**UNITED STATES****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 September 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**

**MGT CAPITAL INVESTMENTS, INC.**  (formerly Medicsight Inc.)

(Exact name ofRegistrant as specified in its charter)

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

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

(Address ofprincipal executive offices, including zip code)

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

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

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

Large Accelerated Filer o      Acceleratedfiler x     Non-accelerated Filer o

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

The number of shares of the registrant’s common stock,$0.001 par value, outstanding as of November 7, 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 — September 30, 2007 and December 31, 2006                                  | 4 |
|                                    |                                                                                                                    |   |
|                                    | Condensed Consolidated Statements of Operations — for  the three and nine months ended September 30, 2007 and 2006 | 5 |
|                                    |                                                                                                                    |   |
|                                    | Condensed Consolidated Statements of Cash Flows — for  the nine months ended September 30, 2007 and 2006           | 7 |
|                                    |                                                                                                                    |   |
|                                    | Notes to Condensed Consolidated Financial Statements                                                                    | 8 |
|                                    |                                                                                                                    |   |
| Item 2                                  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                             | 16 |
|                                    |                                                                                                                    |   |
| Item 3                                  | Quantitative  and Qualitative Disclosure About Market Risk                                                              | 26 |
|                                    |                                                                                                                    |   |
| Item 4                                  | Controls &  Procedures                                                                                              | 26 |
|                                    |                                                                                                                    |   |
| **PART II — OTHER  INFORMATION**   | ** **                                                                                                              |
| ** **                              | ** **                                                                                                              |   |
| Item 1                                  | Legal Proceedings                                                                                                       | 27 |
|                                    |                                                                                                                    |   |
| Item 1A                                 | Risk Factors                                                                                                            | 27 |
|                                    |                                                                                                                    |   |
| Item 2                                  | Unregistered  Sale of Equity Securities and Use of Proceeds                                                             | 29 |
|                                    |                                                                                                                    |   |
| Item 3                                  | Defaults Upon  Senior Securities                                                                                        | 29 |
|                                    |                                                                                                                    |   |
| Item 4                                  | Submission of  Matters to a Vote of Security Holders                                                                    | 29 |
|                                    |                                                                                                                    |   |
| Item 5                                  | Other Information                                                                                                       | 29 |
|                                    |                                                                                                                    |   |
| Item 6                                  | Exhibits                                                                                                                | 30 |
|                                    |                                                                                                                    |   |
| SIGNATURES                              | 31                                                                                                                      |

 

 

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**MGTCAPITAL INVESTMENTS, INC.  (FORMERLY MEDICSIGHT, INC.)**

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

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

 
| ** **                                                                                                                            | ** ** | **September 30  2007** | ** ** | **December 31  2006** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| ** **                                                                                                                            | ** ** | **(unaudited)**        | ** ** | **(audited)**              | ** ** |
| ASSETS                                                                                                                                |       |                   |       |                       |       |
| CURRENT  ASSETS:                                                                                                                      |       |                   |       |                       |       |
| Cash                                                                                                                                  |       | $                      | 99,624     |                       | $          | 19,757 |   |
| Marketable  securities                                                                                                                |       | 139                    |       | 4,978                      |       |
| Accounts  receivable                                                                                                                  |       | 17                     |       | —                     |       |
| Related  party receivable                                                                                                             |       | 50                     |       | —                     |       |
| Other  receivables                                                                                                                    |       | 82                     |       | 123                        |       |
| Prepaid  expenses                                                                                                                     |       | 497                    |       | 115                        |       |
| Value  added tax receivable                                                                                                           |       | 171                    |       | 333                        |       |
| Total  current assets                                                                                                                 |       | 100,580                |       | 25,306                     |       |
|                                                                                                                                  |       |                   |       |                       |       |
| PROPERTY  EQUIPMENT, at cost, net of accumulated depreciation of $1,016 and $1,542  respectively                                      |       | 820                    |       | 683                        |       |
| INVESTMENTS,  at cost                                                                                                                 |       | 1,359                  |       | 359                        |       |
| SECURITY  DEPOSITS                                                                                                                    |       | 1,024                  |       | 921                        |       |
| GOODWILL                                                                                                                              |       | 11,200                 |       | 11,200                     |       |
|                                                                                                                                  |       |                   |       |                       |       |
| Total  assets                                                                                                                         |       | $                      | 114,983    |                       | $          | 38,469 |   |
|                                                                                                                                  |       |                   |       |                       |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                            |       |                   |       |                       |       |
|                                                                                                                                  |       |                   |       |                       |       |
| CURRENT  LIABILITIES:                                                                                                                 |       |                   |       |                       |       |
| Accounts  payable                                                                                                                     |       | $                      | 980        |                       | $          | 1,986 |   |
| Accrued  expenses                                                                                                                     |       | 2,514                  |       | 1,385                      |       |
| Deferred  revenue                                                                                                                     |       | 8                      |       | —                     |       |
| Income  taxes payable                                                                                                                 |       | 224                    |       | —                     |       |
| Current  portion of obligations under capital leases                                                                                  |       | —                 |       | 7                          |       |
| Total  current liabilities                                                                                                            |       | 3,726                  |       | 3,378                      |       |
|                                                                                                                                  |       |                   |       |                       |       |
| MINORITY  INTEREST                                                                                                                    |       | 85,411                 |       | 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                                                                                                           |       | 238,527                |       | 218,138                    |       |
| Accumulated  other comprehensive income                                                                                               |       | 2,736                  |       | 853                        |       |
| Accumulated  deficit                                                                                                                  |       | (215,456)              |       | (205,649                   | )          |
| TOTAL  STOCKHOLDERS’ EQUITY                                                                                                      |       | 25,846                 |       | 13,381                     |       |
|                                                                                                                                  |       |                   |       |                       |       |
| Total  stockholders’ equity, liabilities and minority interest                                                                   |       | $                      | 114,983    |                       | $          | 38,469 |   |

