**UNITEDSTATES****SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

| **x**                                              | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|----------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
|                                               |       |                                                                                          |
| **For the  quarterly period ended June 30, 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            **

**Commission file number: 0-26886**

**MGTCAPITAL INVESTMENTS, INC.******(formerly Medicsight Inc.)

(Exact name of Registrant as specified in its charter)

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

**KensingtonCentre, 66 Hammersmith Road, London, W14 8UD, UNITED KINGDOM**

(Address of principal executive offices, including zipcode)

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

Indicateby check whether the Registrant (1) has filed all reports to be filed bySection 13 or 15(d) of the Securities and Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90days.    Yes     x    No     o

Indicateby check mark whether the Registrant is a large accelerated filer, anaccelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of theExchange Act):

LargeAccelerated Filer o     Accelerated filer x     Non-accelerated Filer o

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-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 August 8, 2007 was 38,900,383.

 

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NOTE REGARDING FORWARD LOOKING STATEMENTS

This Form 10-Q, including “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” in Item 2, containsforward-looking statements that involve risks and uncertainties, as well asassumptions that, if they never materialize or prove incorrect, could cause theresults of MGT Capital Investments, Inc and its consolidated subsidiaries (the “Company”)to differ materially from those expressed or implied by such forward-lookingstatements. All statements other than statements of historical fact arestatements that could be deemed forward-looking statements, including anyprojections of revenue, gross margin, expenses, earnings or losses fromoperations, synergies or other financial items; any statements of the plans,strategies and objectives of management for future operations, including therate of market development and acceptance of medical imaging technology; theexecution of restructuring plans; any statement concerning developments, performanceor industry rankings relating to products or services; any statements regardingfuture economic conditions or performance; any statements of expectation orbelief; and any statements of assumptions underlying any of the foregoing. Therisks, uncertainties and assumptions referred to above include the performanceof contracts by suppliers, customers and partners; employee management issues;the difficulty of aligning expense levels with revenue changes; and other risksthat are described herein, including but not limited to the specific risksareas discussed in “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” in Item 2 of this report, and that areotherwise described from time to time in the Company’s Securities and ExchangeCommission reports filed after this report. The Company assumes no obligationand does not intend to update these forward-looking statements.

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

2

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**INDEX**
| ** PART I – FINANCIAL INFORMATION** |
|-----------------------------------------------|
| ** **                                    | ** ** |
| Item  1                                       | Condensed  Consolidated Balance Sheets – June 30, 2007 and December 31, 2006 |
|                                          |   |
|                                          | Condensed  Consolidated Statements of Operations – for the three and six months ended  June 30, 2007 and 2006 |
|                                          |   |
|                                          | Condensed  Consolidated Statements of Cash Flows – for the six months ended June 30,  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                                    |

 

3

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

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(inthousands, except share and per share amounts)**
| ** **                                                                                                                            | ** ** | **June 30  2007** | ** ** | **December 31  2006** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| ** **                                                                                                                            | ** ** | **(unaudited)**        | ** ** | **(audited)**              | ** ** |
| ASSETS                                                                                                                                |       |                   |       |                       |       |
| CURRENT ASSETS:                                                                                                                       |       |                   |       |                       |       |
| Cash                                                                                                                                  |       | $                      | 72,512     |                       | $          | 19,757 |   |
| Marketable securities                                                                                                                 |       | 5,734                  |       | 4,978                      |       |
| Related party  receivable                                                                                                             |       | 24,578                 |       | —                     |       |
| Other receivables                                                                                                                     |       | 161                    |       | 123                        |       |
| Prepaid expenses                                                                                                                      |       | 466                    |       | 115                        |       |
| Value added tax  receivable                                                                                                           |       | 229                    |       | 333                        |       |
| Total current assets                                                                                                                  |       | 103,680                |       | 25,306                     |       |
|                                                                                                                                  |       |                   |       |                       |       |
| PROPERTY EQUIPMENT, at  cost, net of accumulated depreciation of $902 and $768 respectively                                           |       | 802                    |       | 683                        |       |
| INVESTMENTS, at cost                                                                                                                  |       | 359                    |       | 359                        |       |
| SECURITY DEPOSITS                                                                                                                     |       | 1,003                  |       | 921                        |       |
| GOODWILL                                                                                                                              |       | 11,200                 |       | 11,200                     |       |
|                                                                                                                                  |       |                   |       |                       |       |
| Total assets                                                                                                                          |       | $                      | 117,044    |                       | $          | 38,469 |   |
|                                                                                                                                  |       |                   |       |                       |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                            |       |                   |       |                       |       |
|                                                                                                                                  |       |                   |       |                       |       |
| CURRENT LIABILITIES:                                                                                                                  |       |                   |       |                       |       |
| Accounts payable                                                                                                                      |       | $                      | 1,516      |                       | $          | 1,986 |   |
| Accrued expenses                                                                                                                      |       | 2,044                  |       | 1,385                      |       |
| Current portion of  obligations under capital leases                                                                                  |       | —                 |       | 7                          |       |
| Total current  liabilities                                                                                                            |       | 3,560                  |       | 3,378                      |       |
|                                                                                                                                  |       |                   |       |                       |       |
| MINORITY INTEREST                                                                                                                     |       | 86,621                 |       | 21,710                     |       |
|                                                                                                                                  |       |                   |       |                       |       |
| Commitments and  contingencies                                                                                                        |       |                   |       |                       |       |
|                                                                                                                                  |       |                   |       |                       |       |
| STOCKHOLDERS’ EQUITY:                                                                                                            |       |                   |       |                       |       |
|                                                                                                                                  |       |                   |       |                       |       |
| Common stock, $0.001  par value, 75,000,000 and 40,000,000 shares authorized, respectively;  38,900,383 shares issued and outstanding |       | 39                     |       | 39                         |       |
| Additional paid in  capital                                                                                                           |       | 238,338                |       | 218,138                    |       |
| Accumulated other  comprehensive income                                                                                               |       | 1,436                  |       | 853                        |       |
| Accumulated deficit                                                                                                                   |       | (212,950               | )          | (205,649                   | )          |
| TOTAL STOCKHOLDERS’  EQUITY                                                                                                      |       | 26,863                 |       | 13,381                     |       |
|                                                                                                                                  |       |                   |       |                       |       |
| Total stockholders’ equity and liabilities                                                                                       |       | $                      | 117,044    |                       | $          | 38,469 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

4

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

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

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

**(unaudited)**
| ** **                                            | ** ** | **Three Months Ended June 30,** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                            | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
|                                                  |       |                                                |       |   |   |
| REVENUES                                              |       | $                                                   | —     |   | $ | — |   |
|                                                  |       |                                                |       |   |   |
| EXPENSES:                                             |       |                                                |       |   |   |
| Selling, general and administrative expenses          |       | 4,525                                               |       | 3,521 |   |
| Research and development cost                         |       | 590                                                 |       | 513 |   |
|                                                  |       | 5,115                                               |       | 4,034 |   |
|                                                  |       |                                                |       |   |   |
| Operating loss                                        |       | (5,115                                              | )          | (4,034 | ) |
|                                                  |       |                                                |       |   |   |
| OTHER INCOME:                                         |       |                                                |       |   |   |
| Interest and other income                             |       | 309                                                 |       | 33 |   |
|                                                  |       |                                                |       |   |   |
| Net loss before minority  interest                    |       | (4,806                                              | )          | (4,001 | ) |
|                                                  |       |                                                |       |   |   |
| Minority  Interest                                    |       | 711                                                 |       | — |   |
|                                                  |       |                                                |       |   |   |
| Net loss                                              |       | $                                                   | (4,095     | ) | $ | (4,001 | ) |
|                                                  |       |                                                |       |   |   |
| PER SHARE DATA:                                       |       |                                                |       |   |   |
|                                                  |       |                                                |       |   |   |
| Basic and diluted loss per share                      |       | $                                                   | (0.11      | ) | $ | (0.11 | ) |
|                                                  |       |                                                |       |   |   |
| Weighted average  number of common shares outstanding |       | 38,900,383                                          |       | 37,667,883 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements

5

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

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

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

**(unaudited)**
| ** **                                            | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                            | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
|                                                  |       |                                              |       |   |   |
| REVENUES                                              |       | $                                                 | —     |   | $ | — |   |
|                                                  |       |                                              |       |   |   |
| EXPENSES:                                             |       |                                              |       |   |   |
| Selling, general and administrative expenses          |       | 7,981                                             |       | 5,989 |   |
| Research and development cost                         |       | 1,136                                             |       | 1,140 |   |
|                                                  |       | 9,117                                             |       | 7,129 |   |
|                                                  |       |                                              |       |   |   |
| Operating loss                                        |       | (9,117                                            | )          | (7,129 | ) |
|                                                  |       |                                              |       |   |   |
| OTHER INCOME:                                         |       |                                              |       |   |   |
| Interest and other income                             |       | 582                                               |       | 98 |   |
|                                                  |       |                                              |       |   |   |
| Net loss before minority  interest                    |       | (8,535                                            | )          | (7,031 | ) |
|                                                  |       |                                              |       |   |   |
| Minority  Interest                                    |       | 1,234                                             |       | — |   |
|                                                  |       |                                              |       |   |   |
| Net loss                                              |       | $                                                 | (7,301     | ) | $ | (7,031 | ) |
|                                                  |       |                                              |       |   |   |
| PER SHARE DATA:                                       |       |                                              |       |   |   |
|                                                  |       |                                              |       |   |   |
| Basic and diluted loss per share                      |       | $                                                 | (0.19      | ) | $ | (0.19 | ) |
|                                                  |       |                                              |       |   |   |
| Weighted average  number of common shares outstanding |       | 38,900,383                                        |       | 37,480,590 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements

