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** **

 

** **

**UNITEDSTATESSECURITIES 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 June 30, 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 bycheck whether the Registrant (1) has filed all reports to be filed by Section 13or 15(d) of the Securities and Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.    Yes     x    No     o

 

Indicate bycheck mark whether the Registrant is a large accelerated filer, an acceleratedfiler, non-accelerated filer or a smaller reporting company. See definition of “largeaccelerated filer”, “accelerated filer”, “non-accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act:

 
| Large Accelerated Filer o | Accelerated filer x | Non-accelerated Filer o | Smaller reporting company o |
|---------------------------|---------------------|-------------------------|-----------------------------|

 

Indicate bycheck mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).    Yes    o    No    x

 

As of August 8,2008 the registrant had outstanding 32,550,592 shares of common stock, $0.001par value, (excludes 6,349,791 common shares held as treasury stock).

 

 

 

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NOTE REGARDINGFORWARD LOOKING STATEMENTS

 

This Form 10-Q,including “Management’s Discussion and Analysis of Financial Condition andResults of Operations” in Item 2, contains forward-looking statements thatinvolve risks and uncertainties, as well as assumptions that, if they nevermaterialize or prove incorrect, could cause the results of MGT CapitalInvestments, Inc and its consolidated subsidiaries (the “Company”) to differmaterially from those expressed or implied by such forward-looking statements.All statements other than statements of historical fact are statements thatcould be deemed forward-looking statements, including any projections ofrevenue, gross margin, expenses, earnings or losses from operations, synergiesor other financial items; any statements of the plans, strategies andobjectives of management for future operations, including the rate of marketdevelopment and acceptance of medical imaging technology; the execution ofrestructuring plans; any statement concerning developments, performance orindustry rankings relating to products or services; any statements regardingfuture economic conditions or performance; any statements of expectation orbelief; and any statements of assumptions underlying any of the foregoing. Therisks, uncertainties and assumptions referred to above include the performanceof contracts by suppliers, customers and partners; employee management issues;the difficulty of aligning expense levels with revenue changes; and other risksthat are described herein, including but not limited to the specific risksareas discussed in “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” in Item 2 of this report, and that areotherwise described from time to time in the Company’s Securities and ExchangeCommission reports filed after this report. The Company assumes no obligationand does not intend to update these forward-looking statements.

 

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

 

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**INDEX**

 
| **PART I — FINANCIAL INFORMATION** |                                                                                                                                    |
|----------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                   | ** **                                                                                                                              | ** ** |
| Item 1                                       | Condensed Consolidated Balance  Sheets — June 30, 2008 (unaudited) and December 31, 2007                                 | 4 |
|                                         |                                                                                                                                    |   |
|                                         | Condensed  Consolidated Statements of Operations — for the three months ended  June 30, 2008 (unaudited) and 2007 (unaudited) | 5 |
|                                         |                                                                                                                                    |   |
|                                         | Condensed  Consolidated Statements of Operations — for the six months ended  June 30, 2008 (unaudited) and 2007 (unaudited)   | 6 |
|                                         |                                                                                                                                    |   |
|                                         | Condensed  Consolidated Statements of Cash Flows — for the six months ended  June 30, 2008 (unaudited) and 2007 (unaudited)   | 7 |
|                                         |                                                                                                                                    |   |
|                                         | Notes to Condensed Consolidated Financial Statements                                                                                    | 8 |
|                                         |                                                                                                                                    |   |
| Item 2                                       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                             | 18 |
|                                         |                                                                                                                                    |   |
| Item 3                                       | Quantitative  and Qualitative Disclosure About Market Risk                                                                              | 22 |
|                                         |                                                                                                                                    |   |
| Item 4                                       | Controls &  Procedures                                                                                                         | 23 |
|                                         |                                                                                                                                    |   |
| **PART II — OTHER INFORMATION**    |                                                                                                                                    |
| ** **                                   | ** **                                                                                                                              | ** ** |
| Item 1                                       | Legal Proceedings                                                                                                                       | 24 |
|                                         |                                                                                                                                    |   |
| Item 1A                                      | Risk Factors                                                                                                                            | 24 |
|                                         |                                                                                                                                    |   |
| Item 2                                       | Unregistered  Sale of Equity Securities and Use of Proceeds                                                                             | 26 |
|                                         |                                                                                                                                    |   |
| Item 3                                       | Defaults  Upon Senior Securities                                                                                                        | 26 |
|                                         |                                                                                                                                    |   |
| Item 4                                       | Submission  of Matters to a Vote of Security Holders                                                                                    | 26 |
|                                         |                                                                                                                                    |   |
| Item 5                                       | Other Information                                                                                                                       | 26 |
|                                         |                                                                                                                                    |   |
| Item  6                                      | Exhibits                                                                                                                                |   |
|                                         |                                                                                                                                    |   |
| SIGNATURES                                   |                                                                                                                                    | 28 |

 

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

 

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**MGT CAPITAL INVESTMENTS, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

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

 
| ** **                                                                                                                                                                                                                                | ** ** | **June 30  2008** | ** ** | **December 31  2007** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                                                                                                | ** ** | **(unaudited)**        | ** ** | **(audited)**              | ** ** |
| **Assets**                                                                                                                                                                                                                                |       |                   |       |                       |       |
| Current assets:                                                                                                                                                                                                                           |       |                   |       |                       |       |
| Cash and cash equivalents                                                                                                                                                                                                                 |       | $                      | 55,746     |                       | $          | 92,373 |   |
| Cash short term deposits                                                                                                                                                                                                                  |       | 1,000                  |       | —                     |       |
| Marketable securities                                                                                                                                                                                                                     |       | 4,885                  |       | 2,219                      |       |
| Accounts receivable                                                                                                                                                                                                                       |       | 64                     |       | 7                          |       |
| Other receivables – related party                                                                                                                                                                                                    |       | 16                     |       | 16                         |       |
| Prepaid expenses and other current assets                                                                                                                                                                                                 |       | 1,379                  |       | 704                        |       |
| Total current assets                                                                                                                                                                                                                      |       | 63,090                 |       | 95,319                     |       |
|                                                                                                                                                                                                                                      |       |                   |       |                       |       |
| Property and equipment, at cost, net                                                                                                                                                                                                      |       | 1,029                  |       | 903                        |       |
| Investments, at cost                                                                                                                                                                                                                      |       | 2,279                  |       | 1,319                      |       |
| Security deposits                                                                                                                                                                                                                         |       | 292                    |       | 279                        |       |
| Intangible assets                                                                                                                                                                                                                         |       | 396                    |       | —                     |       |
| Goodwill                                                                                                                                                                                                                                  |       | 11,287                 |       | 11,200                     |       |
| Total assets                                                                                                                                                                                                                              |       | $                      | 78,373     |                       | $          | 109,020 |   |
|                                                                                                                                                                                                                                      |       |                   |       |                       |       |
| **Liabilities**                                                                                                                                                                                                                           |       |                   |       |                       |       |
| Current liabilities:                                                                                                                                                                                                                      |       |                   |       |                       |       |
| Accounts payable                                                                                                                                                                                                                          |       | $                      | 2,438      |                       | $          | 2,931 |   |
| Accrued expenses                                                                                                                                                                                                                          |       | 3,018                  |       | 1,469                      |       |
| Deferred revenue                                                                                                                                                                                                                          |       | 119                    |       | 20                         |       |
| Total current liabilities                                                                                                                                                                                                                 |       | 5,575                  |       | 4,420                      |       |
|                                                                                                                                                                                                                                      |       |                   |       |                       |       |
| **Minority interest**                                                                                                                                                                                                                     |       | 87,810                 |       | 93,504                     |       |
|                                                                                                                                                                                                                                      |       |                   |       |                       |       |
| Commitments and contingencies                                                                                                                                                                                                             |       |                   |       |                       |       |
|                                                                                                                                                                                                                                      |       |                   |       |                       |       |
| **Stockholders’ (deficit)/equity:**                                                                                                                                                                                                  |       |                   |       |                       |       |
| Common stock, $0.001 par value: June 30,  2008: 75,000,000 shares authorized; 38,900,383 shares issued and 32,556,497  outstanding (December 31, 2007: 75,000,000 shares authorized; 38,900,383  shares issued and outstanding) |       | 39                     |       | 39                         |       |
| Additional paid in capital                                                                                                                                                                                                                |       | 231,308                |       | 229,428                    |       |
| Accumulated other comprehensive income                                                                                                                                                                                                    |       | 904                    |       | 1,078                      |       |
| Accumulated deficit                                                                                                                                                                                                                       |       | (228,364               | )          | (219,449                   | )          |
|                                                                                                                                                                                                                                      |       | 3,887                  |       | 11,096                     |       |
| Treasury stock, at cost, 6,343,886 shares of  common stock                                                                                                                                                                                |       | (18,899                | )          | —                     |       |
| Total stockholders’ (deficit)/equity                                                                                                                                                                                                 |       | (15,012                | )          | 11,096                     |       |
|                                                                                                                                                                                                                                      |       |                   |       |                       |       |
| Total stockholders’ (deficit)/equity, liabilities  and minority interest                                                                                                                                                             |       | $                      | 78,373     |                       | $          | 109,020 |   |