 

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

 

 

4

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

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

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

**(unaudited)**

 
| ** **                                            | ** ** | **Three Months Ended September 30,** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                            | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
|                                                  |       |                                                |       |   |   |
| REVENUES                                              |       |                                                |       |   |   |   |   |
| License fees                                          |       | $                                                   | 12         |   | $ | — |   |
|                                                  |       |                                                |       |   |   |
|                                                  |       |                                                |       |   |   |
| EXPENSES:                                             |       |                                                |       |   |   |
| Selling, general and administrative expenses          |       | 4,564                                               |       | 3,634 |   |
| Research and development cost                         |       | 440                                                 |       | 494 |   |
|                                                  |       | 5,004                                               |       | 4,128 |   |
|                                                  |       |                                                |       |   |   |
| Operating loss                                        |       | (4,992                                              | )          | (4,128 | ) |
|                                                  |       |                                                |       |   |   |
| OTHER INCOME:                                         |       |                                                |       |   |   |
| Interest and other income                             |       | 1,500                                               |       | 106 |   |
|                                                  |       |                                                |       |   |   |
| Net loss before income taxes and minority interest    |       | (3,492                                              | )          | (4,022 | ) |
|                                                  |       |                                                |       |   |   |
| Income taxes                                          |       | (224                                                | )          | — |   |
| Minority interest                                     |       | 1,210                                               |       | 115 |   |
|                                                  |       |                                                |       |   |   |
| Net loss                                              |       | $                                                   | (2,506     | ) | $ | (3,907 | ) |
|                                                  |       |                                                |       |   |   |
| PER SHARE DATA:                                       |       |                                                |       |   |   |
|                                                  |       |                                                |       |   |   |
| Basic and diluted loss per share                      |       | $                                                   | (0.06      | ) | $ | (0.10 | ) |
|                                                  |       |                                                |       |   |   |
| Weighted average number of common shares  outstanding |       | 38,900,383                                          |       | 38,490,329 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements

 

 

5

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

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

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

**(unaudited)**

 
| ** **                                            | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                            | ** ** | **2007**                                      | ** ** | **2006** | ** ** |
|                                                  |       |                                          |       |   |   |
| REVENUES                                              |       |                                          |       |   |   |   |   |
| License Fees                                          |       | $                                             | 12         |   | $ | — |   |
|                                                  |       |                                          |       |   |   |
|                                                  |       |                                          |       |   |   |
| EXPENSES:                                             |       |                                          |       |   |   |
| Selling, general and administrative expenses          |       | 12,545                                        |       | 9,623 |   |
| Research and development cost                         |       | 1,576                                         |       | 1,634 |   |
|                                                  |       | 14,121                                        |       | 11,257 |   |
|                                                  |       |                                          |       |   |   |
| Operating loss                                        |       | (14,109                                       | )          | (11,257 | ) |
|                                                  |       |                                          |       |   |   |
| OTHER INCOME:                                         |       |                                          |       |   |   |
| Interest and other income                             |       | 2,082                                         |       | 204 |   |
|                                                  |       |                                          |       |   |   |
| Net loss before income taxes and minority interest    |       | (12,027                                       | )          | (11,053 | ) |
|                                                  |       |                                          |       |   |   |
| Income taxes                                          |       | (224                                          | )          | — |   |
| Minority interest                                     |       | 2,444                                         |       | 115 |   |
|                                                  |       |                                          |       |   |   |
| Net loss                                              |       | $                                             | (9,807     | ) | $ | (10,938 | ) |
|                                                  |       |                                          |       |   |   |
| PER SHARE DATA:                                       |       |                                          |       |   |   |
|                                                  |       |                                          |       |   |   |
| Basic and diluted loss per share                      |       | $                                             | (0.25      | ) | $ | (0.29 | ) |
|                                                  |       |                                          |       |   |   |
| Weighted average number of common shares  outstanding |       | 38,900,383                                    |       | 37,820,868 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements

 

 

