**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM10-Q**
| **x**      | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                        |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                                                          |
| ** ** | **For the  quarterly period ended March 31, 2007.**                                                                                                                 |
| ** ** | ** **                                                                                                                                                          |
| ** ** | **OR**                                                                                                                                                              |
| ** ** | ** **                                                                                                                                                          |
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                       |
| ** ** | ** **                                                                                                                                                          |
| ** ** | **For  the transition period from                     to** |

 

**Commissionfile number: 0-26886**

**MGT CAPITAL INVESTMENTS, INC.**

(formerly Medicsight Inc.)

(Exact name of Registrantas 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 of  principal executive offices, including zip code)                |

 

Registrant’s telephonenumber, including area code: **011-44-20-7605-7950**

Indicate by check whether the Registrant (1) hasfiled all reports to be filed by Section 13 or 15(d) of the Securities andExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90days.  Yes   x    No  o

Indicate by check mark whether the Registrant is alarge accelerated filer, an accelerated filer or a non-accelerated filer (asdefined in Rule 12b-2 of the Exchange Act):

Large Accelerated Filer o     Acceleratedfiler o     Non-acceleratedFiler x

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

The number of shares of the registrant’s common stock,$0.001 par value, outstanding as of May 2, 2007 was 38,900,383.

 

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NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly 10-Q, including “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inItem 2, contains forward-looking statements that involve risks anduncertainties, as well as assumptions that, if they never materialize or proveincorrect, could cause the results of MGT Capital Investments, Inc and itsconsolidated subsidiaries (the “Company”) to differ materially from thoseexpressed or implied by such forward-looking statements. All statements otherthan statements of historical fact are statements that could be deemedforward-looking statements, including any projections of revenue, gross margin,expenses, earnings or losses from operations, synergies or other financial items;any statements of the plans, strategies and objectives of management for futureoperations, including the rate of market development and acceptance of medicalimaging technology; the execution of restructuring plans; any statementconcerning developments, performance or industry rankings relating to productsor services; any statements regarding future economic conditions orperformance; any statements of expectation or belief; and any statements ofassumptions underlying any of the foregoing. The risks, uncertainties andassumptions referred to above include the performance of contracts bysuppliers, customers and partners; employee management issues; the difficultyof aligning expense levels with revenue changes; and other risks that aredescribed herein, including but not limited to the specific risks areasdiscussed in “Management’s Discussion and Analysis of Financial Condition andResults of Operations” in Item 2 of this report, and that are otherwisedescribed from time to time in the Company’s Securities and Exchange Commissionreports filed after this report. The Company assumes no obligation and does notintend to update these forward-looking statements.

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

1

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**INDEX**
| **PART I — FINANCIAL INFORMATION** |
|-----------------------------------------|
| ** **                              | ** ** |
| Item 1                                  | Condensed  Consolidated Balance Sheets — March 31, 2007 and December 31, 2006 |
|                                    |   |
|                                    | Condensed  Consolidated Statements of Operations — for the three months ended March 31,  2007 and 2006 |
|                                    |   |
|                                    | Condensed  Consolidated Statements of Cash Flows — for the three months ended March 31,  2007 and 2006 |
|                                    |   |
|                                    | Notes to Condensed  Consolidated Financial Statements |
|                                    |   |
| Item 2                                  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|                                    |   |
| Item 3                                  | Quantitative  and Qualitative Disclosure About Market Risk |
|                                    |   |
| Item 4                                  | Controls &  Procedures |
|                                    |   |
| **PART II — OTHER INFORMATION**    |
| ** **                              | ** ** |
| Item 1                                  | Legal  Proceedings |
|                                    |   |
| Item 1A                                 | Risk Factors |
|                                    |   |
| Item 2                                  | Unregistered  Sale of Equity Securities and Use of Proceeds |
|                                    |   |
| Item 3                                  | Defaults Upon  Senior Securities |
|                                    |   |
| Item 4                                  | Submission of  Matters to a Vote of Security Holders |
|                                    |   |
| Item 5                                  | Other  Information |
|                                    |   |
| Item 6                                  | Exhibits |
|                                    |   |
| SIGNATURES                              |   |

 

2

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**MGT CAPITAL INVESTMENTS, INC.  (FORMERLY MEDICSIGHT, INC.)**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(in thousands, except share and pershare amounts)**
| ** **                                                                                                                            | ** ** | **March 31  2007** | ** ** | **December 31  2006** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                                                                                                                            | ** ** | **(unaudited)**         | ** ** |
| ASSETS                                                                                                                                |       |                    |       |                       |       |
| CURRENT ASSETS:                                                                                                                       |       |                    |       |                       |       |
| Cash and cash equivalents                                                                                                             |       | $                       | 15,404     |                       | $          | 19,757 |   |
| Marketable securities                                                                                                                 |       | 5,348                   |       | 4,978                      |       |
| Other receivables                                                                                                                     |       | 190                     |       | 123                        |       |
| Prepaid expenses                                                                                                                      |       | 236                     |       | 115                        |       |
| Value added tax  receivable                                                                                                           |       | 138                     |       | 333                        |       |
| Total current  assets                                                                                                                 |       | 21,316                  |       | 25,306                     |       |
|                                                                                                                                  |       |                    |       |                       |       |
| PROPERTY EQUIPMENT, at  cost, net of accumulated depreciation of $792 and $768, respectively                                          |       | 847                     |       | 683                        |       |
| INVESTMENTS, at cost                                                                                                                  |       | 359                     |       | 359                        |       |
| SECURITY DEPOSITS                                                                                                                     |       | 950                     |       | 921                        |       |
| GOODWILL                                                                                                                              |       | 11,200                  |       | 11,200                     |       |
|                                                                                                                                  |       |                    |       |                       |       |
| Total assets                                                                                                                          |       | $                       | 34,672     |                       | $          | 38,469 |   |
|                                                                                                                                  |       |                    |       |                       |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                            |       |                    |       |                       |       |
|                                                                                                                                  |       |                    |       |                       |       |
| CURRENT LIABILITIES:                                                                                                                  |       |                    |       |                       |       |
| Accounts payable                                                                                                                      |       | $                       | 1,103      |                       | $          | 1,986 |   |
| Accrued expenses                                                                                                                      |       | 1,726                   |       | 1,385                      |       |
| Current portion of  obligations under capital leases                                                                                  |       | —                  |       | 7                          |       |
| Total current  liabilities                                                                                                            |       | 2,829                   |       | 3,378                      |       |
|                                                                                                                                  |       |                    |       |                       |       |
| MINORITY INTEREST                                                                                                                     |       | 21,217                  |       | 21,710                     |       |
|                                                                                                                                  |       |                    |       |                       |       |
| Commitments and contingencies                                                                                                         |       |                    |       |                       |       |
|                                                                                                                                  |       |                    |       |                       |       |
| STOCKHOLDERS’ EQUITY:                                                                                                            |       |                    |       |                       |       |
|                                                                                                                                  |       |                    |       |                       |       |
| Common stock, $0.001  par value, 75,000,000 and 40,000,000 shares authorized, respectively;  38,900,383 shares issued and outstanding |       | 39                      |       | 39                         |       |
| Share premium                                                                                                                         |       | 218,513                 |       | 218,138                    |       |
| Accumulated  comprehensive income                                                                                                     |       | 930                     |       | 853                        |       |
| Accumulated  deficit                                                                                                                  |       | (208,856                | )          | (205,649                   | )          |
| TOTAL STOCKHOLDERS’  EQUITY                                                                                                      |       | 10,626                  |       | 13,381                     |       |
|                                                                                                                                  |       |                    |       |                       |       |
| Total stockholders’ equity and liabilities                                                                                       |       | $                       | 34,672     |                       | $          | 38,469 |   |

 

The accompanying notes are an integral part of thesecondensed consolidated financial statements.

3

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**MGT CAPITAL INVESTMENTS, INC.  (FORMERLY MEDICSIGHT, INC.)**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

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

**(unaudited)**
| ** **                                            | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                            | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
|                                                  |       |                                                 |       |   |   |
| REVENUES                                              |       | $                                                    | —     |   | $ | — |   |
|                                                  |       |                                                 |       |   |   |
| EXPENSES:                                             |       |                                                 |       |   |   |
| Selling, general and administrative expenses          |       | 3,457                                                |       | 2,468 |   |
| Research and development cost                         |       | 546                                                  |       | 627 |   |
|                                                  |       | 4,003                                                |       | 3,095 |   |
|                                                  |       |                                                 |       |   |   |
| Operating loss                                        |       | (4,003                                               | )          | (3,095 | ) |
|                                                  |       |                                                 |       |   |   |
| OTHER INCOME:                                         |       |                                                 |       |   |   |
| Interest and other income                             |       | 273                                                  |       | 65 |   |
|                                                  |       |                                                 |       |   |   |
| Net loss before  income taxes and minority interest   |       | (3,730                                               | )          | (3,030 | ) |
|                                                  |       |                                                 |       |   |   |
| Minority  Interest                                    |       | 523                                                  |       | — |   |
|                                                  |       |                                                 |       |   |   |
| Net loss                                              |       | $                                                    | (3,207     | ) | $ | (3,030 | ) |
|                                                  |       |                                                 |       |   |   |
| PER SHARE DATA:                                       |       |                                                 |       |   |   |
|                                                  |       |                                                 |       |   |   |
| Basic and diluted loss per share                      |       | $                                                    | (0.08      | ) | $ | (0.08 | ) |
|                                                  |       |                                                 |       |   |   |
| Weighted average  number of common shares outstanding |       | 38,900,383                                           |       | 37,291,216 |   |

 

The accompanying notes are an integral part of thesecondensed consolidated financial statements.