 

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

 

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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 June 30,** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                            | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
|                                                  |       |                                                |       |   |   |
| Revenues                                              |       | $                                                   | 85         |   | $ | — |   |
| Cost of revenue                                       |       | (18                                                 | )          | — |   |
| Gross margin                                          |       | 67                                                  |       | — |   |
|                                                  |       |                                                |       |   |   |
| Operating expenses                                    |       |                                                |       |   |   |
| Selling, general and administrative expenses          |       | 7,965                                               |       | 4,525 |   |
| Research and development cost                         |       | 632                                                 |       | 590 |   |
|                                                  |       | 8,597                                               |       | 5,115 |   |
|                                                  |       |                                                |       |   |   |
| Operating loss                                        |       | (8,530                                              | )          | (5,115 | ) |
|                                                  |       |                                                |       |   |   |
| Interest and other income                             |       | 637                                                 |       | 309 |   |
|                                                  |       |                                                |       |   |   |
| Net loss before income taxes and minority interest    |       | (7,893                                              | )          | (4,806 | ) |
|                                                  |       |                                                |       |   |   |
| Income taxes                                          |       | —                                              |       | — |   |
| Minority interest                                     |       | 2,757                                               |       | 711 |   |
|                                                  |       |                                                |       |   |   |
| Net loss                                              |       | $                                                   | (5,136     | ) | $ | (4,095 | ) |
|                                                  |       |                                                |       |   |   |
| Per share data:                                       |       |                                                |       |   |   |
|                                                  |       |                                                |       |   |   |
| Basic and diluted loss per share                      |       | $                                                   | (0.14      | ) | $ | (0.11 | ) |
|                                                  |       |                                                |       |   |   |
| Weighted average number of common shares  outstanding |       | 35,539,746                                          |       | 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 OPERATIONS**

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

**(unaudited)**

 
| ** **                                            | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                            | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
|                                                  |       |                                              |       |   |   |
| Revenues                                              |       | $                                                 | 137        |   | $ | — |   |
| Cost of revenue                                       |       | (30                                               | )          | — |   |
| Gross margin                                          |       | 107                                               |       | — |   |
|                                                  |       |                                              |       |   |   |
| Operating expenses                                    |       |                                              |       |   |   |
| Selling, general and administrative expenses          |       | 13,470                                            |       | 7,981 |   |
| Research and development cost                         |       | 1,227                                             |       | 1,136 |   |
|                                                  |       | 14,697                                            |       | 9,117 |   |
|                                                  |       |                                              |       |   |   |
| Operating loss                                        |       | (14,590                                           | )          | (9,117 | ) |
|                                                  |       |                                              |       |   |   |
| Interest and other income                             |       | 1,145                                             |       | 582 |   |
|                                                  |       |                                              |       |   |   |
| Net loss before minority interest                     |       | (13,445                                           | )          | (8,535 | ) |
|                                                  |       |                                              |       |   |   |
| Income taxes                                          |       | —                                            |       | — |   |
| Minority interest                                     |       | 4,530                                             |       | 1,234 |   |
|                                                  |       |                                              |       |   |   |
| Net loss                                              |       | $                                                 | (8,915     | ) | $ | (7,301 | ) |
|                                                  |       |                                              |       |   |   |
| Per share data:                                       |       |                                              |       |   |   |
|                                                  |       |                                              |       |   |   |
| Basic and diluted loss per share                      |       | $                                                 | (0.23      | ) | $ | (0.19 | ) |
|                                                  |       |                                              |       |   |   |
| Weighted average number of common shares  outstanding |       | 37,956,351                                        |       | 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)**

 
| ** **                                                                                        | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                        | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
|                                                                                              |       |                                              |       |   |   |
| Cash flows from operating activities                                                              |       |                                              |       |   |   |
| Net loss                                                                                          |       | $                                                 | (8,915     | ) | $ | (7,301 | ) |
|                                                                                              |       |                                              |       |   |   |
| Adjustments to reconcile net loss to net cash used  in operating activities:                      |       |                                              |       |   |   |
| Loss attributable to minority interest                                                            |       | (4,530                                            | )          | (1,234 | ) |
| Stock based compensation expense                                                                  |       | 1,880                                             |       | 718 |   |
| Depreciation                                                                                      |       | 235                                               |       | 165 |   |
| Loss on disposal of fixed assets                                                                  |       | —                                            |       | 6 |   |
| (Increase)/decrease in assets                                                                     |       |                                              |       |   |   |
| Accounts receivable                                                                               |       | (57                                               | )          | — |   |
| Prepaid expenses and other current assets                                                         |       | (454                                              | )          | (463 | ) |
| Value added tax receivable                                                                        |       | (190                                              | )          | 104 |   |
| Increase/(decrease) in liabilities                                                                |       |                                              |       |   |   |
| Accounts payable                                                                                  |       | (713                                              | )          | (470 | ) |
| Accrued expenses                                                                                  |       | 1,549                                             |       | 659 |   |
| Deferred revenue                                                                                  |       | 99                                                |       | — |   |
| Net cash used in operating activities                                                             |       | (11,096                                           | )          | (7,816 | ) |
|                                                                                              |       |                                              |       |   |   |
| Cash flows from investing activities:                                                             |       |                                              |       |   |   |
| Purchase of marketable securities                                                                 |       | (3,688                                            | )          | (470 | ) |
| Sale of marketable securities                                                                     |       | 921                                               |       | — |   |
| Purchase of cash short-term deposits                                                              |       | (1,000                                            | )          | — |   |
| Purchase of investments                                                                           |       | (960                                              | )          | — |   |
| Acquisition of Maydeal.com                                                                        |       | (220                                              | )          | — |   |
| Purchase of fixed assets                                                                          |       | (361                                              | )          | (290 | ) |
| Net cash used in investing activities                                                             |       | (5,308                                            | )          | (760 | ) |
|                                                                                              |       |                                              |       |   |   |
| Cash flows from financing activities:                                                             |       |                                              |       |   |   |
| Principal payments under capital lease obligations                                                |       | —                                            |       | (7 | ) |
| Sale of subsidiary stock                                                                          |       | —                                            |       | 61,123 |   |
| Purchase of treasury stock (net of commissions)                                                   |       | (18,899                                           | )          | — |   |
| Purchase of subsidiary company stock                                                              |       | (1,251                                            | )          | — |   |
| Net cash (used in) provided by financing  activities                                              |       | (20,150                                           | )          | 61,116 |   |
|                                                                                              |       |                                              |       |   |   |
| Effects of exchange rates on cash and cash  equivalents                                           |       | (73                                               | )          | 215 |   |
| Net change in cash and cash equivalents                                                           |       | (36,627                                           | )          | 52,755 |   |
| Cash and cash equivalents, beginning of period                                                    |       | 92,373                                            |       | 19,757 |   |
| Cash and cash equivalents, end of period                                                          |       | $                                                 | 55,746     |   | $ | 72,512 |   |
|                                                                                              |       |                                              |       |   |   |
| Supplemental disclosures of cash received                                                         |       |                                              |       |   |   |
| Interest received                                                                                 |       | $                                                 | 1,145      |   | $ | 342 |   |
|                                                                                              |       |                                              |       |   |   |
| NON CASH FINANCING ACTIVITIES                                                                     |       |                                              |       |   |   |
| Receivable of net proceeds from private placement  of Medicsight PLC Stock (from a related party) |       | $                                                 | —     |   | $ | 24,578 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements

 

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**MGT CAPITAL INVESTMENTS, INC.**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

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

**(unaudited)**

 

**1. Organization, basis ofpresentation and liquidity**

 

Theaccompanying unaudited condensed consolidated financial statements of MGTCapital Investments Inc. have been prepared in accordance with generallyaccepted accounting principles for interim financial information and with theinstructions to Form 10-Q and Rule 10-01 of Regulation S-X.Accordingly, they do not include all of the information and notes required byaccounting principles generally accepted in the United States of America. Inthe opinion of management, all adjustments, consisting only of normal recurringadjustments, have been included. Operating results for the three and six monthsended June 30, 2008, are not necessarily indicative of the results thatmay be expected for any subsequent quarter or for the year ending December 31,2008. These financial statements should be read in conjunction with thefinancial statements and notes thereto included in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2007.  Thecondensed consolidated financial statements include the accounts of the Companyand its majority owned subsidiaries. All intercompany accounts and transactionshave been eliminated.

