.Comprehensive Income (Loss)**

 

Comprehensive income (loss)as defined by SFAS No. 130, “ *ReportingComprehensive Income* ,” includes net income (loss) and items definedas other comprehensive income.  SFAS No. 130 requires that itemsdefined as other comprehensive income, such as foreign currency translationadjustments and unrealized gains and losses on certain marketable securities,be separately classified in the financial statements.  Such items arereported in the consolidated statements of stockholders’ equity ascomprehensive income as follows:

 
| ** **                               | ** ** | **Three Months ended  March 31,** | ** ** |
|------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                               | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
|                                     |       |                                             |       |   |   |
| Net loss as reported                     |       | $                                                | (3,779     | ) | $ | (3,207 | ) |
| Unrealized foreign exchange gain         |       | 132                                              |       | 57 |   |
| Unrealized gain on marketable securities |       | 131                                              |       | 20 |   |
| Comprehensive loss                       |       | $                                                | (3,516     | ) | $ | (3,130 | ) |

 

**9.****Segmentreporting**

 

Under SFAS No. 131, *Disclosures about Segments of an Enterprise andRelated Information*, operating segments are defined as components ofan enterprise about which separate financial information is available that isevaluated regularly by the chief operating decision maker, or decision makinggroup in deciding how to allocate resources and in assessing performance. Our chief operating decision making group is composed of the chief executiveofficer and members of senior management.  Our reportable operatingsegments are Medicsight and Medicexchange.

 

The accounting policies ofthe segments are the same as those described in the summary of significantaccounting policies.  We evaluate performance of our operating segmentsbased on revenue and operating income (loss).

 

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”).

 

10

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The following is a reconciliationbetween Medicsight published financial statements and the US GAAP consolidatedresults:

 
| ** **                            | ** ** | **Medicsight  PLC** | ** ** | **Medicsight  PLC**       | ** ** | **Medicsight  PLC** | ** ** | **Medicexchange**  | ** ** | **Corporate  and Other** | ** ** | **Total**          | ** ** |
|---------------------------------------|------------|---------------------|------------|---------------------------|------------|---------------------|------------|--------------------|------------|-------------------------------|------------|--------------------|------------|
| ** **                            | ** ** | **(IFRS)**          | ** ** | **GAAP Adj’ts** | ** ** | **(US GAAP)**  | ** ** | **(US GAAP)** | ** ** | **(US GAAP)**            | ** ** | **(US GAAP)** | ** ** |
|                                  |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| **Three  months March 31, 2008** |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| Net revenue to external  customers    |       | $                   | 34         |                      | $          | —              |       | $                  | 34         |                          | $          | 18                 |       | $ | — |   | $ | 52 |   |
| Operating loss                        |       | (4,040              | )          | 13                        |       | (4,027              | )          | (934               | )          | (1,099                        | )          | (6,060             | )          |
| Assets                                |       | 49,138              |       | —                    |       | 49,138              |       | 3,682              |       | 48,065                        |       | 100,885            |       |
|                                  |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| **Three  months March 31, 2007** |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| Net revenue to external  customers    |       | $                   | —     |                      | $          | —              |       | $                  | —     |                          | $          | —             |       | $ | — |   | $ | — |   |
| Operating loss                        |       | (2,880              | )          | 88                        |       | (2,792              | )          | (996               | )          | (215                          | )          | (4,003             | )          |
| Assets                                |       | 11,575              |       | —                    |       | 11,575              |       | 6,326              |       | 16,771                        |       | 34,672             |       |

 

The principle GAAPadjustments being the accounting for stock options and cumulative translationadjustments.

 

The main operations andfixed assets of Medicsight and Medicexchange are in the UK.

 

**10.Stock-Based Compensation**

 

We have issued stock optionsfrom MGT Capital Investments Inc. and our subsidiary companies.

 

*MGTStock Option Plan*

 

On December 5, 2007 weapproved the 2007 MGT stock option plan and granted options for 1,975,000shares under this plan.  At March 31, 2008 there were 1,975,000options outstanding and none of the options issued were exercisable. Options issued under this plan vest in equal one-thirds after employees havebeen employed for 12, 24 and 36 months from the date of grant.

 

*MedicsightStock Option Plans*

 

We have seven 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, 2003we granted options for 2,971,000 shares under this plan.  At March 31,2008 there were 421,500 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 March 31,2008 there were 693,500 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 March 31,2008 there were 285,000 options outstanding and 173,333 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 March 31, 2008 there were 875,000 options outstanding and 291,667 ofthe options issued were exercisable.

 

11

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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 from the grant date. At March 31,2008 there were 5,795,500 options outstanding and 1,931,667 of the optionsissued were exercisable.

 

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 March 31, 2008 there were 350,000 options outstanding andnone 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 March 31, 2008 there were 3,025,000 options outstanding andnone of the options issued were exercisable.

 

*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 March 31, 2008 there were 700,000 optionsoutstanding and 233,333 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 March 31, 2008 there were 300,000 optionsoutstanding and none of the options issued were exercisable.