4

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**MGT CAPITAL INVESTMENTS, INC.  (FORMERLY MEDICSIGHT, INC.)**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(inthousands)**

**(unaudited)**
| ** **                                                                   | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                                                   | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                        |       |                                                 |       |   |   |
| Net loss                                                                     |       | $                                                    | (3,207     | ) | $ | (3,030 | ) |
|                                                                         |       |                                                 |       |   |   |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                                                 |       |   |   |
| Loss  attributable to minority interest                                      |       | (523                                                 | )          | — |   |
| Stock based  compensation expense                                            |       | 375                                                  |       | 96 |   |
| Depreciation                                                                 |       | 120                                                  |       | 61 |   |
| Loss on disposal  of fixed assets                                            |       | 6                                                    |       | — |   |
| (Increase)/decrease in  assests                                              |       |                                                 |       |   |   |
| Prepaid expenses  and other current assets                                   |       | (188                                                 | )          | 24 |   |
| VAT receivable                                                               |       | 195                                                  |       | (56 | ) |
| Increase/(decrease) in  liabilities                                          |       |                                                 |       |   |   |
| Accounts payable                                                             |       | (883                                                 | )          | (408 | ) |
| Accounts payable  — related parties                                     |       | —                                               |       | (1,151 | ) |
| Accrued expenses                                                             |       | 341                                                  |       | (168 | ) |
| Net cash used in  operating activities                                       |       | (3,764                                               | )          | (4,632 | ) |
|                                                                         |       |                                                 |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                        |       |                                                 |       |   |   |
| Cash held for  common stock subscribed but unissued                          |       | —                                               |       | 4,000 |   |
| Purchase of  marketable securities                                           |       | (350                                                 | )          | — |   |
| Purchase of  fixed assets                                                    |       | (290                                                 | )          | (88 | ) |
| Net cash (used in)  provided by investing activities                         |       | (640                                                 | )          | 3,912 |   |
|                                                                         |       |                                                 |       |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                        |       |                                                 |       |   |   |
| Principal  payments under capital lease obligations                          |       | (7                                                   | )          | (5 | ) |
| Proceeds from  sale of common stock in subsidiary (net of commissions)       |       | 30                                                   |       | 990 |   |
| Net cash provided by  financing activities                                   |       | 23                                                   |       | 985 |   |
|                                                                         |       |                                                 |       |   |   |
| Effects of exchange  rates on cash and cash equivalents                      |       | 28                                                   |       | (150 | ) |
|                                                                         |       |                                                 |       |   |   |
| NET CHANGE IN CASH AND  CASH EQUIVALENTS                                     |       | (4,353                                               | )          | 115 |   |
|                                                                         |       |                                                 |       |   |   |
| CASH AND CASH EQUIVALENTS  — BEGINNING OF PERIOD                        |       | 19,757                                               |       | 7,249 |   |
|                                                                         |       |                                                 |       |   |   |
| CASH AND CASH  EQUIVALENTS — END OF PERIOD                              |       | $                                                    | 15,404     |   | $ | 7,364 |   |
|                                                                         |       |                                                 |       |   |   |
| SUPLEMENTAL DISCLOSURES  OF CASH RECEIVED                                    |       |                                                 |       |   |   |
| Interest received                                                            |       | 56                                                   |       | 1 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financial statements

5

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**MGTCAPITAL INVESTMENTS, INC.  (FORMERLYMEDICSIGHT, INC.)**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

**1.Summary of Significant Accounting Policies**

As of March 31, 2007, therehave been no material changes to any of our significant accounting policies,except that we adopted the provisions of Financial Accounting Standards Board (“FASB”)Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - anInterpretation of FASB Statement No. 109” (“FIN 48”), on January 1,2007. FIN 48 clarifies the accounting for uncertainty in income taxesrecognized in an enterprise’s financial statements in accordance with FASBStatement 109, “Accounting for Income Taxes,” and prescribes a recognitionthreshold and measurement process for financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return.FIN 48 also provides guidance on derecognition, classification, interest andpenalties, accounting in interim periods, disclosure and transition.

Based on our evaluation, wehave concluded that there are no significant uncertain tax positions requiringrecognition in our financial statements. Our evaluation was performed for thetax years ended December 31, 2003, 2004, 2005 and 2006, the tax yearswhich remain subject to examination by major tax jurisdictions as ofMarch 31, 2007.

*Comprehensive Income (Loss)*

Comprehensive income as defined by SFAS No. 130, “*Reporting Comprehensive Income*,” includes net income anditems defined as other comprehensive income. SFAS No. 130 requires thatitems defined as other comprehensive income, such as foreign currencytranslation adjustments and unrealized gains and losses on certain marketablesecurities, be separately classified in the financial statements. Such items arereported in the consolidated statements of stockholders’ equity ascomprehensive income.
| ** **                                | ** ** | **Three Months ended  March 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                                      |       |                                             |       |   |   |
| Net loss as reported                      |       | $                                                | (3,207     | ) | $ | (3,030 | ) |
| Unrealized foreign  exchange gain (loss)  |       | 57                                               |       | 209 |   |
| Unrealized gain on  marketable securities |       | 20                                               |       | — |   |
| Comprehensive loss                        |       | $                                                | (3,130     | ) | $ | (3,239 | ) |

*Recent accounting pronouncements*

The company adopted the provisions of FinancialAccounting Standards Board (“FASB”) Interpretation No. 48, “Accounting forUncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN48”), on January 1, 2007.  FIN 48clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with FASB Statement 109, “Accountingfor Income Taxes,” and prescribes a recognition threshold and measurementprocess for financial statement recognition and measurement of a tax positiontaken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interestand penalties, accounting in interim periods, disclosure and transition.

Based on our evaluation, we have concluded that thereare no significant uncertain tax positions requiring recognition in ourfinancial statements.  Our evaluation wasperformed for the tax years ended December 31, 2003, 2004, 2005 and 2006, thetax years which remain subject to examination by major tax jurisdictions as ofMarch 31, 2007.

**2. Lease Commitments and Security Deposit**

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

Under this new leaseagreement our UK property rent, services and related costs will beapproximately £330,000 ($647,000) per annum, paid quarterly in advance.  We have the right to terminate this agreementon the expiry of the fifth year of the lease. Our annual rent is subject to upward only review on August 24, 2011.

We have two 10-monthrent-free periods: the first commencing August 25, 2006; the second commencingAugust 25, 2011.  We have accounted forthis lease as an Operating Lease, and have accounted for the lease rentalexpenses on a straight line basis over the period of the lease.

6

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The following is a schedule of the future minimumrental payments required under operating leases that have initial or remainingnon cancellable terms in excess of one year (in thousands):

| Year Ending  December 31, | ** ** | ** ** | ** ** |
|-------------------------------------|------------|------------|------------|
| 2007                                | ** ** | $          | 451        | ** ** |
| 2008                                |       | 649        |       |
| 2009                                |       | 475        |       |
| 2010                                |       | 448        |       |
| 2011                                |       | 178        |       |
| Later Years                         |       | 1,865      |       |
| **Total Minimum**                   | ** ** | $          | 4,066      | ** ** |

**3.****Marketable securities**

In the period ended March 31, 2007 the Companyinvested in marketable securities, which at March 31, 2007 were as follows (inthousands):

|                                                   | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair Value** | ** ** | **Carrying  Amount** | ** ** |
|---------------------------------------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|---------------------|------------|----------------------|------------|
| Available for sale                                |       |                |       |                         |       |                          |       |                |       |                 |       |
| Marketable equity securities at December 31, 2006 |       | $                   | 4,533      |                         | $          | 445                           |       | $                   | —     |                 | $          | 4,978 |   | $ | 4,978 |   |
| Marketable  equity securities at March 31, 2007   |       | 4,883               |       | 465                          |       | —                        |       | 5,348               |       | 5,348                |       |
|                                                   |            |                     |            |                              |            |                               |            |                     |            |                      |            |  |  |  |  |  |

 

The increase in net unrealized holding gains onavailable-for-sale securities in the amount of $20,000 was charged toaccumulated other comprehensive income.