 

MGT CapitalInvestments Inc. (“MGT”, “we”, “the Company”, “us”) is a technology holdingCompany in the global Healthcare Information Technology sector (“HCIT”). We currently have controlling interests in our two main operating subsidiaries:Medicsight PLC (“Medicsight”) and Medicexchange PLC (“Medicexchange”).

 

·      Medicsight and its whollyowned subsidiaries is a medical imaging software development company listed onthe AIM 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 86 million shares (55%) of the 155 million shares issued capitalof Medicsight.

 

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

 

The Companyhas incurred significant operating losses since inception and has justcommenced generating revenue from operations. As a result, the Company hasgenerated negative cash flows from operations and has an accumulated deficit of$228,364 at June 30, 2008. The Company is operating in a developingindustry based on new technology and its primary source of funds to date hasbeen through the issuance of securities. While the Company is optimistic andbelieves appropriate actions are being taken, there can be no assurance thatmanagement’s efforts will be successful or that the products the Companydevelops and markets will be accepted by consumers.

** **

**2. Summary of SignificantAccounting Policies**

** **

**Revenue Recognition**

 

* Medicsight*

 

The Companyrecognizes revenue in accordance with American Institute of Certified PublicAccountants (“AICPA”) Statement of Position (“SOP”) 97-2, Software RevenueRecognition, as amended by SOP 98-4 and SOP 98-9, as well as Technical PracticeAids issued from 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 ordeterminable, and collectability is probable.

 

License feerevenue is derived from the licensing of computer software. Maintenance revenueis derived from software maintenance. The Company’s software licenses aregenerally sold as part of an arrangement that includes maintenance andsupport.

 

The Companylicenses software and sells maintenance through visualization solution partnersand original equipment manufacturers. The Company receives regular salesreports detailing the number of licenses sold by original equipmentmanufacturers, value-added resellers and independent distributors(collectively, “Resellers”) to end users. The Company generally offers termsthat require payment 30 days from invoicing.

 

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

 

Additionally:

 

Software —Revenue from license fees is recognized when notification of shipment to theend user has occurred, there are no significant Company obligations with regardto implementation and the Company’s services are not considered essential tothe functionality of other elements of the arrangement.

 

Services —Revenue from maintenance and support arrangements is deferred and recognizedratably over the 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 June 30,2008 we recorded $10 of deferred revenue relating to support and maintenanceservices, compared with $3 at December 31, 2007.

 

*Medicexchange*

 

We recognizerevenue when the following revenue recognition criteria are met: persuasiveevidence of an arrangement exists, services have been rendered, the sellingprice is fixed or determinable, and collectability is reasonably assured.Deferred revenue is recorded when payments are received in advance ofperforming our service obligations.

 

As at June 30,2008 we recorded $109 of deferred revenue, compared with $17 at December 31,2007.

 

*Research and development*

 

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

 

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

 

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

 

For the sixmonths ended June 30, 2008 and June 30, 2007, the Company expended$1,227 and $1,136 respectively, for research and development expenses forMedicsight CAD and its products.

 

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 **3. Principal activities**

** **

MGT CapitalInvestments, Inc (“MGT”) is a technology holding company in the globalHealthcare Information Technology sector (“HCIT”).  We currently have acontrolling interest in two companies: Medicsight and Medicexchange.

 

*Medicsight*

* *

Medicsight isa medical imaging software development company listed on the AIM Market of theLondon Stock Exchange (ticker symbol “MDST”) that develops and commercializesenterprise-wide Computer-Aided Detection (“CAD”) applications to which analyzeComputer Tomography (“CT”) scans for the early detection and measurement ofcolorectal polyps and lung lesions.

 

MGT holds 86million (55%) of the 155 million issued share capital of Medicsight as of June 30,2008.  On June 30, 2008, (the second quarter’s last trading day),Medicsight shares closed at a price of £0.54 ($1.09), valuing MGT’s 86 millionshares at $93,478.

 

*Medicexchange*

* *

Medicexchangeprovides medical imaging professionals with a global web portal containing anonline sales channel for diagnostic, treatment and surgery planningsolutions.  This combined with a variety of relevant clinical papers,training materials and content gives these professionals access to informationand products that they otherwise would have difficulty accessing.

 

Medicalimaging vendors are provided with a global online channel through which theycan access a large community of medical imaging professionals in order tomarket and sell their product solutions.  The Medicexchange portal waslaunched in November 2006, and is a leading medical imaging news andproduct information provider in the following sectors: Breast, Cardiology,Abdominal-Pelvic, Neurology, Thoracic and Musculoskeletal.

 

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

 

*Investments at Cost*

* *

We account forinvestments in non-marketable securities under the cost method of accountingwhere we own less than a 20% interest in each of the companies, and we do nothave significant influence over the entity. We continually review eachinvestment to assess for other-than-temporary decreases in value.

 

In 2000, MGTinvested in Eurindia PLC, (“Eurindia”) a Gibraltar company that invested in ITstart-up companies.  MGT has a 6% holding in Eurindia and accounts forthis investment on a cost basis.  Eurindia has advised us that they intendto pay an additional dividend and then liquidate the company late in 2008 orearly in 2009.

 

In 2007, theCompany invested $960 in C preference shares of XShares Group LLC, a pre-IPOinvestment advisor that creates, issues and supports exchange traded funds(ETFs) with a particular healthcare specialty. In the period ended June 30,2008, the Company invested an additional $960 in shares of XShares Group LLCbringing the total invested to $1,920. We account for these investments on acost basis as our total holdings are less than 20%.

 

*Marketable securities*

* *

Investments inmarketable securities consisting of HipCricket Inc. and a fund managed by BankSarasin & Company Limited as of June 30, were as follows:

 
| ** **            | ** ** | **Market  Value** | ** ** | **Cost** | ** ** | **Unrealized  Gains (Losses)** | ** ** |
|-----------------------|------------|-------------------|------------|----------|------------|--------------------------------|------------|
|                  |       |              |       |     |       |                           |       |
| At June 30, 2007 |       | $                 | 5,734      |     | $          | 5,003                          |       | $ | 731 |   |
| At June 30, 2008 |       | $                 | 4,885      |     | $          | 4,905                          |       | $ | (20 | ) |

 

The change in net unrealized holding gains (losses) onavailable-for-sale securities for the six months ended June 30, 2008 and2007 was a $101 decrease and a $286 increase respectively which was charged toaccumulated other comprehensive income.

 

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**4. Cash and cashequivalents**

 

We invest ourcash in short-term deposits with major banks.  At June 30, 2008 weheld $55,746 in cash and cash equivalents.

 

Cash and cash equivalents consist of cash and temporary investmentswith maturities of 90 days or less when purchased.

 

**5. Cash short termdeposits**

 

Cash short-term deposits consists of cash andtemporary investments with maturities of more than 90 days when purchased.  At June 30, 2008 we held$1,000 in cash short-term deposits, all of which mature in or before September 2008.

 

**6. Goodwill**

** **
| Balance at December 31, 2007 |   | $  | 11,200 |   |
|-----------------------------------|--------|----|--------|--------|
| Purchase of Medicsight shares     |   | 87 |   |
| Balance at June 30, 2008     |   | $  | 11,287 |   |

 

In March and April 2008 wepurchased a total of 1,000,000 shares in Medicsight for £634 ($1,251).  The acquisition of these shares is beingaccounted for under the purchase method of accounting. The excess of theacquisition cost over the associated minority interest of these shares wasadded to goodwill.

 

**7. Interest and otherincome**

 

We had thefollowing interest and other income amounts:

 
| ** **      | ** ** | **Three Months ended  June 30,** | ** ** | **Six Months ended  June 30,** | ** ** |
|-----------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **      | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|            |       |                                            |       |                                          |       |   |   |   |   |
| Dividend income |       | $                                               | —     |                                          | $          | — |   | $ | — |   | $ | 240 |   |
| Interest income |       | 637                                             |       | 309                                           |       | 1,145 |   | 342 |   |
| Total           |       | $                                               | 637        |                                          | $          | 309 |   | $ | 1,145 |   | $ | 582 |   |

 

**8. Comprehensive Income(Loss)**

 

Comprehensiveincome (loss) as defined by SFAS No. 130, “*Reporting Comprehensive Income”*, includes net income (loss) and items defined as othercomprehensive income.  SFAS No. 130 requires that items defined asother comprehensive income, such as foreign currency translation adjustmentsand unrealized gains and losses on certain marketable securities, be separatelyclassified in the financial statements.  Such items are reported in theconsolidated statements of stockholders’ equity as comprehensive income asfollows:

 
| ** **                               | ** ** | **Three Months ended  June 30,** | ** ** | **Six Months ended  June 30,** | ** ** |
|------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                               | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                     |       |                                            |       |                                          |       |   |   |   |   |
| Net loss as reported                     |       | $                                               | (5,136     | )                                             | $          | (4,095 | ) | $ | (8,915 | ) | $ | (7,301 | ) |
| Unrealized foreign exchange gain         |       | (205                                            | )          | 240                                           |       | (73 | ) | 297 |   |
| Unrealized gain on marketable securities |       | (232                                            | )          | 266                                           |       | (101 | ) | 286 |   |
| Comprehensive loss                       |       | $                                               | (5,573     | )                                             | $          | (3,589 | ) | $ | (9,089 | ) | $ | (6,718 | ) |

 

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**9.****Segment reporting**

 

Under SFAS No. 131,*Disclosures about Segments of an Enterpriseand Related Information*, operating segments are defined ascomponents of an enterprise about which separate financial information isavailable that is evaluated regularly by the chief operating decision maker, ordecision-making group in deciding how to allocate resources and in assessingperformance.  Our chief operating decision-making group is composed of theChief Executive Officer and members of senior management.  Our reportableoperating segments are Medicsight and Medicexchange.