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

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(in thousands)**

**(unaudited)**
| ** **                                                                                              | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                              | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
|                                                                                                    |       |                                              |       |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                                                   |       |                                              |       |   |   |
| Net loss                                                                                                |       | $                                                 | (7,301     | ) | $ | (7,031 | ) |
|                                                                                                    |       |                                              |       |   |   |
| Adjustments to  reconcile net loss to net cash used in operating activities:                            |       |                                              |       |   |   |
| Loss attributable to minority interest                                                                  |       | (1,234                                            | )          | — |   |
| Stock based compensation expense                                                                        |       | 718                                               |       | 183 |   |
| Depreciation                                                                                            |       | 165                                               |       | 119 |   |
| Loss on disposal of fixed assets                                                                        |       | 6                                                 |       | — |   |
| (Increase)/decrease  in assets                                                                          |       |                                              |       |   |   |
| Prepaid expenses and other current assets                                                               |       | (463                                              | )          | 44 |   |
| Value added tax receivable                                                                              |       | 104                                               |       | (83 | ) |
| Increase/(decrease)  in liabilities                                                                     |       |                                              |       |   |   |
| Accounts payable                                                                                        |       | (470                                              | )          | 59 |   |
| Accounts payable – related parties                                                                 |       | —                                            |       | (1,017 | ) |
| Accrued expenses                                                                                        |       | 659                                               |       | 446 |   |
| Net cash used in  operating activities                                                                  |       | (7,816                                            | )          | (7,280 | ) |
|                                                                                                    |       |                                              |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                                                   |       |                                              |       |   |   |
| Cash held for common stock subscribed but unissued                                                      |       | —                                            |       | 2,660 |   |
| Purchase of marketable securities                                                                       |       | (470                                              | )          | (1,964 | ) |
| Purchase of fixed assets                                                                                |       | (290                                              | )          | (61 | ) |
| Net cash (used  in) provided by investing activities                                                    |       | (760                                              | )          | 635 |   |
|                                                                                                    |       |                                              |       |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                                                   |       |                                              |       |   |   |
| Principal payments under capital lease obligations                                                      |       | (7                                                | )          | (9 | ) |
| Proceeds from sale of common stock in subsidiary  (net of commissions)                                  |       | 61,123                                            |       | 4,590 |   |
| Proceeds from common stock subscribed but unissued  (net)                                               |       | —                                            |       | (2,394 | ) |
| Net cash  provided by financing activities                                                              |       | 61,116                                            |       | 2,187 |   |
|                                                                                                    |       |                                              |       |   |   |
| Effects of  exchange rates on cash and cash equivalents                                                 |       | 215                                               |       | (63 | ) |
|                                                                                                    |       |                                              |       |   |   |
| NET CHANGE IN  CASH                                                                                     |       | 52,755                                            |       | (4,521 | ) |
|                                                                                                    |       |                                              |       |   |   |
| CASH – BEGINNING  OF PERIOD                                                                        |       | 19,757                                            |       | 7,249 |   |
|                                                                                                    |       |                                              |       |   |   |
| CASH – END OF  PERIOD                                                                              |       | $                                                 | 72,512     |   | $ | 2,728 |   |
|                                                                                                    |       |                                              |       |   |   |
| SUPLEMENTAL  DISCLOSURES OF CASH RECEIVED                                                               |       |                                              |       |   |   |
| Interest  received                                                                                      |       | $                                                 | 342        |   | $ | 98 |   |
|                                                                                                    |       |                                              |       |   |   |
| NON CASH FINANCING  ACTIVITIES                                                                          |       |                                              |       |   |   |
| Receivable of net  proceeds from private placement of Medicsight PLC Stock (from a related  party) |       | $                                                 | 24,578     |   | — |   |

 

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

7

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

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

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

The accompanying unaudited condensed consolidatedfinancial statements of MGT Capital Investments, Inc. (formerly Medicsight,Inc) have been prepared in accordance with generally accepted accountingprinciples for interim financial information and with the instructions toForm 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do notinclude all of the information and notes required by accounting principlesgenerally accepted in the United States of America. In the opinion ofmanagement, all adjustments, consisting only of normal recurring adjustments,for a fair statement have been included. Operating results for the six monthsended June 30, 2007 are not necessarily indicative of the results thatmay be expected for any subsequent quarter or for the year endingDecember 31, 2007. These financial statements should be read in conjunctionwith the financial statements and notes thereto included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2006.  The condensed consolidated financialstatements include the accounts of the Company and its majority ownedsubsidiaries. All intercompany accounts and transactions have been eliminated.

MGT Capital Investments, Inc has the primary businessobjectives of investing in the rapidly growing Health Care IT (“HCIT”)sector.  We currently have two subsidiaryoperations that we are majority shareholders in.

The Company has incurred significant operating lossessince inception and has generated no revenues from continuing operations. As aresult, the Company has generated negative cash flows from operations and hasan accumulated deficit of $212,950,000 at June 30, 2007. The Company isoperating in a developing industry based on new technology and its primarysource of funds to date has been through the issuance of securities.

**2. Summary of Significant AccountingPolicies**

As of June 30, 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 accountingfor uncertainty in income taxes recognized in an enterprise’s financialstatements in accordance with FASB Statement 109, “Accounting for Income Taxes,”and prescribes a recognition threshold and measurement process for financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return.  FIN 48 alsoprovides guidance on derecognition, classification, interest and penalties,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 the tax years ended December 31,2003, 2004, 2005 and 2006, the tax years which remain subject to examination bymajor tax jurisdictions as of June 30, 2007.

**3.Principal activities**

MGT Capital Investments, Inc(“MGT”) is a holding company in the global health care information technologysector (“HCIT”).  We currentlyhave a controlling interest in two companies - Medicsight PLC andMedicexchange.

*Medicsight PLC*

A medical imaging software development company listedon the AIM Market of the London Stock Exchange (“MDST”) that develops andcommercializes enterprise-wide Computer-Aided Detection (“CAD”) applicationswhich analyses Computer Tomography (“CT”) scans for the early detection andmeasurement of colorectal polyps and lung lesions.

*Medicsight PLC IPO (AIM:MDST)*

On June 21, 2007, MedicsightPLC completed its Initial Public Offering on the AIM Market of the London StockExchange.  29 million new shares wereissued to institutional and other investors at a price of £1.10 ($2.20) per shareraising £32 million ($64 million) gross new money.  We incurred fees of £1.6 million ($3.2million), including $298,000 with Asia IT Capital Investments Ltd (a relatedparty).  £5.5 million ($11.1 million) ofthe net proceeds were used to repay debt (between Medicsight PLC and MGT).  The remaining £24.9 million ($49.8 million)cash inflow from the IPO will be used for working capital and businessdevelopment.

8

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*Medicsight PLC – PrivatePlacement*

Immediately prior to theMedicsight PLC IPO, MGT sold down, by private placement (via Asia IT CapitalInvestments Ltd – a related party) 11.7 million of its Medicsight PLCshares.  The shares were priced at £1.10($2.20) – the same price as the Medicsight PLC IPO. Gross proceeds on theprivate placement were $25.7 million.  Weincurred fees with Asia IT Capital Investments Ltd (a related party) of $1.2million, resulting in a net cash inflow of $24.5 million.  These proceeds were received in July 2007.

Consistent with the guidanceof Staff Accounting Bulletin No. 51 we credited these proceeds to Additional PaidIn Capital and Minority Interest and have not recognized any gain from theprivate placement of the Medicsight PLC shares.

We believe we havesufficient brought forward capital tax losses to offset the chargeable gainfrom this disposal.

After the private placementand the IPO, MGT holds 85 million (55%) of the 155 million issued share capitalof Medicsight PLC.  On June 30, 2007,Medicsight PLC shares closed at a price of £1.20 ($2.40), valuing MGT’s 85million shares at $204 million.

*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 of relevant clinical papers, trainingmaterials and content gives these professionals access to information andproducts that they otherwise would have difficulty accessing.

Medical imaging vendors are provided with a globalonline channel through which they can access a large community of medicalimaging professionals in order to market and sell their product solutions.  The Medicexchange portal launched November2006, and is now a leading medical imaging news and product informationprovider in the following sectors: Breast, Cardiology, Abdominal-Pelvic,Neurology, Thoracic and Musculoskeletal. 

We hold 22.5 million (73%) of the issued 30.8 millionissued share capital of Medicexchange PLC. The last round of finance for Medicexchange was at £1.00 ($2.00) valuingthe MGT 22.5 million shares at $45 million. Medicexchange shares are not publicly traded.