 

The following tablesummarizes stock option activity for the three months ended March 31, 2008and the year ended December 31, 2007 under all option plans:

 
| ** **                             | ** ** | **Outstanding**            | ** ** | **Exercisable**                             | ** **  |
|----------------------------------------|------------|----------------------------|------------|---------------------------------------------|-------------|
| ** **                             | ** ** | **Number of  Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** **  | **Number of  Shares** | ** ** | **Weighted-  Average   Exercise Price** | ** ** |
|                                   |       |                       |       |                                        |        |   |   |   |   |
| 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                                |       | —                     |       | £                                      | —      |   |   |   |   |   |
| Exercised                              |       | —                     |       | —                                      |        |   |   |   |   |
| Forfeited                              |       | (337,500                   | )          | £                                      | 0.70 ($1.40 | ) |   |   |   |   |
|                                   |       |                       |       |                                        |        |   |   |   |   |
| Outstanding at March 31,  2008    |       | 14,420,000                 |       | £                                      | 0.87 ($1.73 | ) | 3,745,000 |   | £ | 0.61 ($1.21 | ) |

 

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

 
| ** **                              | ** ** | **Outstanding Options** | ** ** | **Exercisable Options**                  | ** ** |
|-----------------------------------------|------------|------------------------------|------------|-----------------------------------------------|------------|
| ** **                              | ** ** | **Number**                   | ** ** | **Remaining  Contractual Life  (years)** | ** ** | **Average  Exercise Price** | ** ** | **Number** | ** ** | **Average Exercise  price** | ** ** |
|                                    |       |                         |       |                                          |       |   |   |   |   |   |   |
| MGT Capital Investments Inc.  2007 Plan |       | 1,975,000                    |       | 9.7                                           |       |   | $3.69 |   | — |   |   |   |
| Medicsight Plan A                       |       | 421,500                      |       | 5.3                                           |       | £ |  0.75  ($1.54 | ) | 421,500 |   | £ |  0.75  ($1.54 | ) |
| Medicsight Plan B                       |       | 693,500                      |       | 6.5                                           |       | £ |  0.75  ($1.54 | ) | 693,500 |   | £ |  0.75  ($1.54 | ) |
| Medicsight Plan C                       |       | 285,000                      |       | 7.3                                           |       | £ |  0.75  ($1.54 | ) | 173,333 |   | £ |  0.75  ($1.54 | ) |
| Medicsight Plan D                       |       | 875,000                      |       | 8.3                                           |       | £ |  0.83  ($1.70 | ) | 291,667 |   | £ |  0.83  ($1.70 | ) |
| Medicsight Plan E                       |       | 5,795,000                    |       | 8.9                                           |       | £ |  0.50  ($1.02 | ) | 1,931,667 |   | — |   |
| Medicsight Plan F                       |       | 350,000                      |       | 9.2                                           |       | £ |  0.75  ($1.54 | ) | — |   | — |   |
| Medicsight Plan G                       |       | 3,025,000                    |       | 9.7                                           |       | £ |  1.10  ($2.20 | ) | — |   | — |   |
| Medicexchange Plan A                    |       | 700,000                      |       | 8.5                                           |       | £ |  0.40  ($0.82 | ) | 233,333 |   | £ |  0.40  ($0.82 | ) |
| Medicexchange Plan B                    |       | 300,000                      |       | 9.3                                           |       | £ |  1.00  ($2.05 | ) | — |   | — |   |

 

12

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On February 22, 2007 wemodified the exercise price of 50% of the shares in Medicsight under plans “A”through “C” from £1.00 to £0.50 per share. On February 22, 2007 wemodified the exercise price of 50% of the shares in Medicsight under plan “D”from £1.10 to £0.50 per share. No other terms and conditions of the shareswithin these plans were modified. On March 11, 2008 we modified the vestingterms for 450,000 options in Medicsight plan E, and 150,000 in Medicexchangeplan B for a former employee and allowed these options to be transferred to hisestate. The total modification charge for the three months ended March 31,2008 was $333 compared with $133 for the three months ended March 31,2007.

 

We recorded the followingamounts related to share-based expenses in the Statement of Operations for thefollowing periods:

 
| ** **                           | ** ** | **Three Months ended  March 31,** | ** ** | **Three Months ended  March 31,** | ** ** |
|--------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                           | ** ** | **2008**                                         | ** ** | **2007**                                         | ** ** |
|                                 |       |                                             |       |                                             |       |
| Selling, general and  administrative |       | $1,040                                           |       | $334                                             |       |
|                                 |       |                                             |       |                                             |       |
| Research and development             |       | $51                                              |       | $41                                              |       |
|                                 |       |                                             |       |                                             |       |
| Total                                |       | $1,091                                           |       | $375                                             |       |

 

No compensation costs werecapitalized.

 

The aggregate intrinsicvalue for options outstanding and exercisable at March 31, 2008 wasapproximately $2,259.