 

The accountingpolicies of the segments are the same as those described in the summary ofsignificant accounting policies.  We evaluate performance of our operatingsegments based on revenue and operating income (loss).

 

Medicsightlisted on the AIM Market of the London Stock Exchange on June 21,2007.  AIM listing rules require Medicsight to publish results underInternational Financial Reporting Standards (“IFRS”) in UK Sterling (“GBP”).

 

The followingis a reconciliation between Medicsight’s published financial statements and theUS GAAP consolidated results:

 
| ** **                        | ** ** | **Medicsight  PLC** | ** ** | **Medicsight  PLC**       | ** ** | **Medicsight  PLC** | ** ** | **Medicexchange**  | ** ** | **Corporate  and Other** | ** ** | **Total**          | ** ** |
|-----------------------------------|------------|---------------------|------------|---------------------------|------------|---------------------|------------|--------------------|------------|-------------------------------|------------|--------------------|------------|
| ** **                        | ** ** | **(IFRS)**          | ** ** | **GAAP Adj’ts** | ** ** | **(US GAAP)**  | ** ** | **(US GAAP)** | ** ** | **(US GAAP)**            | ** ** | **(US GAAP)** | ** ** |
|                              |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| **Six months June 30, 2008** |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| Net revenue to external customers |       | $                   | 88         |                      | $          | —              |       | $                  | 88         |                          | $          | 49                 |       | $ | — |   | $ | 137 |   |
| Operating loss                    |       | (9,629              | )          | 40                        |       | (9,589              | )          | (2,101             | )          | (2,900                        | )          | (14,590            | )          |
| Assets                            |       | $                   | 45,161     |                      | $          | —              |       | $                  | 45,161     |                          | $          | 3,525              |       | $ | 29,687 |   | $ | 78,373 |   |
|                              |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| **Six months June 30, 2007** |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| Net revenue to external customers |       | $                   | —     |                      | $          | —              |       | $                  | —     |                          | $          | —             |       | $ | — |   | $ | — |   |
| Operating loss                    |       | (7,055              | )          | 354                       |       | (6,701              | )          | (1,913             | )          | (503                          | )          | (9,117             | )          |
| Assets                            |       | $                   | 57,981     |                      | $          | —              |       | $                  | 57,981     |                          | $          | 6,185              |       | $ | 52,878 |   | $ | 117,044 |   |

 

The principalGAAP adjustments are the accounting for stock options and cumulativetranslation adjustments.

 

The mainoperations and fixed assets of Medicsight and Medicexchange are in the UK.

** **

**10. Stock-BasedCompensation**

 

We have issuedstock options from MGT and our principal subsidiary companies, Medicsight andMedicexchange.

 

*MGT Stock Option Plan*

 

On December 5,2007, we approved the 2007 MGT stock option plan and granted options for1,975,000 shares under this plan.  At June 30, 2008, there were1,975,000 options outstanding and none of the options issued wereexercisable.  Options issued under this plan vest in equal one-thirdsafter employees have been employed for 12, 24 and 36 months from the date ofgrant.

 

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* *

*Medicsight Stock Option Plans*

 

We have eightStock Option Plans in Medicsight whose shares were listed on the AIM Market ofthe London Stock Exchange on June 21, 2007.

 

Plan A - on February 26,2003, we approved stock option plan “A” and in the period ended June 30,2003 we granted options for 2,971,000 shares under this plan.  At June 30,2008 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 June 30,2008, there were 663,500 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 June 30,2008 there were 285,000 options outstanding and 223,333 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 June 30, 2008 there were 875,000 options outstanding and 291,667 of theoptions issued were exercisable.

 

Plan E - on February 22,2007 we approved and granted options for 5,900,000 shares under stock optionplan “E”.  Options under this plan vest in equal one thirds afteremployees have been employed for 12, 24 and 36 months from the grant date. At June 30,2008 there were 5,775,000 options outstanding and 1,925,000 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 June 30, 2008 there were 350,000 options outstanding and116,667 of the options issued were exercisable.

 

Plan G - on December 18,2007 we approved and subsequently granted options for 3,025,000 shares understock option plan “G”.  Options under this plan vest in equal one thirdsafter employees have been employed for 12, 24 and 36 months from the grantdate.  At June 30, 2008 there were 2,987,500 options outstanding andnone of the options issued were exercisable.

 

Plan H - on June 2,2008 we approved and subsequently granted options for 750,000 shares understock option plan “H”. Options under this plan vest in equal one thirds afteremployees have been employed for 12, 24 and 36 months from the grant date.  At June 30, 2008 there were 750,000options outstanding and none of the options were exercisable.

 

*Medicexchange Stock Option Plans*

 

We have twostock option plans in Medicexchange whose shares are not publicly traded.

 

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 June 30, 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 June 30, 2008 there were 300,000 optionsoutstanding and none of the options issued were exercisable.

 

The following assumptions were used to estimate fair value:

 
| ** **                                           | ** ** | **For all plans shown** | ** ** |
|------------------------------------------------------|------------|----------------------------------------|------------|
|                                                 |       |                                   |       |
| Dividend yield                                       |       | 0.0%                                   |       |
| Expected volatility                                  |       | 25% – 65%                         |       |
| Risk-free rate                                       |       | 4.65% - 5.5%                           |       |
| Expected life of options                             |       | Up to 4 years                          |       |
| Weighted-average grant-date fair value – Plan H |       | £0.21 $(0.42)                     |       |
| Forfeiture rates used                                |       | 0% to 2%                               |       |

 

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The assumptions above are based on multiple factors including UnitedKingdom treasury bonds for the risk-free rate at the time of grant, expectedfuture exercising patterns (we cannot base the estimate on the historicalexercise patterns as no options have been exercised) and the volatility of theMGT stock price.

 

The assumptions used in the Black-Scholes option valuation model are highlysubjective, and can materially affect the resulting valuation.

 

The followingtable summarizes stock option activity for the six months ended June 30,2008 and 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       |   | $ | (1.82 | ) |   |   |   |   |   |   |
| 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                               |       | 750,000                    |       | £                                      | 0.68       |   | $ | (1.36 | ) |   |   |   |   |   |   |
| Exercised                             |       | —                     |       | —                                      |       |   |   |   |   |   |   |   |   |
| Forfeited                             |       | (425,000                   | )          | £                                      | 0.67       |   | $ | (1.34 | ) |   |   |   |   |   |   |
|                                  |       |                       |       |                                        |       |   |   |   |   |   |   |   |   |
| Outstanding at June 30, 2008     |       | 15,082,500                 |       | £                                      | 0.86       |   | $ | (1.72 | ) | 3,875,000 |   | £ | 0.61 |   | $ | (1.22 | ) |

 