*Eurindia*

In 2000 we invested inEurindia PLC, a London company that invested in IT start up companies.  We have a 6% holding in Eurindia PLC andaccount for this investment on a cost basis. In February 2007, we receiveda dividend of $206,000 ($0.35 per share) which we recorded within Other Income.  On July 11, 2007 we received a dividend of$218,000 ($0.37 per share) from Eurindia. Eurindia has advised us that theyintend to pay an additional dividend and then liquidate the company by December31, 2007.  In the six month period endingJune 30, 2007 we did not record an impairment of our investment in Eurindia.

*Marketable securities*

We have investments in portfolios of cash andmarketable securities managed by AA+ rated private banks.  In the period ended June 30, 2007 the Companyinvested in available for sale marketable securities, which at June 30, 2007were as follows (in thousands):
|                      | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair Value** | ** ** | **Carrying  Amount** | ** ** |
|----------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|---------------------|------------|----------------------|------------|
| ** **           |       |                |       |                         |       |                          |       |                |       |                 |       |
| At December 31, 2006 |       | $                   | 4,533      |                         | $          | 445                           |       | —              |       | $                    | 4,978      |   | $ | 4,978 |   |
| At  June 30, 2007    |       | $                   | 5,003      |                         | $          | 731                           |       | —              |       | $                    | 5,734      |   | $ | 5,734 |   |

 

The increase in net unrealized holding gains onavailable-for-sale securities in the period ended June 30, 2007 in the amountof $286,000 was charged to accumulated other comprehensive income.

On July 28, 2007, weconverted all of these marketable securities into cash.

9

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**Cash**

We invest our cash in shortterm deposits with major banks.  At June30, 2007 we held $72.5 million in cash. In the period ended June 30, 2007 we received $342,000 in interestincome from the cash deposits.

**3. Interest and otherincome**

We had the followinginterest and other income amounts (in thousands):
|                 | ** ** | **Three Months ended  June 30,** | ** ** | **Six months ended   June 30,** | ** ** |
|-----------------|------------|-------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **      | ** ** | **2007**                                        | ** ** | **2006**                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
|            |       |                                            |       |                                                |       |   |   |   |   |
| Dividend income |       | $                                               | —     |                                                | $          | — |   | $ | 240 |   | $ | — |   |
| Interest income |       | 309                                             |       | 33                                                  |       | 342 |   | 98 |   |
| Total           |       | $                                               | 309        |                                                | $          | 33 |   | $ | 582 |   | $ | 98 |   |

 

**4. 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 that items defined as other comprehensiveincome, such as foreign currency translation adjustments and unrealized gainsand losses on certain marketable securities, be separately classified in thefinancial statements.  Such items arereported in the consolidated statements of stockholders’ equity ascomprehensive income as follows (in thousands):
|                                           | ** ** | **Three Months ended  June 30,** | ** ** | **Six months ended   June 30,** | ** ** |
|-------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                        | ** ** | **2006**                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                      |       |                                            |       |                                                |       |   |   |   |   |
| Net loss as  reported                     |       | $                                               | (4,095     | )                                                   | $          | (4,001 | ) | $ | (7,301 | ) | $ | (7,031 | ) |
| Unrealized  foreign exchange gain (loss)  |       | 240                                             |       | 146                                                 |       | 297 |   | (63 | ) |
| Unrealized gain  on marketable securities |       | 266                                             |       | 47                                                  |       | 286 |   | 47 |   |
| Comprehensive loss                        |       | $                                               | (3,589     | )                                                   | $          | (3,808 | ) | $ | (6,718 | ) | $ | (7,047 | ) |

 

#### **5. ****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 making group is composed of the chiefexecutive officer and members of senior management.  Our reportable operating segments areMedicsight and Medicexchange.

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

Medicsight PLC listed on the AIM Market of the LondonStock Exchange on June 21, 2007.  AIMlisting rules require Medicsight PLC to publish results under InternationalFinancial Reporting Standards (“IFRS”) in Great British Pounds (“GBP”).

The following is a reconciliation between MedicsightPLC’s published financial statements and the US GAAP consolidated results (inthousands):

10

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|                                    | ** ** | **Medicsight  PLC** | ** ** | **Medicsight  PLC**       | ** ** | **Medicsight  PLC** | ** ** | **Medicexchange**  | ** ** | **Corporate  and Other** | ** ** | **Total**          | ** ** |
|------------------------------------|------------|---------------------|------------|---------------------------|------------|---------------------|------------|--------------------|------------|-------------------------------|------------|--------------------|------------|
| ** **                         | ** ** | **(IFRS)**          | ** ** | **GAAP Adj’ts** | ** ** | **(US GAAP)**  | ** ** | **(US GAAP)** | ** ** | **(US GAAP)**            | ** ** | **(US GAAP)** | ** ** |
|                               |       |                |       |                      |       |                |       |               |       |                          |       |               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Six  months June 30, 2007** |       |                |       |                      |       |                |       |               |       |                          |       |               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net revenue to  external customers |       |                | —     |                      |       |                | —     |               |       |                          | —     |               |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Operating loss                     |       |                | (7,055     | )                         |       |                | 354        |               |       |                          | (6,701     | )                  |       |   | (1,913 | ) |   |   | (503 | ) |   |   | (9,117 | ) |   |
| Assets                             |       |                | 57,981     |                      |       |                | —     |               |       |                          | 57,981     |               |       |   | 6,185 |   |   |   | 52,878 |   |   |   | 117,044 |   |   |
|                               |       |                |       |                      |       |                |       |               |       |                          |       |               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Six  months June 30, 2006** |       |                |       |                      |       |                |       |               |       |                          |       |               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net revenue to  external customers |       |                | —     |                      |       |                | —     |               |       |                          | —     |               |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Operating loss                     |       |                | (5,610     | )                         |       |                | 169        |               |       |                          | (5,441     | )                  |       |   | (2,359 | ) |   |   | 671 |   |   |   | (7,129 | ) |   |
| Assets                             |       |                | 2,610      |                      |       |                | —     |               |       |                          | 2,610      |               |       |   | 191 |   |   |   | 16,496 |   |   |   | 19,297 |   |   |

 

The principle GAAP adjustments being the accountingfor Stock Options and cumulative translation adjustments.

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

**6. Stock-Based Compensation**

We have issued stockoptions from our subsidiary companies.

*Medicsight PLC*

Plan A - on February 26,2003 we approved stock option plan “A” and in the period ended June 30, 2005granted options for 2,971,000 shares to employees.

Plan B - between July 1,2003 and March 31, 2005 we granted options for 3,420,500 shares under stockoption plan “B”. Subsequently on August 15, 2005, we approved the stock optionplan “B”.

Plan C - between April 1,2005 and June 30, 2006 we granted options for 515,000 shares under the stockoption plan “C”. On August 15, 2005, we approved stock option plan “C”. Options issued under this plan vest in equal one-thirds after employees havebeen employed for 12, 24 and 36 months from date of grant.

Plan D - on July 13, 2006we approved stock option plan “D” and granted options for 1,375,000 sharesunder this plan.  Options under this planvest in equal one-thirds after employees have been employed for 12, 24 and 36months from the date of grant.

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

Plan F- on May 16, 2007 we approved and subsequently granted options for 350,000shares under stock option plan “F”. Options under this plan vest in equal one thirds after employees havebeen employed for 12, 24 and 36 months from the grant date.

*Medicexchange PLC*

We have one Stock OptionPlan in Medicexchange PLC (one of our UK subsidiary companies).  The shares in this company are not publiclytraded.

Plan A - on July 13, 2006we approved Medicexchange PLC stock option plan “A” and granted options for950,000 shares under this plan.  Optionsissued under this plan vest in equal one-thirds after employees have beenemployed for 12, 24 and 36 months from the date of grant.

The following assumptions were used to estimate thefair value assumptions:

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|                                                       | ** ** | **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 – Plan E |       | £0.26 ($0.51)                       |       |
| Weighted-average  grant-date fair value – Plan F |       | £0.33 ($0.65)                       |       |
| Forfeiture rates used                                 |       | 0% to 2%                                 |       |

 

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 MGT stock price.