 

A summary of non-vestedoptions at March 31, 2008 and the change during the three months ended March 31,2008 is presented below:

 
| ** **                         | ** ** | **Number of  Options** | ** ** | **Weighted Average  Grant Date Fair  Value** | ** **  |
|------------------------------------|------------|-----------------------------|------------|-------------------------------------------------------------|-------------|
|                               |       |                        |       |                                                        |        |
| Non-vested at January 1, 2008 |       | 12,690,833                  |       | £                                                      | 0.41 ($0.82 | ) |
| Granted                            |       | —                      |       | —                                                      |        |
| Vested                             |       | (1,948,333                  | )          | £                                                      | 0.26 ($0.52 | ) |
| Forfeited                          |       | (67,500                     | )          | £                                                      | 0.26 ($0.52 | ) |
| Non-vested at March 31, 2008  |       | 10,675,000                  |       | £                                                      | 0.43 ($0.86 | ) |

 

At March 31, 2008,there was $9,227 of total unrecognized compensation cost related to non-vestedshare based compensation arrangements granted under the option plans.  Thecost is expected to be recognized over a weighted average period of 5.8 years.

 

**11.Minority Interest**

 

The company has minorityinvestors in both Medicexchange and Medicsight PLC as follows:

 
| ** **                                | ** ** | **Medicsight** | ** ** | **Medicexchange** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|----------------|------------|-------------------|------------|-----------|------------|
|                                      |       |           |       |              |       |      |       |
| Minority Interest at January 1, 2008 |       | $              | 84,851     |              | $          | 8,653     |       | $ | 93,504 |   |
| Purchase of stock in subsidiary operation |       | (817           | )          | —            |       | (817      | )          |
| Less minority share of operating losses   |       | (1,683         | )          | (90               | )          | (1,773    | )          |
| Minority Interest at March 31, 2008  |       | $              | 82,351     |              | $          | 8,563     |       | $ | 90,914 |   |

 

OnFebruary 14, 2008, the Board of Directors of MGT Capital Investments, Inc.approved the 2008 Stock Repurchase Plan, whereby MGT will be able to purchaseshares of its Common Stock both in the open market as such shares becomeavailable and in private transactions. A summary of the buy back transactionsas at the period ended March 31, 2008 is:

 
| ** **                | ** ** | ** **                                | ** ** | ** **                                | ** ** | **Total number of shares**             | ** ** | **Maximum number of shares**       | ** ** |
|---------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                | ** ** | **Total number of shares** | ** ** | **Average price paid per** | ** ** | **purchased as part of publicly** | ** ** | **that may yet be purchased** | ** ** |
| **Period**                | ** ** | **purchased**                             | ** ** | **share**                                 | ** ** | **announced plans**                              | ** ** | **under the plan**                      | ** ** |
|                      |       |                                      |       |                                      |       |                                                  |       |                                              |       |
| February 15 - February 29 |       | 157,000                                   |       | $                                         | 3.21       |                                                  | 157,000    |                                              | 843,000    |   |
|                      |       |                                      |       |                                      |       |                                                  |       |                                              |       |
| March 1 – March 31   |       | 453,901                                   |       | $                                         | 3.02       |                                                  | 610,901    |                                              | 389,099    |   |
|                      |       |                                      |       |                                      |       |                                                  |       |                                              |       |
| **Total**                 |       | 610,901                                   |       | $                                         | 3.07       |                                                  | 610,901    |                                              | 389,099    |   |

 

13

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**12. RelatedParty Transactions**

 

Tim Paterson-Brown is aNon-executive Director of Accsys Technologies PLC, which has a subsidiarycompany Titan Wood Limited. Titan Wood Limited rents space in 66 HammersmithRoad. In the three month period ended March 31, 2008, $33 of officerelated costs were recharged to Titan Wood Limited. At March 31, 2008there was a balance receivable from Titan Wood Limited of $49 of which $33remains unpaid as of May 7, 2008. This is payable within 30 days under theterms of the invoice.

 

**13.****LeaseCommitments and Security Deposit**

 

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, and simultaneously vacated our previous corporate office(46 Berkeley Square, London W1J 5AT, UK).

 

Under this new leaseagreement our UK property rent, services and related costs will be approximately£330 ($675) per annum, paid quarterly in advance.  We have the right toterminate this agreement on the expiry of the fifth year of the lease. Our annual rent is subject to upward only review on August 24, 2011.

 

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.

 

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 December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2008                                        |       | $          | 572        |   |
| 2009                                        |       | 672        |       |
| 2010                                        |       | 641        |       |
| 2011                                        |       | 227        |       |
| 2012                                        |       | 349        |       |
| 2013                                        |       | 454        |       |
| Later Years                                 |       | 1,090      |       |
| **Total Minimum**                           |       | $          | 4,005      |   |

 

**14. Subsequent events**

 

On April 7, 2008 the Company completedthe re-purchase of 1,000,000 additional shares of Medicsight PLC forconsideration of $1,264, taking the Company’s total holding in Medicsight PLCto 86,000,000 shares.  On May 9,2008 Medicsight PLC’s shares closed at £0.59 ($1.18) valuing the 86,000,000shares at $101,609.

 

As at May 8, 2008 the Company had completedthe purchase of an additional 6,267,672 shares of its own stock, for considerationof $18,727.

 

On April 3, 2008 Medicexchange executeda Stock Purchase Agreement with the owners of the Shanghai Shenjie DigitalTechnology Company Limited (based in Shanghai, China) whose assets included theMaydeal.com domain name.  Totalconsideration for this purchase is approximately $400 which will be paid to thevendors on the completion of defined milestones, which are expected to becompleted in the next 12 months.