The followingis a summary of the status of the stock options outstanding at June 30,2008:

 
| ** **                             | ** ** | **Outstanding Options** | ** ** | ** **                         | ** ** | ** **                       | ** ** |
|----------------------------------------|------------|------------------------------|------------|------------------------------------|------------|----------------------------------|------------|
| ** **                             | ** ** | ** **                   | ** ** | **Remaining**                      | ** ** | ** **                       | ** ** | **Exercisable Options** | ** ** |
| ** **                             | ** ** | **Number**                   | ** ** | **Contractual Life  (years)** | ** ** | **Average  Exercise Price** | ** ** | **Number** | ** ** | **Average Exercise  price** | ** ** |
|                                   |       |                         |       |                               |       |                             |       |   |   |   |   |
| MGT Capital Investments Inc. 2007 Plan |       | 1,975,000                    |       | 9.4                                |       |                             |       | $ | 3.69 |   | — |   |   |   |   |   |
| Medicsight Plan A                      |       | 421,500                      |       | 5.0                                |       | £                           | 0.75       |   | $ | (1.54 | ) | 421,500 |   | £ | 0.75 |   | $ | (1.54 | ) |
| Medicsight Plan B                      |       | 663,500                      |       | 6.3                                |       | £                           | 0.75       |   | $ | (1.54 | ) | 663,500 |   | £ | 0.75 |   | $ | (1.54 | ) |
| Medicsight Plan C                      |       | 285,000                      |       | 7.0                                |       | £                           | 0.75       |   | $ | (1.54 | ) | 223,333 |   | £ | 0.75 |   | $ | (1.54 | ) |
| Medicsight Plan D                      |       | 875,000                      |       | 8.0                                |       | £                           | 0.83       |   | $ | (1.70 | ) | 291,667 |   | £ | 0.83 |   | $ | (1.70 | ) |
| Medicsight Plan E                      |       | 5,775,000                    |       | 8.7                                |       | £                           | 0.50       |   | $ | (1.02 | ) | 1,925,000 |   | £ | 0.50 |   | $ | (1.02 | ) |
| Medicsight Plan F                      |       | 350,000                      |       | 8.9                                |       | £                           | 0.75       |   | $ | (1.54 | ) | 116,667 |   | £ | 0.75 |   | $ | (1.54 | ) |
| Medicsight Plan G                      |       | 2,987,500                    |       | 9.4                                |       | £                           | 1.10       |   | $ | (2.20 | ) | — |   |   |   | — |   |
| Medicsight Plan H                      |       | 750,000                      |       | 9.9                                |       | £                           | 0.68       |   | $ | (1.36 | ) | — |   |   |   | — |   |
| Medicexchange Plan A                   |       | 700,000                      |       | 8.3                                |       | £                           | 0.40       |   | $ | (0.82 | ) | 233,333 |   | £ | 0.40 |   | $ | (0.82 | ) |
| Medicexchange Plan B                   |       | 300,000                      |       | 9.1                                |       | £                           | 1.00       |   | $ | (2.05 | ) | — |   |   |   | — |   |
|                                        |            |                              |            |                                    |            |                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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On February 22, 2007, we modified theexercise 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 we modified theexercise 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 shares within these planswere modified. On March 11, 2008, we modified the vesting terms for450,000 options in Medicsight plan E, and 150,000 options in Medicexchange planB for a former employee and allowed these options to be transferred to hisestate. The total modification charge for the six months ended June 30,2008 was $347 compared with $137 for the six months ended June 30, 2007.

 

We recordedthe following amounts related to share-based expenses in the Statement ofOperations for the following periods:

 
| ** **                          | ** ** | **Three Months ended  June 30,** | ** ** | **Six Months ended  June 30,** | ** ** |
|-------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                          | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                |       |                                            |       |                                          |       |   |   |   |   |
| Selling, general and administrative |       | $                                               | 752        |                                          | $          | 339 |   | $ | 1,792 |   | $ | 673 |   |
|                                |       |                                            |       |                                          |       |   |   |   |   |
| Research and development            |       | 37                                              |       | 4                                             |       | 88 |   | 45 |   |
|                                |       |                                            |       |                                          |       |   |   |   |   |
| Total                               |       | $                                               | 789        |                                          | $          | 343 |   | $ | 1,880 |   | $ | 718 |   |

 

Nocompensation costs were capitalized.

 

The aggregateintrinsic value for options outstanding and exercisable at June 30, 2008was approximately $2,359. The aggregate intrinsic value for all outstandingoptions is $12,895.

 

A summary ofnon-vested options at June 30, 2008 and the change during the six monthsended June 30, 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                            |       | 750,000                     |       | £                                                      | 0.21       |   | $ | (0.42 | ) |
| Vested                             |       | (2,115,000                  | )          | £                                                      | 0.27       |   | $ | (0.54 | ) |
| Forfeited                          |       | (118,333                    | )          | £                                                      | 0.28       |   | $ | (0.56 | ) |
| Non-vested at June 30, 2008   |       | 11,207,500                  |       | £                                                      | 0.42       |   | $ | (0.84 | ) |

 

At June 30,2008, there was $9,372 of total unrecognized compensation cost related tonon-vested share based compensation arrangements granted under the optionplans.  The cost is expected to be recognized over a weighted averageperiod of 3.7 years.

 

**11. Minority Interest**

 

The companyhas minority investors in both Medicsight and Medicexchange as follows:

 
| ** **                                | ** ** | **Medicsight** | ** ** | **Medicexchange** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|----------------|------------|-------------------|------------|-----------|------------|
|                                      |       |           |       |              |       |      |       |
| Minority Interest at January 1, 2008 |       | $              | 84,851     |              | $          | 8,653     |       | $ | 93,504 |   |
| Purchase of stock in subsidiary           |       | (1,164         | )          | —            |       | (1,164    | )          |
| Less minority share of operating losses   |       | (3,980         | )          | (550              | )          | (4,530    | )          |
| Minority Interest at June 30, 2008   |       | $              | 79,707     |              | $          | 8,103     |       | $ | 87,810 |   |

 

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**12. Acquisition ofMaydeal.com**

 

On April 3,2008, through our subsidiary Medicexchange, we acquired Maydeal.com, a Chineseweb business that offers an online portal for radiologists in China.  The acquisition was accounted for underpurchase accounting and, accordingly, the assets and liabilities acquired wererecorded at their estimated fair values at the date of acquisition and theresults of operations have been included in the consolidated statement ofoperations since the day of acquisition.

 

We acquiredthe trade and assets of Shanghai Shenjie Digital Technology Co. Limited, andthe domain name, Maydeal.com.  The totalpurchase price was $440 of which $220 has been paid and the remaining $220 isdeferred and will be paid on completion of defined milestones.  The allocation of the purchase price is asfollows:

 
| Net assets acquired            |   | $   | 44     |   |
|--------------------------------|--------|-----|--------|--------|
| Intangible asset (domain name) |   | 396 |   |
| Total                          |   | $   | 440    |   |

 

We have notrecognized any goodwill on the acquisition, as we estimate that we purchasedthe assets and domain name at their fair values.

 

The domainname is subject to amortization and will be expensed, using the straight-linemethod, over 36 months.  The net assetsacquired relate to receivables and some equipment.  We have recognized them in our books at theirnet asset value as we believe there is no material change to fair value.

 

**13. Related PartyTransactions**

 

TimPaterson-Brown is a Non-executive Director of Accsys Technologies PLC, whichhas a subsidiary company Titan Wood Limited. Titan Wood Limited rents space in66 Hammersmith Road. In the six month period ended June 30, 2008 and 2007respectively, $70 and $122 of office related costs were recharged to Titan WoodLimited. At June 30, 2008 there was a balance receivable from Titan WoodLimited of $16 of which $16 remains unpaid as of August 8, 2008. This ispayable within 30 days under the terms of the invoice.

 

**14.****Lease Commitments and Security Deposit**

 

On August 25,2006, we executed a 10 year agreement with Pirbright Holdings Limited, to lease8,787 square feet of office space at the Kensington Centre, 66 HammersmithRoad, London W14 8UD, UK, and simultaneously vacated our previous corporateoffice (46 Berkeley Square, London W1J 5AT, UK).

 

Under this newlease agreement our UK property rent, services and related costs will beapproximately £330 ($675) per annum, paid quarterly in advance.  We havethe right to terminate this agreement on the expiry of the fifth year of thelease.  Our annual rent is subject to upward only review on August 24,2011.

 

We have two10-month rent-free periods: the first commencing August 25, 2006; thesecond commencing August 25, 2011.  We have accounted for this leaseas an operating lease and have accounted for the lease rental expenses on astraight-line basis over the period of the lease.

 

The followingis a schedule of the future minimum rental payments required under operatingleases that have initial or remaining non-cancellable terms in excess of oneyear:

 
| **Year Ending December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2008                                        |       | $          | 382        |   |
| 2009                                        |       | 672        |       |
| 2010                                        |       | 641        |       |
| 2011                                        |       | 227        |       |
| 2012                                        |       | 349        |       |
| 2013                                        |       | 454        |       |
| Later Years                                 |       | 1,090      |       |
| **Total Minimum**                           |       | $          | 3,815      |   |

 

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**15. Repurchase of own stock**

 

In the first quarter of 2008, MGT’s Board of Directors authorized therepurchase of up to 6,350,000 shares of its common stock.

 

By March 31, 2008, the Company had repurchased 610,901 shares of commonstock at an average price of $3.07, a total of $1,877.  By June 30, 2008, the Company repurchased afurther 5,732,985 shares of common stock at an average price of $2.97 per, atotal of $17,022.

 

As at June 30, 2008, therefore, the company had repurchased a total of6,343,886 shares at an average price of $2.98 per share, a total of $18,899.  These shares are classified as treasury stockin equity.