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

The following table summarizes stock option activityfor the period ended June 30, 2007 and the year ended December 31, 2006 underall 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                                |       | 6,250,000                  |       | £0.51 ($1.01                           | )          |   |   |   |   |
| Exercised                              |       | —                     |       | —                                      |       |   |   |   |   |
| Forfeited                              |       | (1,245,000                 | )          | £0.71 ($1.39                           | )          |   |   |   |   |
|                                   |       |                       |       |                                        |       |   |   |   |   |
| Outstanding at June 30,  2007          |       | 10,045,000                 |       | £0.58 ($1.14                           | )          | 1,496,667 |   | £0.75 ($1.47 | ) |

 

The following is a summary of the status of the stockoptions outstanding at June 30, 2007:
| ** **           | ** ** | **Outstanding Options** | ** ** | **Exercisable Options**                  | ** ** |
|----------------------|------------|------------------------------|------------|-----------------------------------------------|------------|
| ** **           | ** ** | **Number**                   | ** ** | **Remaining  Contractual Life  (years)** | ** ** | **Average  Exercise Price** | ** ** | **Number** | ** ** | **Average Exercise  price** | ** ** |
|                 |       |                         |       |                                          |       |   |   |   |   |   |   |
| Medicsight Plan  A   |       | 488,000                      |       | 6.0                                           |       | £0.75 ($1.48 | ) | 488,000 |   | £0.75 ($1.48 | ) |
| Medicsight Plan  B   |       | 897,000                      |       | 7.3                                           |       | £0.75 ($1.48 | ) | 897,000 |   | £0.75 ($1.48 | ) |
| Medicsight Plan  C   |       | 235,000                      |       | 8.0                                           |       | £0.75 ($1.48 | ) | 111,667 |   | £0.75 ($1.48 | ) |
| Medicsight Plan  D   |       | 1,375,000                    |       | 9.0                                           |       | £0.83 ($1.64 | ) | — |   | — |   |
| Medicsight Plan  E   |       | 5,900,000                    |       | 9.7                                           |       | £0.50 ($0.99 | ) | — |   | — |   |
| Medicsight Plan  F   |       | 350,000                      |       | 9.9                                           |       | £0.75 ($1.48 | ) | — |   | — |   |
| Medicexchange Plan A |       | 800,000                      |       | 9.3                                           |       | £0.40 ($0.79 | ) | — |   | — |   |

 

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On February 22, 2007 we modified the exercise price of50% of the shares in Medicsight PLC under plans “A” through to “C” from £1.00to £0.50 per share. On February 22, 2007 we modified the exercise price of 50%of the shares in Medicsight PLC under plan “D” from £1.10 to £0.50 per share.No other terms and conditions of the shares within these plans were modified.The total modification charge for the period ended June 30, 2007 was $137,000.

We recorded the followingamounts related to share-based expenses in the Statement of Operations in theperiod ended June 30, 2007 (in thousands):

|                                      | ** ** | **Three Months  ended  June 30,** | ** ** | **Three Months  ended  June 30,** | ** ** | **Six Months  ended  June 30,** | ** ** | **Six Months  ended  June 30,** | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| ** **                           | ** ** | **2007**                                    | ** ** | **2006**                                    | ** ** | **2007**                                  | ** ** | **2006**                                  | ** ** |
|                                 |       |                                        |       |                                        |       |                                      |       |                                      |       |
| Selling, general  and administrative |       | $                                           | 340        |                                        | $          | 96                                        |       | $                                         | 673        |   | $ | 183 |   |
|                                 |       |                                        |       |                                        |       |                                      |       |                                      |       |
| Research and  development            |       | $                                           | 4          |                                        | $          | —                                    |       | $                                         | 45         |   | $ | — |   |
|                                 |       |                                        |       |                                        |       |                                      |       |                                      |       |
| Total                                |       | $                                           | 344        |                                        | $          | 96                                        |       | $                                         | 718        |   | $ | 183 |   |

 

No compensation costs were capitalized.

The aggregate intrinsic value for options outstandingand exercisable at June 30, 2007 was approximately $1,125,000.

A summary of non-vested options at June 30, 2007 andthe change during the period ended June 30, 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                        |       | 6,250,000                   |       | £                                                      | 0.26 ($0.52 | ) |
| Vested                         |       | (220,467                    | )          | £                                                      | 0.40 ($0.79 | ) |
| Forfeited                      |       | (265,000                    | )          | £                                                      | 0.32 ($0.62 | ) |
| Non-vested at June 30,  2007   |       | 8,548,333                   |       | £                                                      | 0.31 ($0.60 | ) |

 

At June 30, 2007, there was $5,202,000 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.

**7. Minority Interest**

The company has minorityinvestors in both Medicexchange and Medicsight PLC as follows (in thousands):
|                                                   | ** ** | **Medicexchange** | ** ** | **Medicsight** | ** ** | **Total** | ** ** |
|---------------------------------------------------|------------|-------------------|------------|----------------|------------|-----------|------------|
|                                              |       |              |       |           |       |      |       |
| Minority  Interest at January 1, 2007             |       | $                 | 9,351      |           | $          | 12,359    |       | $ | 21,710 |   |
| Medicexchange  China - incorporation              |       | 30                |       | —         |       | 30        |       |
| Medicsight – MGT  Share private placement    |       | —            |       | 5,097          |       | 5,097     |       |
| Medicsight  minority interest share of IPO equity |       | —            |       | 61,018         |       | 61,018    |       |
| Minority share  of operating losses               |       | (359              | )          | (875           | )          | (1,234    | )          |
| Minority Interest at  June 30, 2007               |       | $                 | 9,022      |           | $          | 77,599    |       | $ | 86,621 |   |

 

**8. Credit Facilities – related party**

In June 2007, our two previous credit facilities withAsia IT Capital Investments Limited (a related party) were terminated by mutualagreement.  The credit facilities wereunused during the period, no drawings had been made and the mutual terminationof the agreement did not result in a financial statement impact.

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**9. Related Party Transactions**

A brother of Tim Paterson-Brown (our Chief ExecutiveOfficer) is a director of Asia IT Capital Investments Ltd.

In the period ended June 30, 2007 we used Asia ITCapital Investments Ltd to raise equity finance in the Medicsight PLC IPO andalso in the private placement of Medicsight PLC shares.

We incurred $298,000 of IPO fees from Asia IT CapitalInvestments Ltd., which we paid in June 2007. We incurred $1,158,000 of privateplacement fees from Asia IT Capital Investments Ltd which were unpaid at June30, 2007.  We had a receivable of $25,736,000due from Asia IT Capital Investments Ltd, which consisted of the considerationfrom the MDST pre-IPO private placement. These balances were netted off as a net receivable of $24,578,000 atJune 30, 2007.  This amount was receivedin full in July 2007.

**10.****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-month rent-free periods: the firstcommencing August 25, 2006; the second commencing August 25, 2011.  We have accounted for this lease as anOperating Lease, and have accounted for the lease rental expenses on a straightline basis over the period of the lease.

The following is a scheduleof the future minimum rental payments required under operating leases that haveinitial or remaining non cancellable terms in excess of one year (inthousands):
| Year Ending December 31, | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|------------|------------|
| 2007                                    | ** ** | $          | 240        | ** ** |
| 2008                                    |       | 649        |       |
| 2009                                    |       | 475        |       |
| 2010                                    |       | 448        |       |
| 2011                                    |       | 178        |       |
| Later Years                             |       | 1,865      |       |
| **Total Minimum**                       | ** ** | $          | 3,855      | ** ** |

 

**Recent Accounting Pronouncements**

In September 2006, the FASB issued SFASNo. 157, “*Fair Value Measurements*” (“SFASNo. 157”), which defines fair value, establishes a framework for measuring fairvalue in accordance with generally accepted accounting principles and expandsdisclosures about fair value measurements. SFAS No. 157 applies to otheraccounting standards that require or permit fair value measurements.Accordingly, it does not require any new fair value measurement. SFAS No. 157will be effective for the Company on January 1, 2008.

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The Company is currently evaluating the impact theadoption of SFAS No. 157 will have on its financial position and results ofoperations.

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

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

This report contains forward-lookingstatements made in reliance upon the safe harbor provisions of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended.  Thesestatements may be identified by the use of words such as “anticipate,” “estimates,”“should,” “expect,” “guidance,” “project,” “intend,” “plan,” “believe” andother words and terms of similar meaning, in connection with any discussion ofour financial statements, business, results of operations, liquidity and futureoperating or financial performance. Please also refer to our “Note Regards Forward Looking Statements” atthe front of this form.

MGT Capital Investments, Inc. (formerly Medicsight,Inc.), and its consolidated subsidiaries (“MGT”, “the Company”, “we” or “us”)is a holding company that focuses on investments in the global health careinformation technology (“HCIT”) market. We have two subsidiaries, Medicsight PLC and Medicexchange PLC.

**MedicsightPLC (“MDST”)**

MDST is a medical imagingsoftware development company developing enterprise-wide Computer-AidedDetection (CAD) software which analyses computer tomography (CT) scans for theearly detection and measurement of colorectal polyps and lung lesions.

Medicsight has focused on two of the leading causes ofcancer-related death, colorectal cancer (also known as colon or bowel cancer)and lung cancer.  There is increasingevidence in management’s view that early detection of colon cancer or lungcancer leads to an improved life expectancy.

*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.               lessinvasive;

b.              lesstime consuming;

c.               lesscostly;

d.              andcan be at least as effective.

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.

15

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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.

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 given MDCT Scanning is clinically recognised as a reliable,non-invasive examination for the detection of colon and lung cancer.

The most crucial requirements in cancer detection anddiagnosis are the abilities to:

a.   detectpotential abnormalities at an early stage; and

b.  accuratelymonitor any growths over time.

Medicsight’s Colon CAD and Lung CAD products cansignificantly help radiologists meet 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 with obvioussymptoms).

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 focuses on theaccurate identification of colon polyps. A recent clinical research studyshowed the Medicsight ColonCARTM system to have superior detection characteristicswhen compared with three experienced (human) readers and our softwareperformance has been peer reviewed and commended in a majority of the topinternationally recognized medical journals.