#### ** 4.****Segment reporting**

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

The accounting policies of the segments are the sameas those described in the summary of significant accounting policies. Weevaluate performance of our operating segments based on revenue and operatingincome (loss). Segment information for the period ended March, 31 2007 and 2006is as follows (in thousands):
| ** **                         | ** ** | **Medicsight** | ** ** | **Medicexchange** | ** ** | **Corporate and  Other** | ** ** | **Total**  | ** ** |
|------------------------------------|------------|----------------|------------|-------------------|------------|-------------------------------|------------|------------|------------|
| **Three  months March 31, 2007**   |       |           |       |              | ** ** | ** **                    | ** ** | ** ** | ** ** |
| Net revenue to  external customers |       | $              | —     |              | $          | —                        |       | $          | —     |   | $ | — |   |
| Operating loss                     |       | (2,792         | )          | (996              | )          | (215                          | )          | (4,003     | )          |
| Assets                             |       | 10,736         |       | 6,326             |       | 17,610                        |       | 34,672     |       |
|                               |       |           |       |              |       |                          |       |       |       |
|                               |       |           |       |              |       |                          |       |       |       |
| **Three  months March 31, 2006**   |       |           |       |              |       |                          |       |       |       |
| Net revenue to  external customers |       | $              | —     |              | $          | —                        |       | $          | —     |   | $ | — |   |
| Operating loss                     |       | (1,903         | )          | (1,041            | )          | (151                          | )          | (3,095     | )          |
| Assets                             |       | 8,261          |       | 311               |       | 12,034                        |       | 20,606     |       |

 

7

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

**5. Stock-Based Compensation**

We have five Stock Option Plans in Medicsight PLC (oneof our UK subsidiary companies).  The shares in these companies are notpublicly traded.

*Plan A*

On February 26, 2003 we approved stock option plan “A”and in the period ended June 30, 2005 granted options for 2,971,000 shares toemployees. At March 31, 2007 there were 888,000 options outstanding and 100% ofthe options issued were exercisable.

*Plan B*

Between July 1, 2003 and March 31, 2005 we grantedoptions for 3,420,500 shares under stock option plan “B”. Subsequently onAugust 15, 2005, we approved the stock option plan “B”. At March 31, 2007 therewere 917,000 options outstanding and 911,000 of the options issued wereexercisable.

*Plan C*

Between April 1, 2005 and June 30, 2006 we grantedoptions for 515,000 shares under the stock option plan “C”. On August 15, 2005,we approved stock option plan “C”. At March 31, 2007 there were 265,000 optionsoutstanding and 55,000 of the options issued were exercisable.  Optionsissued under this plan vest in equal one-thirds after employees have beenemployed for 12, 24 and 36 months from date of grant.

*Plan D*

On July 13, 2006 we approved stock option plan “D” andgranted options for 1,375,000 shares under this plan.  At March 31, 2007 there were 1,375,000options outstanding and none of the options issued were exercisable.  Options under this plan vest in equalone-thirds after employees have been employed for 12, 24 and 36 months from thedate of grant.

*Plan E*

On February 22, 2007 we approved and subsequentlygranted options for 5,900,000 shares under stock option plan “E”.  As at March 31, 2007 there were 5,900,000options outstanding, and none of the options issued were exercisable.   Options under this plan vest in equal onethirds after employees have been employed for 12, 24 and 36 months from thegrant date.

We have one Stock Option Plan in Medicexchange PLC(one of our UK subsidiary companies). The shares in this company are not publicly traded.

*Plan A*

On July 13, 2006 we approved Medicexchange PLC stockoption plan “A” and granted options for 950,000 shares under this plan.  At March 31, 2007 there were 800,000 optionsoutstanding and none of the options issued were exercisable.  Options issued under this plan vest in equalone-thirds after employees have been employed for 12, 24 and 36 months from thedate of grant.

The following weighted average assumptions were usedto estimate the fair value assumptions.

|                                         | ** ** | **For all periods shown** | ** ** |
|-----------------------------------------|------------|------------------------------------------|------------|
|                                    |       |                                     |       |
| Dividend yield                          |       | 0.0%                                     |       |
| Expected  volatility                    |       | 60%  — 65%                          |       |
| Risk-free rate                          |       | 4.65%  — 5.25%                      |       |
| Expected life of  options               |       | Up  to 4 years                           |       |
| Weighted-average  grant-date fair value |       | £0.31 ($0.61)                       |       |

The assumptions above are based on multiple factorsincluding United Kingdom treasury bonds for the risk-free rate at the time ofgrant, expected future exercising patterns (we cannot base the estimate on thehistorical exercise patterns as no options have been exercised) and thevolatility of the Company’s own stock price.

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

8

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The following table summarizes stock option activityfor the three month period ended March 31, 2007 and the year ended December 31,2006 under all option plans:
| ** **                             | ** ** | **Outstanding**            | ** ** | **Exercisable**                             | ** **  |
|----------------------------------------|------------|----------------------------|------------|---------------------------------------------|-------------|
| ** **                             | ** ** | **Number of  Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** **  | **Number of  Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
|                                   |       |                       |       |                                        |        |   |   |   |   |
| Outstanding at  December 31, 2005 |       | 4,146,200                  |       | £                                      | 1.00 ($1.96 | ) | 3,362,850 |   | £ | 1.00 ($1.96 | ) |
|                                   |       |                       |       |                                        |        |   |   |   |   |
| Granted                                |       | 2,610,000                  |       | £                                      | 1.05 ($2.06 | ) |   |   |   |   |
| Exercised                              |       | —                     |       | —                                      |        |   |   |   |   |
| Forfeited                              |       | (1,716,200                 | )          | £                                      | 1.00 ($1.96 | ) |   |   |   |   |
|                                   |       |                       |       |                                        |        |   |   |   |   |
| Outstanding at  December 31, 2006 |       | 5,040,000                  |       | £                                      | 0.91 ($1.79 | ) | 2,256,200 |   | £ | 1.00 ($1.96 | ) |
|                                   |       |                       |       |                                        |        |   |   |   |   |
| Granted                                |       | 5,900,000                  |       | £                                      | 0.50 ($0.98 | ) |   |   |   |   |
| Exercised                              |       | —                     |       | —                                      |        |   |   |   |   |
| Forfeited                              |       | (795,000                   | )          | £                                      | 0.68 ($1.34 | ) |   |   |   |   |
|                                   |       |                       |       |                                        |        |   |   |   |   |
| Outstanding at  March 31, 2007         |       | 10,145,000                 |       | £                                      | 0.59 ($1.15 | ) | 1,854,000 |   | £ | 0.75 ($1.47 | ) |

The following is a summary of the status of the stockoptions outstanding at March 31, 2007:
| ** **            | ** ** | **Outstanding Options** | ** ** | **Exercisable Options**       | ** ** |
|-----------------------|------------|------------------------------|------------|------------------------------------|------------|
| ** **            | ** ** | **Number**                   | ** ** | **Contractual Life  (years)** | ** ** | **Average  Exercise Price** | ** ** | **Number** | ** ** | **Average  Exercise price** | ** ** |
|                  |       |                         |       |                               |       |   |   |   |   |   |   |
| Medicsight Plan  A    |       | 888,000                      |       | 6.1                                |       | £ | 0.75 ($1.47 | ) | 888,000 |   | £ | 0.75 ($1.47 | ) |
| Medicsight Plan  B    |       | 917,000                      |       | 7.5                                |       | £ | 0.75 ($1.47 | ) | 911,000 |   | £ | 0.75 ($1.47 | ) |
| Medicsight Plan  C    |       | 265,000                      |       | 8.2                                |       | £ | 0.75 ($1.47 | ) | 55,000 |   | £ | 0.75 ($1.47 | ) |
| Medicsight Plan  D    |       | 1,375,000                    |       | 9.3                                |       | £ | 0.83 ($1.62 | ) | — |   | — |   |
| Medicsight Plan  E    |       | 5,900,000                    |       | 9.9                                |       | £ | 0.50 ($0.98 | ) | — |   | — |   |
| Medicexchange  Plan A |       | 800,000                      |       | 9.3                                |       | £ | 0.40 ($0.79 | ) | — |   | — |   |

 

On February 22, 2007 we modified the exercise price of50% of the shares in Medicsight PLC under plans “ A” through to “C” from£1.00  to £0.50 per share. On February22, 2007 we modified the exercise price of 50% of the shares in Medicsight PLCunder plan “ D” from £1.10 to £0.50 per share. No other terms and conditions ofthe stock options within these plans were modified. The total modificationcharge in the period ended March 31, 2007 was $133,000.