 

**16. Subsequent events**

 

In July 2008, we continued our program of buying back our ownstock by purchasing a further 5,905 shares at an average price of $2.03, atotal of $12.

 

In July 2008,Medicsight’s ColonCAD software received regulatory approval from The Brazilianregulatory body, ANVISA.

 

**17. Recent AccountingPronouncements**

 

In September 2006,the FASB issued SFAS No. 157, “ *FairValue Measurements* ” (“SFAS No. 157”), which defines fairvalue, establishes a framework for measuring fair value in accordance withgenerally accepted accounting principles and expands disclosures about fairvalue measurements. SFAS No. 157 applies to other accounting standardsthat require or permit fair value measurements. Accordingly, it does notrequire any new fair value measurement. SFAS No. 157, as issued, waseffective for financial 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.

 

In December 2007,the FASB issued SFAS No. 160, Noncontrolling Interests in ConsolidatedFinancial Statements, an amendment of ARB No. 51, which will becomeeffective for the Company January 1, 2009, with retroactive adoption ofthe Statement’s presentation and disclosure requirements for existing minorityinterests. This standard will require ownership interests in subsidiaries heldby parties other than the parent to be presented within the equity section ofthe consolidated balance sheet but separate from the parent’s equity. It willalso require the amount of consolidated net income attributable to the parentand the noncontrolling interest to be clearly identified and presented on theface of the consolidated income statement. Certain changes in a parent’sownership interest are to be accounted for as equity transactions and when asubsidiary is deconsolidated, any noncontrolling equity investment in theformer subsidiary is to be initially measured at fair value. We arecurrently evaluating the impact the adoption of SFAS No. 160 will have onour consolidated financial position and results of operations.

 

In March 2008,the FASB issued SFAS No. 161, “Disclosures about Derivative Instrumentsand Hedging Activities - An Amendment of FASB Statement No. 133” (“SFAS No. 161”),which amends and expands the disclosure requirements of SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities” to require qualitativedisclosure about objectives and strategies in using derivatives, quantitativedisclosures about fair value amounts of gains and losses on derivativeinstruments, and disclosures about the underlying credit-risk-relatedcontingent features in derivative agreements. SFAS No. 161 is intended toimprove financial reporting by requiring transparency about the location andamounts of derivative instruments in an entity’s financial statements; howderivative instruments and related hedged items are accounted for under SFAS No. 133;and how derivative instruments and related hedged items affect its financialposition, financial performance and cash flows. SFAS No. 161 is effectivefor financial statements issued for fiscal years beginning after November 15,2008. The Company is currently evaluating the potential impact, if any, theadoption of SFAS No. 161 may have on its condensed consolidated financialstatements.

 

In April 2008,the FASB issued Staff Position FSP 142-3, “Determination of the Useful Life ofIntangible Assets” (FSP 142-3). FSP 142-3 amends the factors that should beconsidered in developing renewal or extension assumptions used to determine theuseful life of a recognized intangible asset under FASB Statement No. 142,“Goodwill and Other Intangible Assets.” FSP 142-3 is effective for financial 

 

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statements issued after December 15, 2008. TheCompany does not expect the adoption of FSP 142-3 to have a material effect onits condensed consolidated financial statements.

 

In May 2008,the FASB issued SFAS No. 162, “The Hierarchy of Generally AcceptedAccounting Principles” (“SFAS No. 162”), which identifies the sources ofaccounting principles and the framework for selecting the principles used inthe preparation of financial statements of nongovernmental entities that are presentedin conformity with generally accepted accounting principles (“GAAP”) in theUnited States.  The FASB believes that the GAAP hierarchy should bedirected to entities because it is the entity (not its auditor) that isresponsible for selecting accounting principles for financial statements thatare presented in conformity with GAAP. The Company does not expect the adoptionof SFAS No. 162 to have a material effect on its condensed consolidatedfinancial statements.

 

In May 2008,the FASB issued FASB Staff Position No. APB 14-1, “Accounting forConvertible Debt Instruments That May Be Settled in Cash upon Conversion(including Partial Cash Settlement)” (“APB 14-1”). APB 14-1 requires thatissuers of certain convertible debt instruments that may be settled in cashupon conversion to separately account for the liability and equity componentsin a manner that will reflect the entity’s nonconvertible debt borrowing ratewhen interest cost is recognized in subsequent periods.  The accountingfor these types of instruments under APB 14-1 is intended to appropriatelyreflect the underlying economics by capturing the value of the conversionoptions as borrowing costs; therefore, recognizing their potential dilutiveeffects on earnings per share. The effective date of APB 14-1 is for financialstatements issued for fiscal years and interim periods beginning after December 15,2008 and does not permit earlier application. However, the transition guidancerequires retrospective application to all periods presented and does notgrandfather existing instruments.  The Company is currently evaluating thepotential impact, if any, the adoption of APB 14-1 may have on its condensedconsolidated financial statements.

 

In June 2008,the FASB issued FASB Staff Position EITF 03-6-1, “Determining WhetherInstruments Granted in Share-Based Payment Transactions are ParticipatingSecurities” (“EITF 03-6-1”). EITF 03-6-1 applies to the calculation of earningsper share for share-based payment awards with rights to dividends or dividendequivalents under Statement No. 128, Earnings Per Share. Unvestedshare-based payment awards that contain nonforfeitable rights to dividends ordividend equivalents will be considered participating securities and will beincluded in the computation of earning per share pursuant to the two-classmethod. The effective date of EITF 03-6-1 is for financial statements issuedfor fiscal years beginning after December 15, 2008, and all interimperiods within those years. Early adoption is not permitted. Once effective,all prior period earnings per share data presented will be adjustedretrospectively.  The Company is currently evaluating the potentialimpact, if any, the adoption of EITF 03-6-1 may have on its condensedconsolidated financial statements.

 

**Item 2. Management’s Discussion and Analysis of Financial Conditionand Results of Operations**

 

This reportcontains forward-looking statements made in reliance upon the safe harborprovisions of Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended.  These statements maybe identified 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 atechnology holding company in the global Healthcare Information Technologymarket.  We have two subsidiaries, Medicsight and Medicexchange:

 

Medicsight isa medical imaging software development company developing enterprise-wideComputer-Aided Detection (CAD) software which analyzes computer tomography (CT)scans for the early detection and measurement of colorectal polyps and lunglesions.  Medicsight has focused on twoof the 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.

 

Medicexchangeprovides medical imaging professionals with a global web portal containing anonline sales channel for diagnostic, treatment and surgery planning solutions.This combined with a variety of relevant news, jobs, clinical papers, trainingmaterials and content gives these professionals access to information and productsthat 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 product solutions.

 

*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 will

 

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work with the Company to obtain Ministry of Health,Labor and Welfare (MHLW) regulatory approval in Japan and to jointly conductmarket development initiatives.

 

In April 2008,Medicsight signed a Partnership Agreement with INFINITT Company Limited (“Infinitt”).Infinitt has agreed to integrate Medicsight ColonCAD into its solution forglobal distribution. As well as being South Korea’s leading PACS supplier,Infinitt also has a growing presence in both the USA and Japan, with a globalnetwork of offices, partners and sales channel representatives in 20 countries.

 

In the sixmonths ended June 30, 2008, Medicsight was granted regulatory approval forMedicRead Colon from the Chinese State Food and Drug Administration (SFDA) andthe Brazilian National Health Surveillance Agency (ANVISA). In July the Companyreceived Brazilian ANVISA regulatory approval for its ColonCAD product.

 

Medicsight hasengaged a team of experts to prepare the Company’s application to secure USFood and Drug Administration (FDA) clearance. The Company is confident that itwill shortly be in a position to file a 510(k) submission for review bythe FDA.

 

In May 2008,Medicsight signed an exclusive CAD Clinical Research Agreement with leading AmericanCT Colonography (CTC) radiologists Dr Perry Pickhardt and Dr David Kim of theUniversity of Wisconsin Medical School, USA. In 2004, Dr Pickhardt’s Wisconsin groupwas the first to establish a third-party reimbursed CTC colorectal cancerscreening programme. Since then they have both played an instrumental role inbuilding the clinical evidence base that has proven the comparableeffectiveness of CTC for the detection of colorectal neoplasia within anasymptomatic population in relation to optical colonoscopy. Their specialistadvice and experience of CTC practice will enhance the clinical validation ofMedicsight’s ColonCAD products set in the context of the world’s largesthealthcare market.

 

The Medicsight product roadmap continues on track enabling 2008 launchesof MedicRead Colon 3.0, MedicRead Lung 1.0 and MedicRead Liver 1.0 as well asan online CTC software solution based on MedicRead Colon.  Medicsight is continuing to improve theperformance of its ColonCAD product with a new version planned for 2009.  In addition, the company has initiated thedevelopment of a CO2 insufflation device for CTC (MedicCO2lon) and is exploringnew image processing and analysis tools for optical colonoscopy. Theseadditions will bolster the existing CTC portfolio.