 

**15. RecentAccounting Pronouncements**

 

In September 2006, theFASB issued SFAS No. 157, “ *Fair ValueMeasurements* “ (“SFAS No. 157”), which defines fair value,establishes a framework for measuring fair value in accordance with generallyaccepted accounting principles and expands disclosures about fair valuemeasurements. SFAS No. 157 applies to other accounting standards thatrequire or permit fair value measurements. Accordingly, it does not require anynew fair value measurement. SFAS No. 157, as issued, was effective forfinancial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years. On February 12, 2008,the FASB issued FSP FAS No. 157-2, “Effective Dates of FASB Statement no.157,” which delays the effective date of SFAS No. 157 for fiscal yearsbeginning after November 15, 2008 for all non-financial assets andnon-financial liabilities, except those that are recognized or disclosed atfair value in the financial statements on a recurring basis. We do not expectthe adoption of SFAS No. 157 to have a material impact on our financialposition or results of operations.

 

14

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In February 2007, theFASB issued SFAS No. 159, “ *TheFair Value Option for Financial Assets and Financial Liabilities*“(“SFAS No. 159”), which permits entities to choose to measure manyfinancial instruments and certain other items at fair value that are notcurrently required to be measured at fair value. SFAS No. 159 will beeffective for the Company on January 1, 2008. We do not expect theadoption of SFAS No.159 to have a material impact on our financial position orresult of operations.

 

In December 2007, theFASB issued SFAS No. 160, “*Noncontrolling Interestsin 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 are currently evaluating the impact theadoption of SFAS No. 160 will have on our consolidated financial position andresults of operations.

 

**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

This report containsforward-looking statements made in reliance upon the safe harbor provisions of Section 27Aof the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended.  These statements may beidentified by the use of words such as “anticipate,” “estimates,” “should,” “expect,”“guidance,” “project,” “intend,” “plan,” “believe” and other words and terms ofsimilar meaning, in connection with any discussion of our financial statements,business, results of operations, liquidity and future operating or financialperformance.  Please also refer to our “Note Regarding Forward LookingStatements” at the front of this Form.

 

MGT is a technology holdingcompany in the global Healthcare Information Technology market.  We havetwo subsidiaries, Medicsight and Medicexchange:

 

Medicsight is a medicalimaging software development company developing enterprise-wide Computer-AidedDetection (CAD) software which analyzes computer tomography (CT) scans for theearly detection and measurement of colorectal polyps and lung lesions.  Medicsight has focused on two ofthe leading causes of cancer-related death, colorectal cancer (also known ascolon or bowel cancer) and lung cancer.  There is increasing evidence inmanagement’s view that early detection of colon cancer or lung cancer leads toan improved life expectancy.

 

Medicexchange providesmedical imaging professionals with a global web portal containing an onlinesales channel for diagnostic, treatment and surgery planning solutions. Thiscombined with a variety of relevant news, jobs, clinical papers, trainingmaterials and content gives these professionals access to information andproducts that they otherwise would have difficulty accessing.  Medical imaging vendors are provided with aglobal online channel through which they can access a large community ofmedical imaging professionals in order to market and sell their productsolutions.

 

*Medicsight*

 

In February 2008,Medicsight signed a Preliminary Agreement with the System Integration (PACS)division of Toshiba Medical Systems (“Toshiba”) for the resale of MedicReadColon and ColonCAD throughout Japan. Toshiba is a leading global provider of diagnostic medical imagingsystems and comprehensive medical solutions including CT.  Under the Preliminary Agreement, Toshiba willwork with the Company to obtain Ministry of Health, Labor and Welfare (MHLW)regulatory approval in Japan and to jointly conduct market developmentinitiatives.

 

In April 2008,Medicsight signed a Partnership Agreement with INFINITT Company Limited ofSouth Korea to integrate and distribute a joint ColonCAD product.  INFINITT is the market leader in the SouthKorea PACS market and a leading PACS company in south east Asia.

 

In April 2008, Medicsightreceived regulatory approvals from the Chinese State Food and DrugAdministration (SFDA) and the Brazilian National Health Surveillance Agency(ANVISA) for MedicRead Colon.

 

Revenues increased in the quarter ended March 31,2008 to $34 from $29 in the last quarter of Fiscal 2007.

 

*Medicexchange*

 

Revenues decreased in thequarter ended March 31, 2008 to $18 from $48 in the last quarter of Fiscal2007.

 

15

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*MGT*

 

In the first quarter of2008, MGT’s Board of Directors authorized the repurchase of up to 6,350,000shares of its common stock.  At March 31,2008, the Company had repurchased 610,901 shares at an average price of $3.07per share.  As at May 8, 2008, theCompany had repurchased 6,267,672 shares at an average price of $2.99 pershare.

 

In March and April 2008,MGT purchased an additional 1,000,000 ordinary shares of its majority-ownedsubsidiary Medicsight at an average price of £0.63 ($1.26) per share.  As at May 9, 2008, MGT holds 86,000,000ordinary shares of Medicsight representing 55% of the issued share capital.

 

**General**

 

MGT was originallyincorporated in Utah in 1977 and was re-incorporated in Delaware in 2000. At March 31, 2008 the Company’s authorized share capital was 75,000,000shares of common stock, par value of $0.001.

 

At March 31, 2008,38,900,383 shares of common stock had been issued.