In September 2006, Professor Steve Halligan ofUniversity College Hospital, London, conducted an independent systematic reviewof all commercially available Colon CAD products.  This review was performed using theprinciples of evidence-based medicine and systematic review in order to searchthe available medical literature in an unbiased fashion.  The aim was to determine the volume andquality of medical research available for commercially available CAD for CTcolonography from companies providing systems both independently and as CTvendors.

The most exacting standard for medical research ispeer-reviewed full papers published in indexed medical journals.  Only 6 papers were identified. 5 (83%) ofthese were from a single company, Medicsight PLC. No other independent CADmanufacturer was able to contribute a paper. The single additional full-paperidentified was provided by a CT scanner vendor (Siemens).

Published data describe a per-patient sensitivity of96% for polyps 6mm and larger when the Medicsight CAD was tested by externalvalidation – i.e. patient data completely unrelated to development of theproduct.  Data also shows that MedicsightCAD outperformed experienced readers, and was more time-efficient thanconventional reading.  Medicsight hasalso published peer-reviewed data relating to successful automatic measurementof polyp diameter.  The single otherpeer-reviewed paper retrieved (from Siemens) found per-polyp detection rates of82% for medium polyps and 100% for large, but using an internal validationmethodology (i.e. the same data source was used to both train and test thesoftware).

19 abstracts of research findings presented at keyscientific medical meetings were identified. Medicsight PLC was again the largest single contributor (9 abstracts,47% of total).  Moreover, the threeremaining independent CAD companies contributed only a single abstract betweenthem. The remaining 9 abstracts were from CT scanner vendors – 8 from Siemens,1 from Philips. 7 studies examined the effect of CAD on reader decision-making;3 from Medicsight, 3 from Siemens, and 1 from Median Technologies.  The largest study was from Medicsight (10readers, 107 patients), which found that CAD significantly increasedper-patient and per-polyp sensitivity without a significant detrimental effecton specificity.  The next largest studywas presented by Siemens (7 readers, 30 patients). While sensitivity wasimproved significantly, the authors claimed a detrimental effect onspecificity.

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Concerning abstracted data relating to measurement,Medicsight PLC were the only company to present data relating to measurement ofreal, human polyps, doing so both in-vivo and in vitro. Siemens presented datefor measurement in phantoms but there were some concerns relating to thestatistical methodology used for analysis of agreement.

*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 College Hospital, London St. Mark’sHospital (London), University of Wisconsin Hospital, University of Rome and TheNational Cancer Centre (Tokyo). Our Lung CAD products have been used in: TheLondon Chest Hospital, The Royal Brompton Hospital, Cornell Medical Centre NewYork, Vanderbilt Medical Centre (Tennessee), The University Health Network(Toronto, Canada), The University of Navarra Medical Centre (Pamplona, Spain)and The National Cancer Centre (Tokyo).

These results have been crucial in developing Medicsight’sCAD products to meet the absolute requirements of clinical end users, and indriving 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.

Theuse of Medicsight’s products in clinical practice has seen the recentintroduction of Medicsight ColonCAD into the SIGGAR1 Trial in the UK.  SIGGAR1 is the largest multi-centre trial ofits kind in the UK to date and compares CT colonography, optical colonoscopyand barium enema via a randomised controlled clinical trial.  Medicsight’s 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.

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

Colon CAD Products

·                  Prof. SteveHalligan and Dr. Stuart Taylor at University College Hospital, London

·                  Dr. DavidBurling at St. Mark’s Hospital, London

·                  Prof. Moriyamaat the National Cancer Centre, Tokyo

·                  Dr. Gen Iinumaat the National Cancer Centre, Tokyo

·                  President Xu Juat the Chinese Society of Radiology, Tianjin, China

·                  Dr. PerryPickhardt at the University of Wisconsin Medical Centre, Madison, Wisconsin

Lung CAD Products

·      Dr. Steve Ellis at the London ChestHospital

·      Dr. Simon Padley at the Royal BromptonHospital

·      Prof. Moriyama at the National CancerCentre, Tokyo

·      Dr. Gen Iinuma at the National CancerCentre, Tokyo

·      Dr. Ning Wu at the Chinese CancerInstitute, Beijing

·      Dr. Heidi Roberts at the University HealthNetwork, Toronto, Canada

·                  Dr. RyutaroKakinuma at the National Cancer Centre, Tokyo

In a growing commitment to clinician educationprogrammes, Medicsight has also supported the European Society ofGastrointestinal and Abdominal Radiology (ESGAR) through active participationin ESGAR’s series of international CT Colonography workshops.  Workshops are targeted at both novices andthose currently undertaking CTC practice and give attendees the opportunity toexperience Medicsight ColonCAD with hands-on training using multiple Medicsightpartner software systems.  Furthereducational involvement has come through Medicsight’s direct support of twoHarvard Medical School, Department of Continuing Medical Education VirtualColonoscopy courses in the United States. Course delegates receive dedicated tutorials lead by CTC luminaries Dr’sMatt Barish and Michael Zalis of Harvard Medical School, and training onViatronix software systems incorporating Medicsight ColonCAD.

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RegulatoryEnvironment

In order to release new products into a specificmarket, the Company must gain local regulatory approvals for its CADproducts.  In the USA, the Food and DrugAdministration (FDA) is the regulatory authority. In Europe, regulatory approvalis gained through Conformité Europeène (CE) marking. Other markets such asChina (SFDA – State Food & Drug Administration); Japan (MHLW – Ministry ofHealth, Labour and Welfare); Australia (TGA – Therapeutic GoodsAdministration); South Korea (KFDA – Korea Food & Drugs Administration);and Canada (CMDCAS – Canadian Medical Device Conformity Assessment System) havetheir own regulatory bodies but these often require companies outside of thesemarkets to show evidence of an existing CE or FDA approval for a product beforegaining approval in the local market.

The Medicsight team has a significant amount ofexperience in preparing, submitting and gaining regulatory approvals.

*European (CE) Approval*

The Company’s ColonCAD and LungCAD products areapproved.

*USA (FDA) Clearance*

The Company’s CAR products (which are earlier releasesof the ColonCAD and LungCAD products) are FDA cleared.

The Company is in the process of completing the FDA’sclearance procedures to have the ColonCAD and LungCAD products cleared for theUSA market.

*Canada (CMDCAS) Approval*

On January 30, 2007 we were granted medical DeviceLicences from the Therapeutic Products Directorate of Health Canada for ourlatest ColonCAD and our LungCAD products.

*China and Japan*

The Company expects applications to be submitted toreceive approvals for the MedicRead Colon (which includes ColonCAD) during2007.

*Australia and Brazil*

The Company expects applications to be submitted toreceive approvals its CAD products late 2007 / early in 2008.

Medicsight’sGrowth Strategy

The strategic objective over the next 1-3 years is togrow sales in order to make significant profits and to increase shareholdervalue.  During this period, strategicmerger and acquisition opportunities will be actively sought.

This is intended to beachieved 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 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.

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The Company has signed anumber of non-exclusive global agreements for the distribution of its productswith the following partners:

a.               TeraReconInc. – which has successfully integrated ColonCADTM and LungCADTM into its Aquarius family of medical imagingapplications;

b.              ViatronixInc. – ColonCADTM and LungCADTM have been successfully integrated into its V3DTM Colon software;

c.               VitalImages Inc. – ColonCADTM has been successfully integrated into its CTcolonography application which is part of the Vitrea software package;

d.              3mensioMedical Imaging BV – which has integrated LungCADTM inthe 3viseon range of products Medicsight is also in discussion with a number ofother major imaging companies and expects to finalise distribution agreementsin Japan and Europe over the coming months.

e.               Barco NV – ColonCADhas been integrated into Barco’s Colonmetrix solution and will be sold asstandard with every Colonmetrix solution going forward.

Competition**

The Company’s maincompetitors can be divided into two categories:

a.               MDCT scannermanufacturers such as GE, Hitachi, Philips, Siemens and Toshiba;

b.              Independent CADsoftware providers.

The Company is not awareof any MDCT manufacturers who have a colon CAD product other than Siemens whichhas a CAD-like colon product.  OnlySiemens has a commercially available lung CAD product although GE has aCAD-like lung product.

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

a.                                       iMED(Italy) – has developed a Colon CAD product that is CE certified but not FDAapproved;

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) – has developed a Lung CAD product, that is FDA approved.

As describedearlier, Professor Steve Halligan of University College Hospital London conductedan independent systematic review of peer reviewed clinical research on each ofthe above Colon CAD applications that concluded that Medicsight’s Colon CADsoftware not only had more peer reviewed clinical data to support its claims,but also that the quality of the data was superior to the competition.

At this time, theCompany has not commissioned a similar competitive analysis of the Lung CADapplications.

**MedicsightPLC admission to the AIM Market of the London Stock Exchange**

On June 21, 2007, MedicsightPLC completed its initial public offering on the AIM Market of the London StockExchange.  29 million new shares wereissued to institutional and other investors at a price of £1.10 ($2.20) pershare raising £32 million ($64 million) gross new money.  We incurred fees of £1.6 million ($3.2million), including $298,000 with Asia IT Capital Investments Ltd (a relatedparty).  £5.5 million ($11.1 million) ofthe net proceeds were used to repay debt (between Medicsight PLC and MGT).  The remaining £24.9 million ($49.8 million)cash inflow from the IPO will be used for working capital and businessdevelopment.