The Company has recorded the following amounts relatedto its share-based expenses in the Statement of Operations in the period endedMarch 31, 2007 (in thousands):

 
| ** **                           | ** ** | **2007** | ** ** |
|--------------------------------------|------------|----------|------------|
|                                 |       |     |       |
| Selling, general  and administrative |       | $        | 334        |   |
| Research and  development            |       | 41       |       |
| Total                                |       | $        | 375        |   |

No compensation costs were capitalized.

The aggregate intrinsic value for options outstandingand exercisable at March 31, 2007 was approximately $1,365,000.

The average grant date fair value of options was £0.26($0.51) and £0.41 ($0.81) for options granted during the period ended March 31,2007 and the year ended December 31, 2006, respectively.

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A summary ofnon-vested options at March 31, 2007 and change during period ended March 31,2007 is presented below:
| ** **                     | ** ** | **Number of  Options** | ** ** | **Weighted Average  Grant Date Fair  Value** | ** **  |
|--------------------------------|------------|-----------------------------|------------|-------------------------------------------------------------|-------------|
|                           |       |                        |       |                                                        |        |
| Non-vested at  January 1, 2007 |       | 2,783,800                   |       | £                                                      | 0.41 ($0.81 | ) |
| Granted                        |       | 5,900,000                   |       | £                                                      | 0.26 ($0.51 | ) |
| Vested                         |       | (157,800                    | )          | £                                                      | 0.38 ($0.75 | ) |
| Forfeited                      |       | (235,000                    | )          | £                                                      | 0.30 ($0.58 | ) |
| Non-vested at March 31,  2007  |       | 8,291,000                   |       | £                                                      | 0.31 ($0.60 | ) |

At March 31, 2007, there was $5,002,314 of totalunrecognized compensation cost related to non-vested share based compensationarrangements granted under the option plans. The cost is expected to be recognised over a weighted average period of3.6 years.

**6.Minority Interest**

Thecompany has minority investors in both Medicexchange and Medicsight PLC asfollows (in thousands):
| ** **                                     | ** ** | **Medicexchange** | ** ** | **Medicsight** | ** ** | **Total** | ** ** |
|------------------------------------------------|------------|-------------------|------------|----------------|------------|-----------|------------|
|                                           |       |              |       |           |       |      |       |
| Minority  Interest at January 1, 2007          |       | $                 | 9,351      |           | $          | 12,359    |       | $ | 21,710 |   |
| Medicexchange  China — incorporation      |       | 30                |       | —         |       | 30        |       |
| Less — minority share of operating losses |       | (211              | )          | (312           | )          | (523      | )          |
| Minority Interest at  March 31, 2007           |       | $                 | 9,170      |           | $          | 12,047    |       | $ | 21,217 |   |

 

**7.Credit Facilities — related party**

Asia IT Capital Investments Limited (a related party)has provided us with two credit facilities:

a.                      The Company — has a credit facility forup to $20 million (expiring in December 2007).  Any draw downs againstthis facility would accrue interest at 2% above US LIBOR.  We arerestricted from borrowing funds directly or indirectly other than through thisfacility without the consent of Asia IT Capital Investments Limited;

b.                     Medicsight PLC (one of our UK subsidiarycompanies) — has a credit facility for up to £10 million ($19 million)(expiring in December 2007), that is secured by a lien on all of the assets ofthis company.  Any draw downs against this facility would accrue interestat 2% above Sterling LIBOR.

At the period ended March 31, 2007 the Company had nodrawings under the $20 million facility with Asia IT, and Medicsight PLC had nodrawings under its £10 million ($19 million) facility with Asia IT.

**8.Related Party Transactions**

A director of Asia IT Capital Investments Limited is abrother of Tim Paterson-Brown (our Chief Executive Officer), a director of theCompany since December 2003 and its chief executive officer since September2004 and a director of Medicsight PLC since September 5, 2003.

**9.Recent Accounting Pronouncements**

The company adopted the provisions of FinancialAccounting Standards Board (“FASB”) Interpretation No. 48, “Accounting forUncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN48”), on January 1, 2007.  FIN 48clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with FASB Statement 109, “Accountingfor Income Taxes,” and prescribes a recognition threshold and measurementprocess for financial statement recognition and measurement of a tax positiontaken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interestand penalties, accounting in interim periods, disclosure and transition.

Based on our evaluation, we have concluded that thereare no significant uncertain tax positions requiring recognition in ourfinancial statements.  Our evaluation wasperformed for the tax years ended December 31, 2003, 2004, 2005 and 2006, thetax years which remain subject to examination by major tax jurisdictions as ofMarch 31, 2007.

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**Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

This report containsforward-looking statements made in reliance upon the safe harbor provisions ofSection 27A of the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. These statements may be identifiedby the use of words such as “anticipate,” “estimates,” “should,” “expect,” “guidance,”“project,” “intend,” “plan,” “believe” and other words and terms of similarmeaning, in connection with any discussion of our financial statements,business, results of operations, liquidity and future operating or financialperformance.

MGT Capital Investments, Inc. (formerly Medicsight,Inc.) and its subsidiaries (“MGT”, “the Company”, “we” or “us”) is aninvestment company with two direct subsidiaries that focus solely on thedynamic and consolidating Healthcare Information Technology sector (HCIT). TheCompany has developed medical imaging software applications and from this, weare developing the new Medicexchange.com business. Our three primary businessobjectives are:

·                       Toconceive, develop and commercialize innovative medical imaging applicationsderived from our core technology known as Medicsight CAD through Medicsight PLC(“Medicsight”);

·                       Toestablish a global online community for medical imaging professionals known asMedicexchange.com with a rich selection of specialist clinical content forregistered users combined with a product marketplace where medical imaging vendorscan sell their solutions online through Medicexchange PLC (“Medicexchange”).

·                       Tocontinue to invest in the rapidly growing Health Care IT (HCIT) sector.

**Medicsight**

Since its inception, Medicsight has become one of theworld’s leading developers of enterprise-wide Computer-Aided Detection (CAD)software which analyses Computer Tomography (CT) scans for the early detectionand measurement of lesions.

Medicsight has focused on two of the leading causes ofdeath, colorectal cancer (also known as colon or bowel cancer) and lungcancer.  There is increasing evidencethat early detection leads to an improved life expectancy.

We believe that Medicsight’s Colon CAD and Lung CADproducts (ColonCARTM,ColonCAD, LungCARTM and LungCAD) have the potential to make asignificant positive impact in the early detection and management of disease.

*Colon Cancer*

World Health Organisation data shows that colon cancercauses 655,000 deaths each year. If detected early enough, 90 percent of casescan be 100 percent curable. Colon cancer is one of the most prevalent cancersin western countries, and is likely to grow faster in developing countrieswhose populations are consuming more and more of a western style diet.

Many western countries operate colon cancer screeningprograms, and computer tomography colonography (which is an examination of thelarge colon using CT x-rays, often abbreviated to CTC, and also known asvirtual colonoscopy) is ideally suited for population screening of asymptomaticadults.

Compared with optical colonoscopy (which is anexamination of the large colon and the distal part of the small bowel with afibre optic camera), CTC screening is:

a.                    less invasive;

b.                   less timeconsuming;

c.                    less costly;

d.                   and can be atleast as effective

as traditional optical colonoscopyprocedures.

CTC screening is becoming increasingly available in aroutine clinical setting, particularly for symptomatic or screening of highrisk patients.

*Lung Cancer*

Lung cancer is the most common and deadliest of allcancers.  Worldwide 1.3 million cases oflung cancer are diagnosed each year, and the disease accounts for 17.1 per centof all global cancer deaths.

The link between smoking and lung cancer has long beenaccepted.  However, clinical research hasshown that if detected early and treated, there is more than an 85 per centchance of a ten year survival rate from lung cancer.

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As smoking increases dramatically in Asia, it ispredicted that the number of cases of lung cancer diagnosed each year in Asiawill dramatically increase over the next decade.

*Medicsight’s Product Development Focus*

Developing technology that is used alongside MultiDetector Computer Tomography (MDCT) scanners that enables the early detectionof colon and lung cancers has been the core focus of the Company’s productdevelopment because MDCT Scanning is clinically recognised as a reliable,non-invasive examination for the detection of colon and lung cancer.

They are trusted diagnostic devices and procedures arequick, non-invasive and safe. However, interpretation and analysis of CT scandata is labour intensive and can be subject to human error.

The most crucial requirements in cancer detection anddiagnosis are:

a.                    the ability todetect potential abnormalities at an early stage; and

b.                   the ability tomonitor any growths accurately over time.

Medicsight’s Colon CAD and Lung CAD products cansubstantially help radiologists in these requirements.

The CAD products can be applied to both asymptomaticscreening populations (i.e. a person with no existing obvious symptoms), andfor diagnostic interpretation of symptomatic patients (i.e. a person withobvious symptoms).