 

As of March 31, 2008,the Company and its subsidiaries had 84 employees, all of whom are full-timeemployees.  Our employees are not part of a union.  We believe thatwe have an excellent relationship with our employees.

 

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 iswww.mgtci.com.  Information on our website is not deemed to be a part ofthis Quarterly Report.

 

**CriticalAccounting Policies and the Use of Estimates**

 

We believe there have beenno significant changes in our critical accounting policies during the threemonths ended March 31, 2008 as compared to our previous disclosures inManagement’s Discussion and Analysis of Financial Condition and Results ofOperations included in our Annual Report on Form 10-K for the fiscal yearended December 31, 2007.

 

The accompanying discussionand analysis of our financial condition and results of operations are basedupon our condensed consolidated financial statements and the relateddisclosures, which have been prepared in accordance with U.S. generallyaccepted accounting principles (GAAP).  The preparation of these condensedconsolidated financial statements requires us to make estimates, assumptionsand judgments that affect the reported amounts in our condensed consolidatedfinancial statements and accompanying notes.  These estimates form thebasis for making judgments about the carrying values of assets andliabilities.  We base our estimates and judgments on historical experienceand on various other assumptions that we believe to be reasonable under thecircumstances. Actual results could differ materially from these estimates.

 

We believe the followingpolicies to be the most critical to an understanding of our financial conditionand results of operations because they require us to make estimates,assumptions and judgments about matters that are inherently uncertain.

 

**RevenueRecognition**

 

*Medicsight*

 

The Company recognizesrevenue in accordance with American Institute of Certified Public Accountants(“AICPA”) Statement of Position (“SOP”) 97-2, Software Revenue Recognition, asamended by SOP 98-4 and SOP 98-9, as well as Technical Practice Aids issuedfrom time to time by the AICPA, and SEC Staff Accounting Bulletin No. 104.The Company recognizes revenue when it is realized or realizable and earned.The Company considers revenue realized or realizable and earned when it haspersuasive evidence of an arrangement, the product has been shipped or theservices have been provided to the customer, the sales price is fixed or determinable,and collectability 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”).

 

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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.

 

As at March 31, 2008 werecorded $6 of deferred revenue relating to support and maintenance services,compared with nil at March 31, 2007.

 

*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, and collectability is reasonably assured. Deferred revenue isrecorded when payments are received in advance of performing our serviceobligations.

 

As at March 31, 2008 werecorded $17 of deferred revenue, compared with nil at March 31, 2007.

 

*StockBased Compensation*

 

We have issued employeestock options from MGT Capital Investments Inc. and both Medicsight PLC andMedicexchange PLC (our UK subsidiary companies).  We use the Black-Scholesoption pricing model to estimate the fair value of employee stockoptions.  Calculating the fair value of these stock options requiresconsiderable judgment, including estimating stock price volatility, the amountof options that are expected to be forfeited and the expected life of theoptions awards.

 

The value of a stock optionis derived from its potential for appreciation.  The more volatile thestock, the more valuable the option becomes due to the greater possibility ofsignificant changes in stock price.  The expected option term also has a significanteffect on the value of the option.  The longer the term, the more time theoption holder has to allow the stock price to increase without a cashinvestment and thus, the more valuable the option.  When establishing anestimate of the expected term, we consider the vesting period for the award andour estimate of employee’s likely stock option exercises, the expectedvolatility, and a comparison to relevant peer group data.

 

At the time of therespective stock options being granted, the shares underlying the awarded stockoptions were not publicly traded shares in some instances.  We review ourvaluation assumptions at each grant date and, as a result, we are likely tochange our valuation assumptions used to value stock based awards granted infuture periods. Actual results, and future changes in estimates, may differsubstantially from our current estimates.  As a result, if factors changeand we use different assumptions, our stock-based compensation expense could bematerially different in the future.

 

**Resultsof Operations**

 

*Revenues*

 

For the three months ended March 31,2008 and March 31, 2007 our revenues from operations were $52 and $nil,resulting from the sale of Medicsight software licenses, Medicexchangeadvertising space and medical products in China.

 

*Selling,General and Administrative Expenses*

 

Our selling, general andadministrative expenses from continuing operations were:

 
| ** **                                    | ** ** | **Three Months ended  March 31,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
|                                          |       |                                             |       |   |   |
| Selling, general and administrative  expenses |       | $                                                | 5,505      |   | $ | 3,457 |   |
|                                               |            |                                                  |            |  |  |  |  |

 

Our selling, general andadministrative expenses have increased as we expand our internationalcommercial operations.  The significant contributors to this increasebeing: (a) an increase in people related costs on the prior period as bothMedicsight and Medicexchange have increased the number of their employees inboth commercial and operations; (b) an increase in professional fees as aresult of increased audit, investor relation and corporate finance feesincurred in complying with Sarbanes Oxley and as a result of the initial publicoffering of Medicsight; (c) an increase in stock option costs due to theMGT 2007 plan grant; plan E, F and G grants in Medicsight PLC and plan B grantsin Medicexchange.