Immediately prior to theMedicsight PLC IPO, we sold down, by private placement via Asia IT CapitalInvestments Ltd (a related party) 11.7 million of our Medicsight PLCshares.  The shares were priced at £1.10($2.20) – the same price as the Medicsight IPO. Gross proceeds on the private placement were $25.7 million.  We incurred fees with Asia IT CapitalInvestments Ltd (a related party) of $1.2 million.  These proceeds were received on July 27,2007.  We believe we have sufficientbrought forward capital tax losses to offset the chargeable gain from thisdisposal.

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After the private placementand the IPO, MGT holds 85 million (55%) of the 155 million issued share capitalof Medicsight PLC.  On June 30, 2007,Medicsight PLC shares closed at a price of £1.20 ($2.40), valuing MGT’s 85million shares at $204 million.

**Medicexchange(“MDX”)**

Medicexchangeprovides medical imaging professionals with a global web portal containing anonline sales channel for diagnostic, treatment and surgery planning solutions.This combined with a variety of relevant clinical papers, training materialsand content gives these professionals access to information and products thatthey otherwise would have difficulty accessing.

Medical imagingvendors are provided with a global online channel through which they can accessa large community of medical imaging professionals in order to market and selltheir product solutions.

Medicexchange waslaunched at the Radiological Society of North America (RSNA) conference inChicago in November 2006.

The Medicexchangeportal covers the following imaging specialty areas: Breast, Cardiology,Abdominal-Pelvic, Neurology, Thoracic and Musculoskeletal. Other areas such asNeurology will be added later.

Medicexchange hasoffices in the UK, USA and China.

Benefits forMedical Imaging Vendors

Medicexchangeprovides vendors the opportunity to sell Medical Imaging products directly toradiologists in an efficient and low-cost manner (including web-baseddownloads).

Medicexchangeoffers traditional pricing plans in addition to flexible “per use” pricing.This decreases the financial purchasing risk and setup times for radiologistsby giving them an attractive pricing model via an online channel.

Marketing andpromotional activities are also provided for vendors such as email campaigns,online marketing, print advertising and e-newsletters.

With a localChinese infrastructure, access to a large Chinese dealer network and adedicated Chinese language version of the Medicexchange website, Medicexchangeis also able to offer vendors a route for entering and selling within China.

Medicexchange isalso able to offer assistance with taking vendors through regulatory clearancesuch as CE (Europe), FDA (USA) and SFDA (China).

Benefits forRadiologists

Medicexchange addsvalue for radiologists by delivering a centralized meeting place for clinicalinformation, products and collaboration.

Medicexchangeintends to offer the widest selection of medical imaging products online, allin one place. These products can be evaluated and purchased directly from theweb site.

Medicexchangeoffers a number of ways for radiologists to purchase products includingcredit/debit card, pro form invoicing and payments on account. For someproducts, Medicexchange also plans to offer flexible “per use” pricing to allowthe radiologist to pay based on a per-patient or per-study basis.

Medicexchange alsooffers many products on a trial basis to allow radiologists to evaluateproducts before they purchase.

Radiologists arealso offered a free first line customer support service when they register withMedicexchange.

Market Opportunity

Radiologistsexpect the frequency of computed tomography (“CT”) procedures to grow by over35% over the next five years (source: Frost & Sullivan research).Traditional original equipment manufacturers (“OEM”) typically control theaccess to these applications and charge high per unit price points (typically$50,000 to $200,000). These high price points create long sales cycles. The “peruse” pricing model offered by Medicexchange removes this obstacle to purchase.Online product purchasing and downloads create a flexible, on demand usage model.

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Radiologists statea preference for the concept of a “per use” pricing model and web-baseddownloadable tools. Over 80% would consider a dedicated internet portal fortheir area of specialty a useful service (source: Frost & Sullivanresearch).

What differentiatesthe company?

By creating strongcommercial relationships with our third party partner vendors Medicexchangeintends to develop the clinical information and contacts, provide products andproduct demonstrations, training and support that will result in Medicexchangeachieving its aim to be the leading global portal for clinical vendors andprofessionals.

Medicexchange aimsto provide essential information, training and collaborative tools to attractcustomers, enable them to use the demonstration applications, purchase theapplications and retain them as repeat users.

The Medicexchangeportal is a global distribution portal (initially focused in the U.S., Europeand Asia).

With offices inEurope, USA and China, Medicexchange is able to a global service whilst alsoproviding local expertise within specific markets as required.

Recentachievements

·                  Exclusivesponsor of the AuntMinnie software center

·                  Exclusiveagreement with Chinese Journal of Radiology

·                  Over 850% growthin monthly traffic since January 2007

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

·                  Agreementssigned with Chinese dealer network giving access to 80% of Tier 1 and Tier 2hospitals in Chinese urban centers

·                  Over150 providers now supplying the Medicexchange site with updated news andarticles

Medicexchangeprovides medical imaging professionals with a global web portal containing anonline sales channel for diagnostic, treatment and surgery planningsolutions.  This combined with a varietyof relevant clinical papers, training materials and content gives theseprofessionals access to information and products that they otherwise would havedifficulty accessing.

**Employees**

As of June 30,2007, the Company and its subsidiaries had 71 employees, all of whom arefull-time employees.  Our employees arenot part of a union.  We believe that wehave an excellent relationship with our employees.

**Patents and Trademarks**

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

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

We have filedapplications to register “Medicsight”TM, “Medicsight Colon Screen”TM, “Medicsight Heart Screen”TM,  “MedicsightLung Screen”TM, “MedicsightColon CAR” TM, “MedicsightLung CAR” TM, “MedicsightComputer Assisted Reader” TM, “MedicsightSee More, Save More” TM, “LungCAR”TM, “Medicsight ImageView”, “MedicRead”, “ MedicexchangeTM”, and “MedicView”as trademarks in the United Kingdom, the European Community and the UnitedStates, and in a number of other countries. These trademarks are important to the corporate identity in connectionwith Medicsight CAD.

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Failure toregister appropriate patents, copyrights or trademarks in any jurisdiction mayimpede our ability to create brand awareness in our products, result inexpenses in pursuing our rights with respect to our intellectual property, orresult in lost revenues due to intellectual property disputes.  Where we may be required to purchase licensesfrom sellers with prior rights in any country, we cannot assure you that wewill be able to do so at a commercially acceptable cost.

**Research and Development**

Under UnitedStates generally accepted accounting principles, costs incurred in connectionwith the development of software products that are intended for sale areaccounted for in accordance with Statement of Financial Accounting StandardsNo. 86, *Accounting for the Costs of Computer Software to beSold, Leased, or Otherwise Marketed*. Costs incurred prior to technological feasibility being established forthe product are expensed as incurred. Technological feasibility is established upon completion of a detailedprogram design or, in its absence, completion of a working model.  Thereafter, all software production costs canbe capitalized and subsequently reported at the lower of unamortized cost ornet realizable value.  Capitalized costsare amortized based on current and future revenue for each product with anannual minimum equal to the straight-line amortization over the remainingestimated economic life of the product. Amortization commences when the productis available for general release to customers.

The Companyconcluded that capitalizing such expenditures on completion of a working modelwas inappropriate because the Company did not incur any material softwareproduction costs and therefore has decided to expense all research anddevelopment costs.  The Company’sresearch and development costs are comprised of staff and consultancy costsexpensed on the Medicsight products.

In the periodended June 30, 2007 and 2006 the Company expensed $1,136,000, and $1,140,000respectively for research and development expenses for its products.  We cannot predict the amount of additionalexpenditures that will be necessary prior to achieving commercialization of ourproducts.

**General**

MGT was originallyincorporated as a Utah corporation in 1977 and was re-incorporated in Delawarein 2000.  At June 30, 2007 the Company’sauthorized share capital was 75,000,000 shares of common stock, par value of$0.001.

In January 2007the Company increased its authorized share capital from 40,000,000 shares to75,000,000 shares of common stock, par value $0.001 and changed its name fromMedicsight, Inc. to MGT Capital Investments, Inc.  At June 30, 2007, 38,900,383 shares of commonstock had been issued.

Our principalexecutive office is located at Kensington Centre, 66 Hammersmith Road, LondonW14 8UD, United Kingdom, telephone 011-44-207-605-7950, facsimile011-44-207-605-7951.

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

**Critical Accounting Policies and theUse of Estimates**

We believe therehave been no significant changes in our critical accounting policies during theperiod ended June 30, 2007 as compared to our previous disclosures inManagement’s Discussion and Analysis of Financial Condition and Results ofOperations included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2006.

The accompanyingdiscussion and analysis of our financial condition and results of operationsare based upon our condensed consolidated financial statements and the relateddisclosures, which have been prepared in accordance with U.S. generallyaccepted accounting principles (GAAP). The preparation of these 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 formthe basis for making judgments about the carrying values of assets andliabilities.  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 thefollowing policies to be the most critical to an understanding of our financialcondition and results of operations because they require us to make estimates,assumptions and judgments about matters that are inherently uncertain.