In a screening scenario providing population screening of high riskasymptomatic patients, CAD CT seeks to provide a cost effective solutionby identifying certain diseases sufficiently early in the life of the disease,to be more cost effective in terms of life years saved and the resource costsof disease management.  The application of CAD to aid detection anddiagnosis in symptomatic patients supports diagnostic decision-making andtreatment planning through the identification and measurement tracking oflesions.

ClinicalValidation

*Colon CAD*

Medicsight’s Colon CAD research has focused on theaccurate identification of colon polyps. A recent clinical research studyshowed the Medicsight ColonCARTM system to have superior detectioncharacteristics when compared with three experienced (human) readers and oursoftware performance has been peer reviewed and commended in a majority of thetop internationally recognized medical journals.

*Lung CAD*

Medicsight’s Lung CADresearch has focussed on both the detection of lung lesions (nodules andcancers) and the accuracy of the CAD in automatically measuring lesions.  Accurate measurement is crucial for thecorrect diagnosis and management of lung lesions. Accurate measurement oflesions allows their growth to be tracked over time.  Growth rate helps radiologists both todiagnose the nature of disease and to assess the response of disease totreatment.

*Clinical Sites*

Ever since early development, Medicsight’s Colon andLung CAD products have been in use in leading healthcare institutions withinEurope and the United States, and more recently in Asia, for research and earlyclinical user assessment.  Our Colon CADproducts have been used in:

University CollegeHospital, London St. Mark’s Hospital, London University of Wisconsin HospitalUniversity of Rome, Latina, Italy

The National Cancer Centre, Tokyo

Our Lung CAD products have been used in:

The London Chest Hospital The Royal Brompton HospitalCornell Medical Center, New York

Vanderbilt Medical Center, Tennessee

The University Health Network, Toronto, Canada

The University of Navarra Medical Center, Pamplona,Spain

The National Cancer Centre, Tokyo

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These results have been crucial in developingMedicsight’s CAD products to meet the absolute requirements of clinical endusers, and in driving the use of CAD in routine clinical practice.  To facilitate this collaborative programme,during 2006 Medicsight held international Medical Advisory Board meetings withkey luminaries and practitioners in the fields of CT Colonography and lungdisease. Medical Advisory Board meetings took place in Europe, North Americaand Japan, drawing together international expertise and understanding of thecurrent and future clinical requirements and vision for CAD and medical imageanalysis software.

The use of Medicsight’s products in clinical practicehas seen the recent introduction of Medicsight ColonCAD into the SIGGAR1 Trialin the UK.  SIGGAR1 is the largestmulti-centre trial of its kind in the UK to date and compares CT Colonography,optical colonoscopy and barium enema via a randomised controlled clinicaltrial.  Medicsight ColonCAD has also beenintroduced into the STIC Trial in France, a similar programme investigating themedical and economic health benefits of CT colonography.  In mid 2007, the first CTC colorectal cancerscreening programme in Japan will commence and a key feature of this programmewill be the use of Medicsight’s ColonCAD.

Having gained regulatory clearance, Medicsight’sproducts have become available for use in routine clinical practice.

The Company continues to work with internationallyrespected medical professionals who are experts in the fields of the colon andthe lung.

These relationships include:

Colon CAD Products

Prof. Steve Halligan andDr. Stuart Taylor at University College Hospital, London

Dr. David Burling at St.Mark’s Hospital, London

Dr. Ning Wu at theChinese Cancer Institute, Beijing

Dr. Gen Iinuma at theNational Cancer Centre, Tokyo

Dr.Perry Pickhardt at the University of Wisconsin Medical Center, Madison,Wisconsin

Lung CAD Products

Dr. Steve Ellis at theLondon Chest Hospital

Dr. Simon Padley at theRoyal Brompton Hospital

Dr. Heidi Roberts at theUniversity Health Network, Toronto, Canada

Dr.Ryutaro Kakinuma at the National Cancer Centre, Tokyo

In agrowing commitment to clinician education programmes, Medicsight has alsosupported the European Society of Gastrointestinal and Abdominal Radiology (ESGAR)through active participation in ESGAR’s series of international CT Colonographyworkshops.  Workshops are targeted andboth novices and those currently undertaking CTC practice and give attendeesthe opportunity to experience Medicsight ColonCAD with hands-on training usingmultiple Medicsight partner software systems. Further educational involvement has come through Medicsight’s directsupport of two Harvard Medical School, Department of Continuing MedicalEducation Virtual Colonoscopy courses in the United States.  Course delegates receive dedicated tutorialslead by CTC luminaries Dr’s Matt Barish and Michael Zalis of Harvard MedicalSchool, and training on Viatronix software systems incorporating MedicsightColonCAD.

RegulatoryEnvironment

Inorder to release new products into a specific market, the Company must gainlocal regulatory approvals for its CAD products.

Inthe USA, the Food and Drug Administration (FDA) is the regulatory authority. InEurope, regulatory approval is gained through Conformité Europeène (CE)marking. Other markets such as China (SFDA — State Food & DrugAdministration); Japan (MHLW — Ministry of Health, Labour and Welfare);Australia (TGA — Therapeutic Goods Administration); South Korea (KFDA — KoreaFood & Drugs Administration); and Canada (CMDCAS — Canadian Medical DeviceConformity Assessment System) have their own regulatory bodies but these oftenrequire companies outside of these markets to show evidence of an existing CEor FDA approval for a product before gaining approval in the local market.

TheMedicsight team has a significant amount of experience in preparing, submittingand gaining regulatory approvals.

*European (CE) Approval*

TheCompany’s ColonCAD and LungCAD products are approved.

*USA (FDA) Clearance*

TheCompany’s CAR products (which are earlier releases of the ColonCAD and LungCADproducts) are FDA cleared.

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TheCompany is in the process of completing the FDA’s clearance procedures to havethe ColonCAD and LungCAD products cleared for the USA market.

*Canada (CMDCAS) Approval*

TheCompany has an ISO13485 certification from a CMDCAS accredited registrar whichenables the Company to apply for Medical Device Licenses in Canada.

TheCompany received Medical Device Licenses for ColonCAD and LungCAD in January2007.

*Asia (China, Japan, Australia and Korea)*

TheCompany expects applications to be submitted to receive approvals for bothColonCAD and LungCAD in each of these markets during 2007.

Medicsight’sGrowth Strategy

Thestrategic objective over the next 1-3 years is to grow sales, make significantprofits and to increase shareholder value. During this period, strategic merger and acquisition opportunities willbe actively sought.

Thisis intended to be achieved by:

a.                    Signing newdistribution agreements for ColonCAD and LungCAD.

b.                   Aggressivelydriving the use and distribution of the existing ColonCAD and LungCAD products(offices have been established in both Japan and China specifically for thispurpose).

c.                    Generatingadditional revenue opportunities through the online per click model.

d.                   Continuing toinvest in improved clinical awareness and validation.

e.                    Working withgovernments, international health organisations and medical institutions topromote the benefits of early disease detection and to publicise the potentialfor population screening programmes to reduce premature deaths from diseasesthat can be curable if detected early in the disease process.

f.                      Activelypromote CAD through support of accredited training programs.

g.                   To introduceadditional products into the Company’s portfolio by a combination of internalresearch and development and acquisitions.

TheCompany has signed a number of non-exclusive agreements for the distribution ofits products with the following partners:

a.                    TeraRecon Inc.— which has successfully integrated ColonCADTM and LungCADTM into its Aquarius family of medical imagingapplications;

b.                   Viatronix Inc. —ColonCADTM and LungCADTM have been successfully integrated into its V3DTM Colon software;

c.                    Vital ImagesInc. — ColonCADTM has been successfully integrated into its CTcolonography application which is part of the Vitrea software package;

d.                   3mensio MedicalImaging BV — which has integrated LungCADTM in the 3viseonrange of products Medicsight is also in discussion with a number of other majorimaging companies and expects to finalise distribution agreements in Japan andEurope over the coming months.

Competition**

TheCompany’s competitors can be divided into two categories:

a.                    Multi DetectorCT scanner manufacturers such as GE, Hitachi, Philips, Siemens and Toshiba;

b.                   Independent CADsoftware providers.

The Company is not aware of any MDCT manufacturers whohave a colon CAD product although Siemens has a CAD-like Colon product.  Only Siemens has a commercially availablelung CAD product although GE has a CAD-like lung product.

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

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a.                    iMED (Italy) —has developed a Colon CAD product that is CE certified but not FDA approved;

b.                   MedianTechnology (France) — has developed a Colon CAD product and a Lung CAD(CAD-lung) — both have CE approval but not FDA approval;

c.                    QI(Quantitative Imaging) (USA) — has developed a Colon CAD product that isintegrated only with the Viatronix platform. This CAD application is not FDA approved;

d.                   R2 (USA) — hasdeveloped a Lung CAD product, that is FDA approved.

An extensive external analysis of peer reviewedclinical research on each of the above Colon CAD applications has proven thatMedicsight’s Colon CAD products demonstrated increased positive impact onReader Performance in the detection of Colon polyps, when compared with theavailable published data from the commercially available Colon CAD applicationsof the above listed companies.