 

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*Researchand Development:*

 
| ** **                        | ** ** | **Three Months ended  March 31,** | ** ** |
|-----------------------------------|------------|--------------------------------------------------|------------|
| ** **                        | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
|                              |       |                                             |       |   |   |
| Research and development expenses |       | $                                                | 595        |   | $ | 546 |   |
|                                   |            |                                                  |            |  |  |  |  |

 

**Liquidityand Capital Resources**

 

*WorkingCapital Information:*

 
| ** **                                               | ** ** | **March 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|----------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                               | ** ** | **(unaudited)**              | ** ** | ** **                      | ** ** |
|                                                     |       |                         |       |                            |       |
| Cash, cash equivalents &  Marketable Securities |       | 83,969                       |       | 94,592                          |       |
|                                                     |       |                         |       |                            |       |
| Current Assets                                           |       | 86,913                       |       | 95,319                          |       |
| Current Liabilities                                      |       | (3,177                       | )          | (4,420                          | )          |
| Working Capital Surplus                                  |       | 83,736                       |       | 90,899                          |       |
|                                                     |       |                         |       |                            |       |
| Ratio of Current Assets to Current  Liabilities          |       | 27.4                         |       | 21.6                            |       |

 

As of March 31, 2008 wehad $78,207 in cash (compared to $15,404 at March 31, 2007) and $5,762 inmarketable securities compared to $5,348 at March 31, 2007.

 

Net cash used in operatingactivities was $5,840 for the three months ended March 31, 2008 ($3,764for the three month period ended March 31, 2007). This resultedprimarily from:

 

a.                     our net loss of $3,779 comparedwith a net loss of $3,207, for the three month period ended March 31,2007;

 

b.                     adjusted for depreciation andstock-based compensation expenses (non cash items) of $1,201 ($495 for thethree month period ended March 31, 2007);

 

c.                     an overall reduction in currentassets and liabilities (excluding cash items) of $1,489 in the three month periodended March 31, 2008 compared to $535 (reduction) for the three monthperiod ended March 31, 2007.

 

d.                     loss attributable to minorityinterest of $1,773 for the three month period March 31, 2008 compared to$523 for the three month period ended March 31, 2007.

 

Net cash used in investingactivities was $6,581 for the three months ended March 31, 2008 and $640for the three months ended March 31, 2007 consisted primarily of:

 

e.                     in the three months ended March 31,2008 we received $276 from the sale of available for sale marketable securitiesas compared to $nil for the three month period ended March 31, 2007;

 

f.                     in the three months ended March 31,2008 we used $3,688 for the purchase of available for sale marketablesecurities as compared to $350 for the three month period ended March 31,2007;

 

g.                    in the three months ended March 31,2008 we used $269 in capital expenditure and we used $290 for the three monthsended March 31, 2007.

 

h.                    inthe three months ended March 31, 2008 we used $900 for the purchase of commonstock in Medicsight PLC.

Net cash flows used in financing activities of $1,877 for the threemonth period ended March 31, 2008 (compared to $23 provided by financingactivities for the three months ended March 31, 2007). 

 

i.                    inthe three months ended March 31, 2008 we used $1,877 (net of commissions)relating to the purchase of common stock in MGT Capital Investments Inc. 

 

The Company considers that current cash flows are adequate to cover thebusiness operations for the next twelve months.

 

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**Item 3.****                                                          ****Quantitative andQualitative Disclosures About Market Risk**

 

*InterestRate Risk*

 

Our exposure to market raterisk for changes in interest rates relates primarily to our investmentportfolio.  We place our investments in a mixture of (a) cash deposits;and (b) highly liquid blue chip available-for-sale market securities. Adecline in interest rate would have an adverse impact on interest income.

 

We do not have any debt andwe do not use derivative financial instruments.

 

*ForeignExchange Risk*

 

We are exposed to foreigncurrency exchange rate fluctuations related to the operation of ourinternational subsidiaries.  Our main operating currency is UK sterling(£).  We also have subsidiary operations in Japan and China who operate intheir local currencies.

 

At the end of each reportingperiod, expenses of the subsidiaries are converted into U.S. dollars using theaverage currency rate in effect for the period and assets and liabilities areconverted into U.S. dollars using the exchange rate in effect at the end of theperiod.

 

Additionally, we are exposedto foreign currency exchange rate fluctuations relating to payments we make tovendors and suppliers using foreign currencies.

 

We currently do not hedgeagainst this foreign currency risk.

 

Fluctuations in exchangerates may impact our financial condition and results of operations.

 

**Item 4.****                                                          ****Controls andProcedures**

 

 

*Evaluationof Disclosure Controls and Procedures*

 

As required by Rule 13a-15(b) underthe Exchange Act, our management carried out an evaluation of the effectivenessof the design and operation of the Company’s “disclosure controls andprocedures” as of March 31, 2008.  This evaluation was carried outunder the supervision and with the participation of our management, includingour Chief Executive Officer and Chief Financial Officer. As defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act, disclosure controls and procedures arecontrols and other procedures of the Company that are designed to ensure thatinformation required to be disclosed by the Company in the reports it files orsubmits under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in the Securities and Exchange Commission’s rules andforms.  Disclosure controls and procedures include, without limitation,controls and procedures designed to ensure that information required to bedisclosed by the Company in the reports it files or submits under the ExchangeAct is accumulated and communicated to the Company’s management, including ourChief Executive Officer and Chief Financial Officer, as appropriate, to allowtimely decisions regarding required disclosure.