 

Revenues increased in the six months ended June 30, 2008 to $88from $29 in the last quarter of Fiscal 2007 and $nil in the six months ended June 30,2007.

 

*Medicexchange*

 

On April 3,2008, through our subsidiary Medicexchange, we acquired Maydeal.com, a Chineseweb business that offers an online portal for radiologists in China.  The acquisition was accounted for underpurchase accounting and, accordingly, the assets and liabilities acquired wererecorded at their estimated fair values at the date of acquisition and theresults of operations have been included in the consolidated statement ofoperations since the day of acquisition.

 

Revenues inthe six months ended June 30, 2008 were $49, compared to $48 in the lastquarter of Fiscal 2007 and $nil in the six months ended June 30, 2007.

 

*MGT*

 

In the firstquarter of 2008, MGT’s Board of Directors authorized the repurchase of up to6,350,000 shares of its common stock.  AtJune 30, 2008, the Company had repurchased 6,343,886 shares, and as of August 8,2008, the Company had repurchased a further 5,905 shares.  The Company has in total, therefore,repurchased 6,349,791 shares at an average price of $2.98 per share.

 

In March 2008,MGT purchased 700,000, ordinary shares and in April 2008, MGT purchased anadditional 300,000 ordinary shares of its majority-owned subsidiary Medicsightat an average price of £0.63 ($1.26) per share. As of June 30, 2008, MGT holds 86,000,000 ordinary shares ofMedicsight representing 55% of the issued share capital.

 

**General**

 

MGT wasoriginally incorporated as a Utah corporation in 1977 and was re-incorporatedin Delaware in 2000.  At June 30, 2008 the Company’s authorized sharecapital was 75,000,000 shares of common stock, par value of $0.001.

 

At June 30,2008, 38,900,383 shares of common stock had been issued of which 32,556,497 areoutstanding.

 

As of June 30,2008, the Company and its subsidiaries had 104 employees, all of whom arefull-time employees.  Our employees are not part of a union.  Webelieve that we have an excellent relationship with our employees.

 

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

 

Our webaddress is www.mgtci.com.  Information on our website is not deemed to bea part of this Quarterly Report.

 

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**Critical AccountingPolicies and the Use of Estimates**

 

We believethere have been no significant changes in our critical accounting policiesduring the six months ended June 30, 2008 as compared to our previousdisclosures in Management’s Discussion and Analysis of Financial Condition andResults of Operations included in our Annual Report on Form 10-K for thefiscal year ended December 31, 2007.

 

Theaccompanying discussion and analysis of our financial condition and results ofoperations are based upon our condensed consolidated financial statements andthe related disclosures, which have been prepared in accordance with U.S.generally accepted accounting principles (GAAP).  The preparation of thesecondensed consolidated financial statements requires us to make estimates,assumptions and judgments that affect the reported amounts in our condensedconsolidated financial statements and accompanying notes.  These estimatesform the basis 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 thefollowing policies to be the most critical to an understanding of our financialcondition and results of operations because they require us to make estimates,assumptions and judgments about matters that are inherently uncertain.

 

*Revenue Recognition*

 

We followspecific and detailed guidelines in determining the proper amount of revenue tobe recorded; however, certain judgments affect the application of our revenuerecognition policy. Revenue results are difficult to predict, and any delay inrecognizing revenue could cause our operating results to vary significantlyfrom period to period.

 

Thesignificant judgments for revenue recognition typically involve determining theexact date when licenses are sold to end users and the date from which supportand maintenance commences. In addition, our transactions often consist of multipleelement arrangements, which must be analyzed to determine the fair value ofeach element, the amount of revenue to be recognized initially, and the periodand conditions under which deferred revenue should be recognized.  As aresult, if facts and circumstances change that affect our current judgments,our revenue could be materially different in the future.

 

We recognizerevenue 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. We recognizerevenue when it is realized or realizable and earned. We consider revenuerealized or realizable and earned when we have persuasive evidence of anarrangement, the product has been provided to the customer, the sales price isfixed or determinable, and collectability is probable.

 

*Stock Based Compensation*

 

We have grantedemployee stock options in MGT and both Medicsight and Medicexchange (ourprincipal subsidiary companies).  We use the Black-Scholes option pricingmodel to estimate the fair value of employee stock options.  Calculatingthe fair value of these stock options requires considerable judgment, includingestimating stock price volatility, the amount of options that are expected tobe forfeited and the expected life of the options awards.

 

The value of astock option is derived from its potential for appreciation.  The morevolatile the stock, the more valuable the option becomes due to the greaterpossibility of significant changes in stock price.  The expected optionterm also has a significant effect on the value of the option.  The longerthe term, the more time the option holder has to allow the stock price toincrease without a cash investment and thus, the more valuable theoption.  When establishing an estimate of the expected term, we considerthe vesting period for the award and our estimate of employee’s likely stockoption exercises, the expected volatility, and a comparison to relevant peergroup data.

 

At the time ofthe respective stock options being granted, the shares underlying the awardedstock options were not publicly traded shares in some instances.  Wereview our valuation assumptions at each grant date and, as a result, we arelikely to change our valuation assumptions used to value stock based awardsgranted in future periods. Actual results, and future changes in estimates, maydiffer substantially from our current estimates.  As a result, if factorschange and we use different assumptions, our stock-based compensation expensecould be materially different in the future.

 

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**Results of Operations**

 

*Revenues*

 

For the sixmonths ended June 30, 2008 and June 30, 2007 our revenues fromoperations were $137 and $nil, resulting from the sale of Medicsight softwarelicenses, Medicexchange advertising space and medical products in China.

 

*Cost of sales*

 

Cost of salespredominantly relates to the cost of medical products sold by our Medicexchangesubsidiary.  For the six months ended June 30,2008 and June 30, 2007 our costs of sales were $30 and $nil.

 

*Selling, General and Administrative Expenses*

 

Our selling,general and administrative expenses from continuing operations were:

 
| ** **                                   | ** ** | **Three Months ended  June 30,** | ** ** | **Six Months ended  June 30,** | ** ** |
|----------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                   | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                         |       |                                            |       |                                          |       |   |   |   |   |
| Selling, general and administrative expenses |       | $                                               | 7,965      |                                          | $          | 4,525 |   | $ | 13,470 |   | $ | 7,981 |   |
|                                              |            |                                                 |            |                                               |            |  |  |  |  |  |  |  |  |

 

Our selling,general and administrative expenses have increased as we expand ourinternational commercial operations.  The significant elements being: (a) anincrease in people related costs on the prior period as both Medicsight andMedicexchange have increase employees in both commercial and operations; (b) anincrease in professional fees as a result of increased audit, investorrelations and corporate finance fees incurred following the Sarbanes-Oxleyrequirements and Medicsight IPO; (c) an increase in stock option costs dueto the MGT 2007 Plan grant; Plans E, F, G and H grants in Medicsight and Plan Bgrant in Medicexchange.

 

*Research and Development:*

 
| ** **               | ** ** | **Three Months ended  June 30,** | ** ** | **Six Months ended  June 30,** | ** ** |
|--------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **               | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|                     |       |                                            |       |                                          |       |   |   |   |   |
| Research and development |       | $                                               | 632        |                                          | $          | 590 |   | $ | 1,227 |   | $ | 1,136 |   |
|                          |            |                                                 |            |                                               |            |  |  |  |  |  |  |  |  |

 

Research anddevelopment costs relate to the costs of our operations department, some consultantsand various associated costs.

 

**Liquidity and CapitalResources**

 

*Working Capital Information:*

 
| ** **                                                             | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
|                                                                   |       |                        |       |                            |       |
| Cash, cash equivalents, short-term deposits and marketable  Securities |       | 61,631                      |       | 94,592                          |       |
|                                                                   |       |                        |       |                            |       |
| Current Assets                                                         |       | 63,090                      |       | 95,319                          |       |
| Current Liabilities                                                    |       | (5,575                      | )          | (4,420                          | )          |
| Working Capital Surplus                                                |       | 57,515                      |       | 90,899                          |       |
|                                                                   |       |                        |       |                            |       |
| Ratio of Current Assets to Current Liabilities                         |       | 11.3                        |       | 21.6                            |       |

 

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As of June 30,2008 we had $55,746 in cash compared to $92,273 at December 31, 2007 and $4,885in marketable securities compared to $2,219 at December 31, 2007.