At this time, the Company has not commissioned asimilar competitive analysis of the Lung CAD applications.

**Medicexchange**

Medicexchange provides medical imaging professionalswith a global web portal containing an online sales channel for diagnostic,treatment and surgery planning solutions. This combined with a variety ofrelevant clinical papers, training materials and content gives theseprofessionals access to information and products that they otherwise would havedifficulty accessing.

Medical imaging vendors are provided with a globalonline channel through which they can access a large community of medicalimaging professionals in order to market and sell their product solutions.

Medicexchange was launched at the Radiological Societyof North America (RSNA) conference in Chicago in November 2006.

The Medicexchange portal covers the following imagingspecialty areas: Breast, Cardiology, Abdominal-Pelvic, Thoracic andMusculoskeletal. Other areas such as Neurology will be added later.

Medicexchange has offices in the UK, USA and China.

Benefits for MedicalImaging Vendors

Medicexchange provides vendors the opportunity to sellMedical Imaging products directly to radiologists in an efficient and low-costmanner (including web-based downloads).

Medicexchange offers traditional pricing plans inaddition to flexible “per use” pricing. This decreases the financial purchasingrisk and setup times for radiologists by giving them an attractive pricingmodel via an online channel.

Marketing and promotional activities are also providedfor vendors such as email campaigns, online marketing, print advertising ande-newsletters.

Medical imaging vendors can list their products onMedicexchange without any upfront fees and pay on a per-sale commission basis.

With a local Chinese infrastructure, access to a largeChinese dealer network and a dedicated Chinese language version of theMedicexchange website, Medicexchange is also able to offer vendors a route forentering and selling within China.

Medicexchange is also able to offer assistance withtaking vendors through regulatory clearance such as CE (Europe), FDA (USA) andSFDA (China).

Benefits for Radiologists

Medicexchange adds value for radiologists bydelivering a centralized meeting place for clinical information, products andcollaboration.

Medicexchange intends to offer the widest selection ofmedical imaging products online, all in one place. These products can beevaluated and purchased directly from the web site.

Medicexchange offers a number of ways for radiologiststo purchase products including credit/debit card, pro form invoicing andpayments on account. For some products, Medicexchange also plans to offerflexible “per use” pricing to allow the radiologist to pay based on aper-patient or per-study basis.

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Medicexchange also offers many products on a trialbasis to allow radiologists to evaluate products before they purchase.

Radiologists are also offered a free first linecustomer support service when they register with Medicexchange.

Market Opportunity

Radiologists expect the frequency of computedtomography (“CT”) procedures to grow by over 35% over the next five years(source: Frost & Sullivan research). Traditional original equipmentmanufacturers (“OEM”) typically control the access to these applications andcharge high per unit price points (typically $50,000 to $200,000). These highprice points create long sales cycles. The “per use” pricing model removes thisobstacle to purchase. Online product purchasing and downloads create aflexible, on demand usage model.

Radiologists state a preference for the concept of a “peruse” pricing model and web-based downloadable tools. Over 80% would consider adedicated internet portal for their area of specialty a useful service (source:Frost & Sullivan research).

What differentiates thecompany?

By creating strong relationships with our 3rd partypartner vendors Medicexchange intends to develop the clinical information andcontacts, provide products and product demonstrations, training and supportthat will result in Medicexchange achieving its aim to be the leading globalportal for clinical vendors and professionals.

Medicexchange aims to provide essential information,training and collaborative tools to attract customers, enable them to use thedemonstration applications, purchase the applications and retain them as repeatusers.

The Medicexchange portal is a global distributionportal (initially focused in the U.S., Europe and Asia).

With offices in Europe, USA and China, Medicexchangeis able to a global service whilst also providing local expertise withinspecific markets as required.

Recent achievements

—                Exclusive sponsorof the AuntMinnie software center

—                Exclusiveagreement with Chinese Journal of Radiology

—                Week on weekgrowth since launch with many thousands of unique visitors to Medicexchange.comeach week

—                Many agreementssigned with Medical Imaging vendors to list their products on Medicexchange.com

—                Agreements signedwith Chinese dealer network giving access to 80% of Tier 1 and Tier 2 hospitalsin Chinese urban centers

—                Over 50 providersnow supplying the Medicexchange site with updated news and articles

**Employees**

As of March 31, 2007, the Company and its subsidiarieshad 64 employees, all of whom are full-time employees.  Our employees are not part of a union.  We believe that we have an excellentrelationship with our employees.

**Patents and Trademarks**

Protection of our proprietary technology and ourrights over that technology, from copy or unchallenged and improper use, isessential to our future success. Any challenges to, or disputes concerning, ourcore technology may result in great expense to us, delays in bringing productsto market and disruption of our focus on our core activities. They may alsoresult in loss of rights over our technology or the right to operate inparticular markets due to adverse legal decisions against us.

The Company has filed patent applications in theUnited Kingdom, the United States, the European Patent Office, Japan, SouthKorea, Australia, Canada, and under the International Patent Cooperation Treaty(which currently has 128 member countries) covering our core technologies andtheir applications. We have recently filed new patent applications coveringtechnology of both Medicsight CAD and Medicexchange and intend to continue filingnew applications in the future.  Two patents have been granted in the UScovering aspects of Medicsight CAD technology. Although prior art searches have been carried out, we cannot provideassurance that any or all of the pending patents will be granted or that theywill not be challenged, or that rights granted to us will actually provide uswith advantage over our competitors. The Company actively reviews third partypatents and is not currently aware of any that our products will infringe.

We have filed applications to register “Medicsight”TM, “Medicsight Colon Screen”TM, “Medicsight Heart Screen”TM,  “Medicsight Lung Screen”TM, “Medicsight Colon CAR” TM, “Medicsight Lung CAR” TM, “Medicsight Computer Assisted Reader” TM, “Medicsight See More, SaveMore” TM, “Lung CAR”TM,“Medicsight ImageView”, “MedicRead”, and “MedicView” as trademarks in theUnited Kingdom, the 

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European Community and the United States, and in anumber of other countries.  Thesetrademarks are important to the corporate identity in connection with MedicsightCAD.

Failure to register appropriate patents, copyrights ortrademarks in any jurisdiction may impede our ability to create brand awarenessin our products, result in expenses in pursuing our rights with respect to ourintellectual property, or result in lost revenues due to intellectual propertydisputes. Where we may be required to purchase licenses from sellers with priorrights in any country, we cannot assure you that we will be able to do so at acommercially acceptable cost.

**General**

MGT was originally incorporated as a Utah corporationin 1977 and was re-incorporated in Delaware in 2000.  At March 31, 2007 the Company’s authorizedshare capital was 75,000,000 shares of common stock, par value of $0.001.

In January 2007 the Company increased its authorizedshare capital from 40,000,000 shares to 75,000,000 shares of common stock, parvalue $0.001 and changed its name from Medicsight, Inc. to MGT CapitalInvestments, Inc. At May 2, 2007, 38,900,383 shares of common stock had beenissued.

Our principal executive office is located atKensington Centre, 66 Hammersmith Road, London W14 8UD, United Kingdom,telephone 011-44-207-605-7950, facsimile 011-44-207-605-7951.

Our web address is www.mgtci.com. Information on ourwebsite is not deemed to be a part of this Quarterly Report.

**CriticalAccounting Policies and the Use of Estimates**

We believe there have been no significant changes inour critical accounting policies during the three months ended March 31, 2007as compared to our previous disclosures in Management’s Discussion and Analysisof Financial Condition and Results of Operations included in our Annual Reporton Form 10-K for the fiscal year ended December 31, 2006.

The accompanying discussion and analysis of ourfinancial condition and results of operations are based upon our condensedconsolidated financial statements and the related disclosures, which have beenprepared in accordance with U.S. generally accepted accounting principles(GAAP). The preparation of these condensed consolidated financial statementsrequires us to make estimates, assumptions and judgments that affect thereported amounts in our condensed consolidated financial statements andaccompanying notes. These estimates form the basis for making judgments aboutthe carrying values of assets and liabilities. We base our estimates andjudgments on historical experience and on various other assumptions that webelieve to be reasonable under the circumstances. Actual results could differmaterially from these estimates.

We believe the following policies to be the mostcritical to an understanding of our financial condition and results ofoperations because they require us to make estimates, assumptions and judgmentsabout matters that are inherently uncertain.

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*Stock Based Compensation*

We have issued employee stock options from bothMedicsight PLC and Medicexchange PLC (our UK subsidiary companies).  Weuse the Black-Scholes option pricing model to estimate the fair value ofemployee stock options. Calculating the fair value of these stock optionsrequires considerable judgment, including estimating stock price volatility,the amount of options that are expected to be forfeited and the expected lifeof the options awards.