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*StockBased Compensation*

We have issuedemployee stock options from both Medicsight PLC and Medicexchange PLC (our UKsubsidiary companies).  We use the Black-Scholes option pricing model toestimate the fair value of employee stock options.  Calculating the fair value of these stockoptions requires considerable judgment, including estimating stock pricevolatility, the amount of options that are expected to be forfeited and theexpected life of the options awards.

The value of astock option is derived from its potential for appreciation.  The more volatile the stock, the morevaluable the option becomes due to the greater possibility of significantchanges in stock price.  The expected option term also has a significanteffect on the value of the option.  Thelonger the term, the more time the option holder has to allow the stock priceto increase without a cash investment and thus, the more valuable the option.  When establishing an estimate of the expectedterm, 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.

At the time of therespective stock options were granted, the shares underlying the awarded stockoptions were not publicly traded shares. We review our valuation assumptions at each grant date and, as a result,we are likely to change our valuation assumptions used to value stock basedawards granted in future periods. Actual results, and future changes inestimates, may differ substantially from our current estimates.  As a result, if factors change and we usedifferent assumptions, our stock-based compensation expense could be materiallydifferent in the future.

**Resultsof Operations**

*Revenues.*

For the period ended June 30, 2007 and June 30, 2006our revenues from continuing operations were $nil.

*Selling,General and Administrative Expenses*

Our selling,general and administrative expenses from continuing operations were (inthousands):
|                                               | ** ** | **Three Months ended  June 30,** | ** ** | **Six months ended   June 30,** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                        | ** ** | **2006**                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                          |       |                                            |       |                                                |       |   |   |   |   |
| Selling, general and  administrative expenses |       | $                                               | 4,525      |                                                | $          | 3,521 |   | $ | 7,981 |   | $ | 5,989 |   |
|                                               |            |                                                 |            |                                                     |            |  |  |  |  |  |  |  |  |

 

Our selling,general and administrative expenses have increased as we expand ourinternational commercial operations.  Thesignificant elements being: (a) an increase in people related costs on the prior period as we paid an IPO bonus toMedicsight PLC employees of $890,000 in June 2007; (b) an increase in stockoption costs in Medicsight PLC due to the E and F grants and the modificationsmade in February 2007 to the existing A to D option plans in that company.

*Researchand Development (in thousands):*
|                                    | ** ** | **Three Months ended  June 30,** | ** ** | **Six months ended   June 30,** | ** ** |
|------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                         | ** ** | **2007**                                        | ** ** | **2006**                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
|                               |       |                                            |       |                                                |       |   |   |   |   |
| Research and  development expenses |       | $                                               | 590        |                                                | $          | 513 |   | $ | 1,136 |   | $ | 1,140 |   |
|                                    |            |                                                 |            |                                                     |            |  |  |  |  |  |  |  |  |

 

**Private placement of Medicsight PLC shares**

In June 2007, immediately prior to the IPO of MedicsightPLC, we sold by a private placement via Asia IT Capital Investments Ltd (arelated party), 11.7 million of our Medicsight PLC shares. The shares were priced at £1.10 ($2.20) — the same price as theMedicsight IPO. Gross proceeds on the private placement were $25.7million.  We incurred fees with Asia ITCapital Investments Ltd (a related party)

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of $1.2 million, resulting in a net cash inflow of$24.5 million.  These proceeds werereceived in July 2007.  We believe wehave sufficient brought forward capital tax losses to offset the chargeablegain from this disposal.

Immediately before theprivate placement we held 96.7 million (77%) of the 126 million issued sharecapital of Medicsight PLC. After the private placement we held 85 million (67%)of the 126 million issued share capital of Medicsight PLC.  After the Medicsight PLC IPO we hold 85million (55%) of the 155 million issued share capital of Medicsight PLC.

Consistent with the guidanceof Staff Accounting Bulletin No. 51 we credited these proceeds to AdditionalPaid In Capital and Minority Interest and have not recognised any gain from theprivate placement of the Medicsight PLC shares. At this time we do not expect a similar transaction to occur in thefuture.

**Liquidity and Capital Resources**

*Working Capital Information (in thousands):*
|                                                 | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **(unaudited)**             | ** ** | ** **                      | ** ** |
|                                            |       |                        |       |                            |       |
| Cash &  Marketable Securities               |       | 78,246                      |       | 24,735                          |       |
|                                            |       |                        |       |                            |       |
| Current Assets                                  |       | 103,680                     |       | 25,306                          |       |
| Current Liabilities                             |       | (3,560                      | )          | (3,378                          | )          |
| Working Capital  Surplus                        |       | 100,120                     |       | 21,928                          |       |
|                                            |       |                        |       |                            |       |
| Ratio of Current Assets  to Current Liabilities |       | 29.1                        |       | 7.5                             |       |

 

As of June 30, 2007 we had $72,512,000 in cash(compared to $2,728,000 at June 30, 2006) and $78,246,000 in cash andmarketable securities compared to $4,739,000 at June 30, 2006.

Net cash used in operating activities was $7,816,000for the six months ended June 30, 2007 ($7,280,000 for the six month periodended June 30, 2006). This resulted primarily from:

a.                ournet loss of $7,301,000 compared with a net loss of $7,031,000 for the six monthperiod ended June 30, 2006;

b.              adjustedfor depreciation and stock-based compensation expenses (non cash items) of $883,000($302,000 for the six month period ended June 30, 2006);

c.               anoverall increase in current assets and liabilities (excluding cash items) of $22,154,000in the period ended June 30, 2007 compared to $551,000 for the period endedJune 30, 2006. This is primarily relates to the receivable of $25,736,000 dueto MGT for the share private placement of shares in Medicsight PLC;

d.              lossattributable to minority interest of $1,234,000 for the six month period June30, 2007 compared to nil as at June 30, 2006.

Net cash used in investing activities of ($760,000) inthe six months ended June 30, 2007 $635,000 for the six months ended June 30,2006) consisted primarily of:

e.               inthe six months ended June 30, 2007 we used $470,000 for the purchase ofavailable for sale marketable securities as compared to $1,964,000 for the sixmonth period ended June 30, 2006;

f.                 inthe six months ended June 30, 2007 we used $290,000 in capital expenditure($61,000 for the six months ended June 30, 2006).

g.               June30, 2006 included a cash inflow of $2,660,000 representing cash held for commonstock subscribed but not issued.

Net cash flows used in financing activities of $61,116,000for the six month period ended June 30, 2007 (compared to $2,187,000 providedby financing activities for the six months ended June 30, 2006). This primarilyconsisted of a cash inflow of $61,123,000 (net of commissions) relating to theIPO of Medicsight PLC. Net proceeds from the issue of shares in the six monthperiod ended June 30 2006 totalled $2,196,000.

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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 our investments in a mixture of (a)cash deposits on either overnight or 30 day rates; (b) highly liquid blue chipavailable-for-sale market securities. A decline in interest rate would have anadverse impact on interest income.

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

*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 June 30,2007.  This evaluation was carried outunder the supervision and with the participation of our management, includingour Chief Executive Officer and Chief Financial Officer. As defined in Rules13a-15(e) and 15d-15(e) under the Exchange Act, disclosure controls and proceduresare controls and other procedures of the Company that are designed to ensurethat information required to be disclosed by the Company in the reports itfiles or submits under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission’s rules and forms.  Disclosurecontrols and procedures include, without limitation, controls and proceduresdesigned to ensure that information required to be disclosed by the Company inthe reports it files or submits under the Exchange Act is accumulated andcommunicated to the Company’s management, including our Chief Executive Officerand Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosure.

Based upon that evaluation, our Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective as of June 30, 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 period ended June30, 2007, that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.  Based on that evaluation during the quarter endedJune 30, 2007 there has been no change in our internal control over financialreporting that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

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

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**PART II.  OTHER INFORMATION**

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

Thereare currently no pending legal proceedings.

**Item 1A.****          Risk Factors**

Discussion of our business and operations included inthis annual report on Form 10-Q should be read together with the risk factorsset forth below.  They describe variousrisks and uncertainties to which we are or may become subject.  These risks and uncertainties, together withother factors described elsewhere in this report, have the potential to affectour business, financial condition, results of operations, cash flows, strategiesor prospects in a material and adverse manner.  New risks may emerge atany time, and we cannot predict those risks or estimate the extent to whichthey may affect financial performance. Each of the risks described below could adversely impact the value ofour securities.  These statements, like all statements in this report,speak only as of the date of this report (unless another date is indicated),and we undertake no obligation to update or revise the statements in light offuture developments.

We cannot assure you that the Company will besuccessful in commercializing the Medicsight CAD products or the Medicexchangeportal, or if the products or the portal are commercialized, that they will beprofitable to the Company.  We faceobstacles in commercializing the Medicsight CAD products and the Medicexchangeportal and in generating operating revenues as detailed below.

The Company does not believe that there is currentlyany comparable system that is competitive with the Medicsight CAD products.There are computer-aided diagnostic systems that operate in the field,but, in our view, such other systems are more dependent than ours on humanresources to carry out the analysis.  Weare not aware of other systems in the field that have the automated capabilityof our products.