 

Based upon that evaluation,our Chief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective as of March 31,2008.  It should be noted that the design of any system of controls isbased in part upon certain assumptions about the likelihood of future events,and there can be no assurance that any design will succeed in achieving itsstated goals under all potential future conditions, regardless of how remote.

 

*Changesin Internal Control over Financial Reporting*

 

As required by Rule 13a-15(d) underthe Exchange Act, our management, including our Chief Executive Officer andChief Financial Officer, also conducted an evaluation of our internal controlover financial reporting to determine whether any change occurred during the threemonths ended March 31, 2008, that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.  Based on that evaluation during the quarter ended March 31,2008 there has been no change in our internal control over financial reportingthat has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

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**PART II.  OTHERINFORMATION**

 

**Item 1.**                                                           **Legal Proceedings**

 

There are currently nopending legal proceedings.

 

**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,results of operations, cash flows, strategies or prospects in a material andadverse manner.  New risks may emerge at any time, and we cannot predictthose risks or estimate the extent to which they may affect financialperformance. Each of the risks described below could adversely impact the valueof our securities.  These statements, like all statements in this report,speak only as of the date of this report (unless another date is indicated),and we undertake no obligation to update or revise the statements in light offuture developments.

 

Wecannot assure you that MGT will be successful in commercializing the MedicsightCAD products or the Medicexchange portal, or if the products or the portal arecommercialized, that they will be profitable to the Company. We face obstaclesin commercializing the Medicsight CAD products and the Medicexchange portal andin generating operating revenues as detailed below.

 

MGTdoes not believe that there is currently any comparable system that iscompetitive with the Medicsight CAD products. There are computer-aideddiagnostic systems that operate in the field, but, in our view, such othersystems are more dependent than ours on human resources to carry out theanalysis.  We are not aware of othersystems in the field that have the automated capability of our products.

 

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

 

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

 

TechnicalRisks:  The Medicsight CAD system may notdeliver the levels of accuracy and reliability needed, or the development ofsuch accuracy and reliability may be delayed.

 

MarketRisk:  The market for the Medicsight CADproducts and Medicexchange.com may be slower to develop or smaller thanestimated or it may be more difficult to build the market than anticipated. Themedical community may resist the Medicsight CAD and Medicexchange products orbe slower to accept them than we anticipate. Revenues from Medicsight CAD andMedicexchange.com may be delayed or costs may be higher than anticipated whichmay result in the Company requiring additional funding.

 

RegulatoryRisks: The Medicsight CAD system is subject to regulatory requirements in theUnited States, Europe, Japan, China and our other targeted markets. Necessaryregulatory approvals may not be obtained or may be delayed.  We may incur substantial additional cost inobtaining regulatory approvals for our products in our targeted markets.

 

CompetitiveRisk: There are a number of groups and organizations, such as softwarecompanies in the medical imaging field, MDCT scanner manufacturers, screeningcompanies and other healthcare providers that may develop a competitiveoffering to the Medicsight CAD products and Medicexchange.com.  In addition these competitors may havesignificantly greater resources than MGT. We cannot make any assurance thatthey will not attempt to develop such offerings, that they will not besuccessful in developing such offerings or that any offerings they do developwill not have a competitive edge over Medicsight CAD products andMedicexchange.com.

 

FinancialRisk: MGT has incurred significant operating losses since inception and has onlyrecently commenced generating revenues from operations. As a result, MGT hasgenerated negative cash flows from operations and has an accumulated deficit atMarch 31, 2008. MGT is operating in a developing industry based on newtechnology and its primary source of funds to date has been through theissuance of securities and borrowed funds. While MGT is optimistic and believesappropriate actions are being taken, there can be no assurance that management’sefforts will be successful or that the products MGT develops and markets willbe accepted by consumers.

 

Corporate Structure: MGT’scorporate structure may make it more difficult or costly to take certainactions. MGT conducts its business through: (a) Medicsight, a UK publiccompany which is 55% owned by the Company, and through Medicsight’ssubsidiaries in the United Kingdom, the United States, Japan and Gibraltar and;(b) the Medicexchange subsidiaries, in which MGT’s holdings range between75% and 100%.  Although MGT andMedicsight and Medicexchange share some directors and management, they arerequired to comply with corporate governance and other laws and rules applicableto public companies 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 its subsidiaries,MGT would have to take into 

 

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consideration thepotentially conflicting interests of MGT’s stockholders and the minoritystockholders.  This may deter MGT fromtaking such actions that might otherwise be in the best interest of MGT orcause MGT to incur additional costs in taking such actions. The subsidiarycompanies would not be able to pay dividends or make other distributions ofprofits or assets to MGT without making pro-rata payments or distributions to theirrespective minority stockholders. Although neither the subsidiary companies nor MGT has plans to paydividends or make distributions to its shareholders, MGT’s corporate structuremay deter its subsidiaries from doing so in the future.