The value of a stock option is derived from itspotential for appreciation. The more volatile the stock, the more valuable theoption becomes due to the greater possibility of significant changes in stockprice.  The expected option term also has a significant effect on thevalue of the option. The longer the term, the more time the option holder hasto allow the stock price to increase without a cash investment and thus, themore valuable the option. When establishing an estimate of the expected term,we consider the vesting period for the award and our estimate of employee’slikely stock option exercises, the expected volatility, and a comparison torelevant peer group data.

The shares underlying our currently awarded stockoptions are not publicly traded shares. We review our valuation assumptions ateach grant date and, as a result, we are likely to change our valuationassumptions used to value stock based awards granted in future periods. Actualresults, and future changes in estimates, may differ substantially from ourcurrent estimates. As a result, if factors change and we use differentassumptions, our stock-based compensation expense could be materially differentin the future.

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**Resultsof Operations**

*Revenues.*

For the three month period ended March 31, 2007 andMarch 31, 2006 our revenues from continuing operations were $nil.

*Selling, General and AdministrativeExpenses*

Our selling, general and administrative expenses fromcontinuing operations were (in thousands):

|                                               | ** ** | **Three Months ended  March 31,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                                          |       |                                             |       |   |   |
| Selling, general and  administrative expenses |       | $                                                | 3,457      |   | $ | 2,468 |   |
|                                               |            |                                                  |            |  |  |  |  |

 

Our selling, general and administrative expenses haveincreased as we expand our international commercial operations. The significantelements being (in thousands):

|                                                                      | ** ** | **Three Months ended  March 31,** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                           | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                                                                 |       |                                             |       |   |   |
| Salaries and director’s  compensation (including payroll taxes) |       | $                                                | 1,412      |   | $ | 934 |   |
| Contractors and  consultants                                         |       | 450                                              |       | 117 |   |
| Stock options                                                        |       | 375                                              |       | 96 |   |
| Professional fees                                                    |       | 221                                              |       | 341 |   |
| Travel                                                               |       | 242                                              |       | 148 |   |
| Property rent and rates                                              |       | 221                                              |       | 156 |   |
| Marketing, conferences  and public relations                         |       | 308                                              |       | 344 |   |
| Software licenses                                                    |       | 36                                               |       | 161 |   |
|                                                                      |            |                                                  |            |  |  |  |  |

People and related costs (including Travel costs) have increased due tothe expansion of Medicsight and Medicexchange in China and Japan.

Stock option costs increased due to granting of the Medicsight PLC planE options and the modification of it’s Medicsight PLC plan A to plan D options.

*Researchand Development (in thousands).*

|                                   | ** ** | **Three Months ended  March 31,** | ** ** |
|-----------------------------------|------------|--------------------------------------------------|------------|
| ** **                        | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                              |       |                                             |       |   |   |
| Research and development expenses |       | $                                                | 546        |   | $ | 627 |   |
|                                   |            |                                                  |            |  |  |  |  |

 

**Liquidityand Capital Resources**

*Working Capital Information (in thousands):*
| ** **                                             | ** ** | **March 31, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                             | ** ** | **(unaudited)**              | ** ** | ** **                      | ** ** |
| ** **                                             | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| Cash and Cash  Equivalents & Marketable Securities |       | $                            | 20,752     |                            | $          | 24,735 |   |
|                                                   |       |                         |       |                            |       |
| Current Assets                                         |       | 21,316                       |       | 25,306                          |       |
| Current Liabilities                                    |       | (2,829                       | )          | (3,378                          | )          |
| Working Capital Surplus                                |       | 18,487                       |       | 21,928                          |       |
|                                                   |       |                         |       |                            |       |
| Ratio of Current Assets to Current Liabilities         |       | 7.5                          |       | 7.5                             |       |
|                                                        |            |                              |            |                                 |            |  |  |

 

19

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As of March 31, 2007 we had $15,404,000 in cash andcash equivalents (compared to $19,757,000 at December 31, 2006) and $20,752,000in cash, cash equivalents, and marketable securities compared to $24,735,000 atDecember 31, 2006.

Net cash used in operating activities was $3,764,000for the three months ended March 31, 2007 ($4,632,000 for the three monthperiod ended March 31, 2006).  This resulted primarily from:

a.                    ournet loss net of minority interests of $3,207,000  ($3,030,000 for the three month period endedMarch 31, 2006);

b.                   adjustedfor depreciation and stock-based compensation expenses (non cash items) of$495,000 ($157,000 for the three month period ended March 31, 2006);

c.                    anoverall reduction in current assets and liabilities (excluding cash items) of $535,000in the period ended March 31, 2007 compared to $1,759,000 for the period endedMarch 31, 2006.

Net cash used in investing activities of $640,000 inthe three months ended March 31, 2007 ($3,912,000 for the three months endedMarch 31, 2006) consisted primarily of:

a.                    inthe three months ended March 31, 2007 we used $350,000 for the purchase ofavailable for sale marketable securities;

b.                   inthe three months ended March 31, 2007  weused $290,000 in capital expenditure ($88,000 for the three months ended March31, 2006).

c.                    March31, 2006  included a $4,000,000 cash heldfor common stock subscribed but unissued - relating to the December 2005 fundraising;

Net cash flows used in financing activities were$23,000 for the three months ended March 31, 2007 (compared to $985,000provided by financing activities for the three months ended March 31,2006).  We did not raise any new equityfinance in the quarter ended March 31, 2007.

*AdditionalCapital Funding Requirements*

To date we have primarily financed our operationsthrough private placements of equity securities. At March 31, 2007 we hadissued 38,900,383 of our 75,000,000 authorized share capital.

In addition to the above, we still have the two linesof credit facilities (together totalling $39 million) available from Asia ITCapital Investments Limited (a related party).  We do not expect to haveto use any part of these credit lines.

*Risks and Uncertainties Related toOur Future Capital Requirements*

To the extent that additional capital is raisedthrough the sale of equity or equity-related securities of the Company or itssubsidiaries, the issuance of such securities could result in dilution to theCompany’s stockholders.

Noassurance can be given, however, that we will have access to the capitalmarkets in the future, or that financing will be available on acceptable termsto satisfy the Company’s cash requirements to implement its business strategies.

If we are unable to access the capital markets orobtain acceptable financing, our results of operations and financial conditionscould be materially and adversely affected.  We may be required to raisesubstantial additional funds through other means.

The products derived from our proprietary software,including the MedicsightTM system, are expected to account for substantially allof our revenues from operations in the foreseeable future.

Our technology has not yet been fully commercializedand we have not begun to receive any significant revenues from commercialoperations.  We cannot assure our stockholders that our technology andproducts will be commercialized successfully, or that if so commercialized,that revenues will be sufficient to fund our operations.

If adequate funds are not available to us, we may berequired to curtail operations significantly or to obtain funds throughentering into arrangements with collaborative partners or others that mayrequire us to relinquish rights to certain of our technologies or products thatwe would not otherwise relinquish.

*Other Information*

None.

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**Item 3.****          ****Quantitative and Qualitative DisclosuresAbout Market Risk**

*Interest Rate Risk*

Our exposure to market rate risk for changes ininterest rates relates primarily to our investment portfolio. We place ourinvestments in a mixture of (a) cash deposits on either overnight or 30 dayrates; (b) highly liquid blue chip available-for-sale market securities. Adecline in interest rate would have an advserse impact on interest income.

We do not have any debt and we do not use derivativefinancial instruments.

The Company has the following debt facilities allrepayable on demand:
| Debt Holder                                       | ** ** | **Facility** | ** ** | **Draw Down** | ** ** | **Interest rate** | ** **    | **At March 31, 2007** | ** ** |
|--------------------------------------------------------|------------|--------------|------------|--------------------|------------|------------------------|---------------|--------------------------------------|------------|
| Asia IT Capital Investments  Limited (a related party) |       | $            | 20 million |               | $          | nil                    |          | US Libor + 2                         | %          | 7.22 | % |
| Asia IT Capital  Investments Limited (a related        |       | £       | 10 million |               |       |                   |          |                                 |       |   |
| party)                                                 |       | ($19 million | )          | $                  | nil        |                   | GBP Libor + 2 | %                                    | 7.83       | % |

Since the Company has not drawn down funds undereither facility, a hypothetical 100 basis point increase in interest rateswould not increase the Company’s interest costs, assuming no draw downs aremade which the Company does not anticipate having to use.

*Foreign Exchange Risk*

We are exposed to foreign currency exchange ratefluctuations related to the operation of our international subsidiaries.  Our main operating currency is UK sterling(£).  We also have subsidiary operationsin Japan and China who operate in their local currencies.

At the end of each reporting period, expenses of thesubsidiaries are converted into U.S. dollars using the average currency rate ineffect for the period and assets and liabilities are converted into U.S.dollars using the exchange rate in effect at the end of the period.