 

Net cash usedin operating activities was $11,096 for the six months ended June 30, 2008compared to $7,816 for the six month period ended June 30, 2007. Thisresulted primarily from:

 

a.                 our net loss of $8,915compared with a net loss of $7,301, for the six month period ended June 30,2007;

 

b.                 adjusted for depreciation andstock-based compensation expenses (non cash items) of $2,115 compared to $883for the six month period ended June 30, 2007;

 

c.                 an overall reduction in currentassets and liabilities (excluding cash items) of $234 in the period ended June 30,2008 compared to $170 increase for the six-month period ended June 30,2007; and

 

d.                 loss attributable to minorityinterest of $4,530 for the six-month period June 30, 2008 compared to$1,234 for the six month period ended June 30, 2007.

 

Net cash usedin investing activities was $5,308 for the six months ended June 30, 2008and $760 for the six months ended June 30, 2007 consisted primarily of:

 

e.                 in the six months ended June 30,2008, we received $921 from the sale of available for sale marketablesecurities as compared to receiving $nil for the six-month period ended June 30,2007;

 

f.                 in the six months ended June 30,2008 we used $3,688 for the purchase of available for sale marketablesecurities as compared to $470 for the six-month period ended June 30,2007;

 

g.                 in the six months ended June 30,2008 we used $361 in capital expenditure and we used $290 for the six monthsended June 30, 2007;

 

h.                 in the six months ended June 30,2008 we used $960 for the purchase of XShares stock and we used $nil for thesix months ended June 30, 2007;

 

i.                 in the six months ended June 30,2008 we used $220 for the purchase of a Chinese website business and we used$nil for the six months ended June 30, 2007; and

 

j.                 in the six months ended June 30,2008 we invested $1,000 in cash short-term deposits and we used $nil for thesix months ended June 30, 2007.

 

Net cash flowsused in financing activities of $20,150 for the six-month period ended June 30,2008 (compared to $61,116 provided by financing activities for the six monthsended June 30, 2007). This consisted of the purchase of $1,251 ofMedicsight’s common stock and the purchase of $18,899 of our own stock. The sixmonths ended June 30, 2007 consisted of a cash inflow of $61,123 (net ofcommissions) relating to the IPO of Medicsight.

 

The Companyconsiders that current cash flows are adequate to cover the business operationsfor the next twelve months.

 

**Item 3.****                     ****Quantitative and Qualitative Disclosures About Market Risk**

 

*Interest Rate Risk*

 

Our exposureto market rate risk for changes in interest rates relates primarily to ourinvestment portfolio.  We place our investments in a mixture of (a) cashdeposits; (b) highly liquid blue chip available-for-sale marketsecurities. A decline in interest rate would have an adverse impact on interestincome.

 

We do not haveany debt and we do not use derivative financial instruments.

 

*Foreign Exchange Risk*

 

We are exposedto foreign currency 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.

 

Our operatingcosts in Fiscal 2007 were predominantly in UK sterling. We do not foresee anychange in Fiscal 2008. A ten percent increase or decline in the US dollarexchange rate against UK sterling would have created an increase or decline inour operating costs in the six months to June 30, 2008 of approximately $1,150.

 

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At the end of each reporting period, expensesof the subsidiaries are converted into US dollars using the average currencyrate in effect for the period and assets and liabilities are converted into USdollars using the exchange rate in effect at the end of the period.

 

Additionally,we are exposed to foreign currency exchange rate fluctuations relating topayments we make to vendors and suppliers using foreign currencies.

 

We currentlydo not hedge against this foreign currency risk.

 

Fluctuationsin exchange rates may impact our financial condition and results of operations.

 

**Item 4.                      Controlsand Procedures**

* *

*Evaluation of Disclosure Controls and Procedures*

 

As required byRule 13a-15(b) under the Exchange Act, our management carried out anevaluation of the effectiveness of the design and operation of the Company’s “disclosurecontrols and procedures” as of June 30, 2008.  This evaluation wascarried out under the supervision and with the participation of our management,including our Chief Executive Officer and Chief Financial Officer. As definedin Rules 13a-15(e) and 15d-15(e) under the Exchange Act,disclosure controls and procedures are controls and other procedures of theCompany that are designed to ensure that information required to be disclosedby the Company in the reports it files or submits under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed by theCompany in the reports it files or submits under the Exchange Act isaccumulated and communicated to the Company’s management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure.

 

Based uponthat evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures were effective as of June 30,2008.  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.

* *

*Changes in Internal Control over Financial Reporting*

 

As required byRule 13a-15(d) under the Exchange Act, our management, including ourChief Executive Officer and Chief Financial Officer, also conducted anevaluation of our internal control over financial reporting to determinewhether any change occurred during the six months ended June 30, 2008,that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.  Based on that evaluationduring the quarter ended June 30, 2008 there has been no change in ourinternal control over financial reporting that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

 

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**PART II.  OTHER INFORMATION**

 

**Item 1.                            LegalProceedings**

 

There arecurrently no pending legal proceedings.

** **

**Item 1A.                         RiskFactors**

 

Discussionof our business and operations included in this quarterly report on Form 10-Qshould 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 the analysis.  We are not aware of other systems in thefield 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 hasrecently commenced generating revenues from operations. As a result, MGT hasgenerated negative cash flows from operations and has an accumulated deficit atJune 30, 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.

 

CorporateStructure: MGT’s corporate structure may make it more difficult or costly to takecertain actions. MGT conducts its business through: (a) Medicsight, a UKpublic company 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 between73% and 100%.  Although MGT, Medicsightand Medicexchange share some directors and management, they are required tocomply with corporate governance and other laws and rules applicable topublic 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 itssubsidiaries, MGT would have to take into 

 

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

 

The protection of our intellectual property may be uncertain, and wemay face possible claims of others: Although we have received patents and havefiled patent 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 otherprotective measures to protect intellectual property rights pertaining to ourproducts and technologies. Such measures may not provide meaningful protectionof our trade secrets, know-how or other intellectual property in the event ofany unauthorized use, misappropriation or disclosure. Others may independentlydevelop similar technologies or duplicate our technologies. In addition, to theextent that we apply for any patents, such applications may not result inissued patents or, if issued, such patents may not be valid or of value. Thirdparties could, in the future, assert infringement or misappropriation claimsagainst us with respect to our current or future products and technologies, orwe may need to assert claims of infringement against third parties. Anyinfringement or misappropriation claim by us or against us could placesignificant strain on our financial resources, divert management’s attentionfrom our business and harm our reputation. The costs of prosecuting ordefending an intellectual property claim could be substantial and could adverselyaffect our business, even if we are ultimately successful in prosecuting ordefending any such claims. If our products or technologies are found toinfringe the rights of a third party, we could be required to pay significantdamages or license fees or cease production, any of which could have a materialadverse effect on our business.

 

If we fail to attract and retain qualified personnel, our businesswould be harmed.  We expect to rapidlyexpand our operations and grow our sales, research and development andadministrative operations. This expansion is expected to place a significantstrain on our management and will require hiring a significant number ofqualified personnel. Accordingly, recruiting and retaining such personnel inthe future will be critical to our success. There is intense competition fromother companies, research and academic institutions, government entities andother organizations for qualified personnel in the areas of our activities. Ifwe fail to identify, attract, retain and motivate these highly skilledpersonnel, we may be unable to continue our marketing and developmentactivities.

 

If we do not effectively manage changes in our business, these changescould place a significant strain on our management and operations and, as aresult, our business might not succeed. Our ability to grow successfully requires an effective planning andmanagement process. The expansion and growth of our business could place asignificant strain on our management systems, infrastructure and other resources.To manage our growth successfully, we must continue to improve and expand oursystems and infrastructure in a timely and efficient manner. Our controls,systems, procedures and resources may not be adequate to support a changing andgrowing company. If our management fails to respond effectively to changes andgrowth in our business, including acquisitions, such failure could have amaterial adverse 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.

 

OtherRisks: MGT’s ability to deliver its software could be hindered by risks such asthe loss of key personnel or the patents and trademarks being successfullychallenged or credit facilities being reduced or terminated by lenders.

 

InternalControls: Failure to achieve 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 on ourstock price. Effective internal controls are necessary for us to preventreliable 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 assess 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.

 

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

 

In the sixmonths ended June 30, 2008 no shares of common stock were issued.

** **

**Item 3.                            DefaultsUpon Senior Securities**

 

None.

** **

**Item 4.                            Submissionof Matters to a Vote of Security Holders**

 

None.

** **

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

 

On April 28,2008, the Company received a comment letter from the Securities and ExchangeCommission relating to the Company’s December 31, 2007 filing on Form 10-Kto which the Company is in the process of responding.

 

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**Exhibits and 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)                      Reportson Form 8-K

 

None

 

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SIGNATURE

 

In accordancewith the requirements of the Securities Exchange Act of 1934, the registranthas duly caused this report to be signed on its behalf by the 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 |
|                 |                                |
|                 |                                |
| August 8,  2008 |                                |

 

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