 

Risks Associated With OurIntellectual Property: The protection of our intellectual property may be uncertain, and we may facepossible claims of others: Although we have received patents and have filedpatent applications with respect to certain aspects of our technology, wegenerally do not rely on patent protection with respect to our products andtechnologies. Instead, we rely primarily on a combination of trade secret andcopyright law, employee and third-party nondisclosure agreements and other protectivemeasures to protect intellectual property rights pertaining to our products andtechnologies. Such measures may not provide meaningful protection of our tradesecrets, know-how or other intellectual property in the event of anyunauthorized use, misappropriation or disclosure. Others may independentlydevelop similar technologies or duplicate our technologies. In addition, to theextent that we apply for any patents, such applications may not result inissued patents or, if issued, such patents may not be valid or of value. Thirdparties could, in the future, assert infringement or misappropriation claimsagainst us with respect to our current or future products and technologies, orwe may need to assert claims of infringement against third parties. Anyinfringement or misappropriation claim by us or against us could placesignificant strain on our financial resources, divert management’s attentionfrom our business and harm our reputation. The costs of prosecuting ordefending an intellectual property claim could be substantial and couldadversely affect our business, even if we are ultimately successful inprosecuting or defending any such claims. If our products or technologies arefound to infringe the rights of a third party, we could be required to paysignificant damages or license fees or cease production, any of which couldhave a material adverse effect on our business.

 

Failure to Attract andRetain Qualified Personnel: If we fail to attract and retain qualifiedpersonnel, our business would be harmed. We expect to rapidly expand our operations and grow our sales, researchand development andadministrative operations. This expansion is expected to place a significantstrain on our management and will require hiring a significant number of qualifiedpersonnel. Accordingly, recruiting and retaining such personnel in the futurewill be critical to our success. There is intense competition from othercompanies, research and academic institutions, government entities and otherorganizations for qualified personnel in the areas of our activities. If wefail to identify, attract, retain and motivate these highly skilled personnel,we may be unable to continue our marketing and development activities.

 

Managing Changes In OurBusiness: If we do not effectively manage changes in our business, these changes could place a significantstrain on our management and operations and, as a result, our business mightnot succeed.  Our ability to growsuccessfully requires an effective planning and management process. Theexpansion and growth of our business could place a significant strain on ourmanagement systems, infrastructure and other resources. To manage our growthsuccessfully, we must continue to improve and expand our systems andinfrastructure in a timely and efficient manner. Our controls, systems,procedures and resources may not be adequate to support a changing and growingcompany. If our management fails to respond effectively to changes and growthin our business, including acquisitions, such failure could have a materialadverse effect on our business.

 

ForeignExchange Risks: As MGT’s main operating currency is UK sterling (£) and itsfinancial statements are reported in US Dollars, MGT’s assets and liabilitiesand its results of operations are affected by movements in the $:£ exchangerate.

 

InternalControls: Failure to update and maintain effective internal controls inaccordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have amaterial adverse effect on our business and operating results. In addition, asa consequence of such failure, current and potential stockholders could loseconfidence in our financial reporting, which could have an adverse effect onour stock price. Effective internal controls are necessary for us to providereliable financial reports and effectively prevent fraud. If we cannot providereliable financial reports or prevent fraud, we could be subject to regulatoryaction or other litigation and our operating results could be harmed.

 

Commencingwith our fiscal year ending December 31, 2007, we were required todocument and test our internal control procedures in order to satisfy therequirements of Section 404 of the Sarbanes-Oxley Act of 2002, whichrequires our management to annually asses the effectiveness of our internalcontrols over financial reporting, and our independent registered publicaccounting firm to report on these assessments.

 

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 Section 404.Failure to achieve and maintain an effective internal control environment couldcause us to face regulatory action and also cause investors to lose confidencein our reported financial information, either of which could have an adverseeffect on our stock price.

 

**Item 2.**                                                           **UnregisteredSales of Equity Securities and Use of Proceeds**

 

In the three months ended March 31,2008 no shares of common stock were issued.

 

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**Item 3.**                                                           **Defaults UponSenior Securities**

 

None.

 

**Item 4.**                                                           **Submission ofMatters to a Vote of Security Holders**

 

None.

 

**Item 5.**                                                           **Other Information**

 

On April 28, 2008, the Company received a comment letter from theSecurities and Exchange Commission relating to the Company’s December 31,2007 filing on Form 10-K to which the Company is currently responding.

 

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**Exhibitsand Reports on Form 8-K**

 
| **Exhibits** |   |                                                                                                                            |
|--------------|--------|---------------------------------------------------------------------------------------------------------------------------------|
|         |   |                                                                                                                            |
| 31.1         |   | Certification pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer —  filed herewith). |
| 31.2         |   | Certification pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer —  filed herewith). |
| 32.1         |   | Certification pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer —  filed herewith). |
| 32.2         |   | Certification pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer —  filed herewith). |

 

(b **)****                                                                             **Reports on Form 8-K

 

None

 

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SIGNATURE

 

In accordance with the requirements of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
|               | MGT Capital Investments, Inc. |
|--------------------|------------------------------------|
|               |                               |   |
|               |                               |   |
|               | By:                                | /s/ TIM PATERSON-BROWN |
|               |                               | Tim Paterson-Brown |
|               |                               | Chief Executive Officer |
|               |                               |   |
|               |                               |   |
|               | By:                                | /s/ ALLAN ROWLEY |
|               |                               | Allan Rowley |
|               |                               | Chief Financial Officer |
|               |                               |   |
|               |                               |   |
| May 12 , 2008 |                               |   |

 

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