Additionally, we are exposed to foreign currencyexchange rate fluctuations relating to payments we make to vendors andsuppliers using foreign currencies.

We currently do not hedge against this foreigncurrency risk.

Fluctuations in exchange rates may impact ourfinancial condition and results of operations.

**Item 4.****          Controls and Procedures**

*Evaluation of Disclosure Controlsand Procedures*

As required by Rule 13a-15(b) under the Exchange Act,our management carried out an evaluation of the effectiveness of the design andoperation of the Company’s “disclosure controls and procedures” as of March 31,2007. This evaluation was carried out under the supervision and with theparticipation of our management, including our Chief Executive Officer andChief Financial Officer. As defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act, disclosure controls and procedures are controls and otherprocedures of the Company that are designed to ensure that information requiredto be disclosed by the Company in the reports it files or submits under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in 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 upon that evaluation, our Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective as of March 31, 2007.  It should be noted thatthe design of any system of controls is based in part upon certain assumptionsabout the likelihood of future events, and there can be no assurance that anydesign will succeed in achieving its stated goals under all potential futureconditions, regardless of how remote.

*Changes in Internal Control overFinancial Reporting*

As required by Rule 13a-15(d) under the Exchange Act,our management, including our Chief Executive Officer and Chief FinancialOfficer, also conducted an evaluation of our internal control over financialreporting to determine whether any change occurred during the quarter endedMarch 31, 2007, that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting. Based on that evaluationduring the quarter ended March  31, 2007there has been no change in our internal control over financial reporting thathas materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

21

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The Company is currently undergoing a comprehensiveeffort in preparation for compliance with Section 404 of the Sarbanes-Oxley Actof 2002. This will involve the documentation, testing and review of ourinternal controls under the direction of senior management.

22

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**PARTII.  OTHER INFORMATION**
| **Item 1.**                                        | **Legal Proceedings** |
|----------------------------------------------------|-----------------------|
|                                               |                  |
| There are  currently no pending legal proceedings. |
| ** **                                         | ** **            |
| **Item 1A.**                                       | **Risk Factors**      |

 

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

We cannot assure you thatthe Company will be successful in commercializing the Medicsight CAD productsor the Medicexchange portal, or if the products or the portal are commercialized,that they will be profitable to the Company. We face obstacles incommercializing the Medicsight CAD products and the Medicexchange portal and ingenerating operating revenues as detailed below.

The Company does notbelieve that there is currently any comparable system that is competitive withthe Medicsight CAD products. There are computer-aided diagnostic systemsthat operate in the field, but, in our view, such other systems are moredependent 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.

The Company has had onlya limited operating history and no revenues from its continuing operations uponwhich an evaluation of its prospects can be made. The Company’s prospects mustbe considered keeping in mind the risks, expenses and difficulties frequentlyencountered in the establishment of a new business in constantly changingindustry. There can be no assurance that the Company will be able to achieveprofitable operations in the foreseeable future or at all.

The Company hasidentified a number of specific risk areas that may affect the Company’soperations and results in the future:

*Technical Risks.*

The Medicsight CAD systemmay not deliver the levels of accuracy and reliability needed, or thedevelopment of such accuracy and reliability may be delayed.

*Market Risks*

The market for theMedicsight CAD products and Medicexchange may be slower to develop or smallerthan estimated or it may be more difficult to build the market thananticipated. The medical community may resist the Medicsight CAD andMedicexchange products or be slower to accept them than we expect. Revenuesfrom Medicsight CAD and Medicexchange may be delayed or costs may be higher thanexpected which may result in the Company requiring additional funding.

*Regulatory Risks.*

The Medicsight CAD systemis subject to regulatory requirements in the United States Europe, Japan, Chinaand our other targeted markets. Necessary regulatory approvals may not beobtained or may be delayed.  We may incursubstantial additional cost in obtaining regulatory approvals for our productsin our targeted markets.

*Competitive Risks*

There are a number ofgroups and organizations, such as software companies in the medical imagingfield, MDCT scanner manufacturers, screening companies and other healthcareproviders that may develop a competitive offering to the Medicsight CADproducts and Medicexchange.  In additionthese competitors may have significantly greater resources than the Company. Wecannot make any assurance that they will not attempt to develop such offerings,that they will not be successful in developing such offerings or that anyofferings they do develop will not have a competitive edge over Medicsight CADproducts and Medicexchange.

*FinancialRisk*

The Company has incurredsignificant operating losses since inception and has generated no revenues fromcontinuing operations. As a result, the Company has generated negative cashflows from operations and has an accumulated deficit at March 31, 2007. TheCompany is

23

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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 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.

*CorporateStructure.*

The Company’s corporatestructure may make it more difficult or costly to take certain actions. TheCompany conducts its business through: (a) Medicsight PLC, a U.K. publiccompany which is 77% owned by the Company, and through Medicsight PLC’ssubsidiaries in the United Kingdom, the United States, Japan and Gibraltar and;(b) through the Medicexchange subsidiaries, which the Company holdings rangebetween 75% and 90%. Although the Company and Medicsight PLC andMedicexchange PLC share some directors and management, they are required tocomply with corporate governance and other laws and rules applicableto public companies in the United Kingdom and the United States.  Shouldthe Company propose to take any action, such as a transfer or allocation ofassets or liabilities between the Company its subsidiaries, the Company wouldhave to take into consideration the potentially conflicting interests of theCompany’s stockholders and the minority stockholders.  This may deter theCompany from taking such actions that might otherwise be in the best interestof the Company or cause the Company to incur additional costs in taking suchactions. The subsidiary companies would not be able to pay dividends or makeother distributions of profits or assets to the Company without making prorata payments or distributions to the respective minoritystockholders.  Although neither the subsidiary companies nor theCompany has plans to pay dividends or make distributions to itsshareholders, the Company’s corporate structure may deter its subsidiaries fromdoing so in the future.

*Theprotection of our intellectual property may be uncertain, and we may facepossible claims of others.*

Although we have receivedpatents and have filed patent applications with respect to certain aspects ofour technology, we generally do not rely on patent protection with respect toour products and technologies. Instead, we rely primarily on a combination oftrade secret and copyright law, employee and third-party nondisclosureagreements and other protective measures to protect intellectual propertyrights pertaining to our products and technologies. Such measures may notprovide meaningful protection of our trade secrets, know-how or otherintellectual property in the event of any unauthorized use, misappropriation ordisclosure. Others may independently develop similar technologies or duplicateour technologies. In addition, to the extent that we apply for any patents,such applications may not result in issued patents or, if issued, such patentsmay not be valid or of value. Third parties could, in the future, assertinfringement or misappropriation claims against us with respect to our currentor future products and technologies, or we may need to assert claims ofinfringement against third parties. Any infringement or misappropriation claimby us or against us could place significant strain on our financial resources,divert management’s attention from our business and harm our reputation. Thecosts of prosecuting or defending an intellectual property claim could be substantialand could adversely affect our business, even if we are ultimately successfulin prosecuting or defending any such claims. If our products or technologiesare found to infringe the rights of a third party, we could be required to paysignificant damages or license fees or cease production, any of which couldhave a material adverse effect on our business.

*If wefail to attract and retain qualified personnel, our business would 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 wedo not effectively manage changes in our business, these changes could place asignificant strain on our management and operations and, as a result, ourbusiness might not succeed.*

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

*ForeignExchange Risks*

As the Company’s mainoperating currency is UK sterling (£) and its financial statements are reportedin US Dollars, the Company’s assets and liabilities and its results ofoperations are affected by movements in the $:£ exchange rate.

24

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*OtherRisks*

The Company’s ability to deliver its software could behindered by risks such as the loss of key personnel or the patents andtrademarks being successfully challenged or credit facilities being reduced orterminated by lenders
| **Item 2.**                                                                      | **Unregistered Sales of Equity Securities  and Use of Proceeds** |
|----------------------------------------------------------------------------------|------------------------------------------------------------------|
|                                                                             |                                                             |
| In the three  months ended March 31, 2007 no shares in common stock were issued. |
|                                                                             |                                                             |
| **Item  3.**                                                                     | **Defaults Upon Senior Securities**                              |
|                                                                             |                                                             |
| None.                                                                            |
| ** **                                                                       | ** **                                                       |
| **Item  4.**                                                                     | **Submission of Matters to a Vote of  Security Holders**         |
| ** **                                                                       | ** **                                                       |
| None.                                                                            |
| ** **                                                                       | ** **                                                       |
| **Item  5.**                                                                     | **Other Information**                                            |
| ** **                                                                       | ** **                                                       |
| None.                                                                            |

 

25

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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)    |           | Reports on Form 8-K |
|   |           |                |
|   | None           |                |

 

26

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SIGNATURE

In accordance withthe requirements of the Securities Exchange Act of 1934, the registrant hasduly 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 |
|        |   |                          |
| May 2, 2007 |   |                          |

 

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