The Company has had only a limited operating historyand no revenues from its continuing operations upon which an evaluation of itsprospects can be made.  The Company’sprospects must be considered keeping in mind the risks, expenses anddifficulties frequently encountered in the establishment of a new business inconstantly changing industry.  There canbe no assurance that the Company will be able to achieve profitable operationsin the foreseeable future or at all.

The Company has identified a number of specific riskareas that may affect the Company’s operations and results in the future:

*Technical Risks.*

The Medicsight CAD system may not deliver the levelsof accuracy and reliability needed, or the development of such accuracy andreliability may be delayed.

*Market Risks*

The market for the Medicsight CAD products andMedicexchange may be slower to develop or smaller than estimated or it may bemore difficult to build the market than anticipated.  The medical community may resist theMedicsight CAD and Medicexchange products or be slower to accept them than weexpect.  Revenues from Medicsight CAD andMedicexchange may be delayed or costs may be higher than expected which mayresult in the Company requiring additional funding.

*Regulatory Risks.*

The Medicsight CAD system is subject to regulatoryrequirements in the United States, Europe, Japan, China and our other targetedmarkets. Necessary regulatory approvals may not be obtained or may bedelayed.  We may incur substantial additionalcost in obtaining regulatory approvals for our products in our targetedmarkets.

*Competitive Risks*

There are a number of groups and organizations, suchas software companies in the medical imaging field, MDCT scanner manufacturers,screening companies and other healthcare providers that may develop acompetitive offering to the Medicsight CAD products and Medicexchange.  In addition these competitors may havesignificantly greater resources than the Company.  We cannot make any assurance that they willnot attempt to develop such offerings, that they will not be successful indeveloping such offerings or that any offerings they do develop will not have acompetitive edge over Medicsight CAD products and Medicexchange.

*Financial Risk*

The Company has incurred significant operating lossessince inception and has generated no revenues from continuing operations. As aresult, the Company has generated negative cash flows from operations and hasan accumulated deficit at June 30, 2007. The Company is operating in a developing industry based on newtechnology and its primary source of funds to date has been through the 

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issuanceof securities and borrowed funds.  Whilethe Company is optimistic and believes appropriate actions are being taken,there can be no assurance that management’s efforts will be successful or thatthe products the Company develops and markets will be accepted by consumers.

*CorporateStructure.*

TheCompany’s corporate structure may make it more difficult or costly to takecertain actions.  The Company conductsits business through: (a) Medicsight PLC, a U.K. public company which is 55%owned by the Company, and through Medicsight PLC’s subsidiaries in the UnitedKingdom, the United States, Japan and Gibraltar and; (b) through the Medicexchangesubsidiaries, which the Company holdings range between 73% and 90%. Although the Company and Medicsight PLC and Medicexchange PLC share somedirectors and management, they are required to comply with corporate governanceand other laws and rules applicable to public companies in the UnitedKingdom and the United States.  Should the Company propose to take anyaction, such as a transfer or allocation of assets or liabilities between theCompany its subsidiaries, the Company would have to take into consideration thepotentially conflicting interests of the Company’s stockholders and theminority stockholders.  This may deter the Company from taking suchactions that might otherwise be in the best interest of the Company or causethe Company to incur additional costs in taking such actions.  The subsidiary companies would not be able topay dividends or make other distributions of profits or assets to theCompany without making pro rata payments or distributions to the respectiveminority stockholders.  Although neither the subsidiary companies northe Company has plans to pay dividends or make distributions to itsshareholders, the Company’s corporate structure may deter its subsidiaries fromdoing so in the future.

*The protection of our intellectual property may beuncertain, and we may face possible claims of others.*

Although we have received patents and have filedpatent applications with respect to certain aspects of our technology, wegenerally do not rely on patent protection with respect to our products andtechnologies.  Instead, we rely primarilyon a combination of trade secret and copyright law, employee and third-partynondisclosure agreements and other protective measures to protect intellectualproperty rights pertaining to our products and technologies.  Such measures may not provide meaningfulprotection of our trade secrets, know-how or other intellectual property in theevent of any unauthorized use, misappropriation or disclosure.  Others may independently develop similartechnologies or duplicate our technologies. In addition, to the extent that we apply for any patents, suchapplications may not result in issued patents or, if issued, such patents maynot be valid or of value.  Third partiescould, in the future, assert infringement or misappropriation claims against uswith respect to our current or future products and technologies, or we may needto assert claims of infringement against third parties.  Any infringement or misappropriation claim byus or against us could place significant strain on our financial resources,divert management’s attention from our business and harm our reputation.  The costs of prosecuting or defending anintellectual property claim could be substantial and could adversely affect ourbusiness, even if we are ultimately successful in prosecuting or defending anysuch claims. If our products or technologies are found to infringe the rightsof a third party, we could be required to pay significant damages or licensefees or cease production, any of which could have a material adverse effect onour business.

*If we fail to attract and retain qualified personnel, ourbusiness would be harmed.*

We expect to rapidly expand our operations and growour sales, research and development and administrative operations.  This expansion is expected to place asignificant strain on our management and will require hiring a significantnumber of qualified personnel. Accordingly, recruiting and retaining suchpersonnel in the future will be critical to our success.  There is intense competition from othercompanies, research and academic institutions, government entities and otherorganizations for qualified personnel in the areas of our activities.  If we fail to identify, attract, retain andmotivate these highly skilled personnel, we may be unable to continue ourmarketing and development activities.

*If we do not effectively manage changes in our business,these changes could place a significant strain on our management and operationsand, as a result, our business might not succeed.*

Our ability to grow successfully requires an effectiveplanning and management process.  Theexpansion and growth of our business could place a significant strain on ourmanagement systems, infrastructure and other resources.  To manage our growth successfully, we mustcontinue to improve and expand our systems and infrastructure in a timely andefficient manner.  Our controls, systems,procedures and resources may not be adequate to support a changing and growingcompany.  If our management fails to respondeffectively to changes and growth in our business, including acquisitions, suchfailure could have a material adverse effect on our business.

*Foreign Exchange Risks*

As the Company’s main operating currency is UKsterling (£) and its financial statements are reported in US Dollars, theCompany’s assets and liabilities and its results of operations are affected bymovements in the $:£ exchange rate.

*Other Risks*

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.

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*Internal Controls*

Failure to achieve and maintain effective internalcontrols in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 couldhave a material adverse effect on our business and operating results. Inaddition, as a consequence of such failure, current and potential stockholderscould lose confidence in our financial reporting, which could have an adverseeffect on our stock price.

Effective internal controls are necessary for us toprovide reliable financial reports and effectively prevent fraud. If we cannotprovide reliable financial reports or prevent fraud, we could be subject toregulatory action or other litigation and our operating results could beharmed.

Commencing with our fiscal year ending December 31,2007, we will be required to document and test our internal control proceduresin order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Actof 2002, which requires our management to annually assess the effectiveness ofour internal controls over financial reporting, and our independent registeredpublic accounting firm to report on these assessments.

During the course of our testing, we may identifydeficiencies which we may not be able to remediate in time to meet the deadlineimposed by the Sarbanes-Oxley Act for compliance with the requirements ofSection 404. In addition, if we fail to maintain the adequacy of our internal accountingcontrols, as such standards are modified, supplemented or amended from time totime, we may not be able to ensure that we can conclude on an ongoing basisthat we have effective internal controls over financial reporting in accordancewith Section 404. Failure to achieve and maintain an effective internal controlenvironment could cause us to face regulatory action and also cause investorsto lose confidence in our reported financial information, either of which couldhave an adverse effect on our stock price.

**Item2.****          Unregistered Sales of Equity Securities and Use of Proceeds**

In the period ended June 30, 2007 no shares in commonstock were issued.

**Item3.****          Defaults Upon Senior Securities**

None.

**Item4.****          Submission of Matters to a Vote of Security Holders**

None.

**Item5.****          Other Information**

None.

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**Exhibitsand Reports on Form 8-K**
| Exhibits | ** ** | ** **                                                                                                            |
|----------|------------|-----------------------------------------------------------------------------------------------------------------------|
|     |       |                                                                                                                  |
| 31.1     |       | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive  Officer - filed herewith). |
| 31.2     |       | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial  Officer - filed herewith). |
| 32.1     |       | Certification  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive  Officer - filed herewith). |
| 32.2     |       | Certification  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial  Officer - filed herewith). |

 

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

None

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SIGNATURE

In accordance with the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.
|                | MGT Capital Investments, Inc. |
|----------------|-------------------------------|
|           |                          |   |
|           |                          |   |
|           | By:                           | /s/ TIM PATERSON-BROWN |   |
|           |                          | Tim Paterson-Brown |
|           |                          | Chief Executive Officer |
|           |                          |   |
|           |                          |   |
|           | By:                           | /s/ ALLAN ROWLEY |   |
|           |                          | Allan Rowley |
|           |                          | Chief Financial Officer |
|           |                          |   |
|           |                          |   |
| August 8, 2007 |                          |   |

 

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