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

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(in thousands)**

**(unaudited)**

 

| ** **                                                                   | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                   | ** ** | **2007**                                      | ** ** | **2006** | ** ** |
|                                                                         |       |                                          |       |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                         |       |                                          |       |   |   |
| Net loss                                                                     |       | $                                             | (9,807     | ) | $ | (10,938 | ) |
|                                                                         |       |                                          |       |   |   |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                                          |       |   |   |
| Loss attributable to minority interest                                       |       | (2,444                                        | )          | (115 | ) |
| Stock based compensation expense                                             |       | 916                                           |       | 353 |   |
| Depreciation                                                                 |       | 268                                           |       | 204 |   |
| Loss on disposal of fixed assets                                             |       | 6                                             |       | 11 |   |
| (Increase)/decrease in assets                                                |       |                                          |       |   |   |
| Accounts receivable                                                          |       | (17                                           | )          | — |   |
| Accounts receivable — related parties                                   |       | 24                                            |       | — |   |
| Prepaid expenses and other current assets                                    |       | (416                                          | )          | (142 | ) |
| Value added tax receivable                                                   |       | 162                                           |       | (131 | ) |
| Increase/(decrease) in liabilities                                           |       |                                          |       |   |   |
| Accounts payable                                                             |       | (1,006                                        | )          | 341 |   |
| Accounts payable — related parties                                      |       | —                                        |       | (1,128 | ) |
| Accrued expenses                                                             |       | 1,129                                         |       | 889 |   |
| Deferred revenue                                                             |       | 8                                             |       | — |   |
| Income taxes payable                                                         |       | 224                                           |       | — |   |
| Net cash used in operating activities                                        |       | (10,953                                       | )          | (10,656 | ) |
|                                                                         |       |                                          |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                         |       |                                          |       |   |   |
| Cash held for common stock subscribed but unissued                           |       | —                                        |       | 4,000 |   |
| Purchase of investments at cost                                              |       | (1,000                                        | )          | — |   |
| Purchase of marketable securities                                            |       | —                                        |       | (3,511 | ) |
| Sale of marketable securities                                                |       | 5,141                                         |       | — |   |
| Purchase of fixed assets                                                     |       | (411                                          | )          | (398 | ) |
| Net cash provided by investing activities                                    |       | 3,730                                         |       | 91 |   |
|                                                                         |       |                                          |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                         |       |                                          |       |   |   |
| Principal payments under capital lease obligations                           |       | (7                                            | )          | (13 | ) |
| Proceeds from common stock subscribed buy unissued  (net of commissions)     |       | —                                        |       | (3,600 | ) |
| Proceeds from sale of common stock in subsidiary  (net of commissions)       |       | 85,618                                        |       | 17,898 |   |
| Net cash provided by financing activities                                    |       | 85,611                                        |       | 14,285 |   |
|                                                                         |       |                                          |       |   |   |
| Effects of exchange rates on cash                                            |       | 1,479                                         |       | (14 | ) |
|                                                                         |       |                                          |       |   |   |
| NET CHANGE IN CASH                                                           |       | 79,867                                        |       | 3,706 |   |
|                                                                         |       |                                          |       |   |   |
| CASH — BEGINNING OF PERIOD                                              |       | 19,757                                        |       | 7,249 |   |
|                                                                         |       |                                          |       |   |   |
| CASH — END OF PERIOD                                                    |       | $                                             | 99,624     |   | $ | 10,955 |   |
|                                                                         |       |                                          |       |   |   |
| SUPLEMENTAL DISCLOSURES OF CASH RECEIVED                                     |       |                                          |       |   |   |
| Interest received                                                            |       | $                                             | 1,615      |   | $ | 204 |   |
|                                                                         |       |                                          |       |   |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements

 

 

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

**NOTES TO 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 nine monthsended September 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 inconjunction with the financial statements and notes thereto included in theCompany’s Annual Report on Form 10-K for the year ended December 31,2006.  The condensed consolidated financial statements include theaccounts of the Company and its majority owned subsidiaries. All intercompanyaccounts and transactions have been eliminated.

MGT Capital Investments, Inc is a holding company inthe global Healthcare Information Technology sector (“HCIT”).  Wecurrently have two subsidiary operations that we are majority shareholders in.

The Company has incurred significant operating lossessince inception and has just commenced generating revenue from operations. As aresult, the Company has generated negative cash flows from operations and hasan accumulated deficit of $215,456,000 at September 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 SignificantAccounting Policies**

As of September 30, 2007, there have been no materialchanges to any of our significant accounting policies, except that we adoptedthe provisions of Financial Accounting Standards Board (“FASB”) InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASBStatement No. 109” (“FIN 48”), on January 1, 2007.  FIN 48clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with FASB Statement 109, “Accountingfor Income Taxes,” and prescribes a recognition threshold and measurementprocess for financial statement recognition and measurement of a tax positiontaken or expected to be taken in a tax return.  FIN 48 also providesguidance on derecognition, classification, interest and penalties, accountingin interim periods, disclosure and transition.

Based on our evaluation, we have concluded that thereare no significant uncertain tax positions requiring recognition in ourfinancial statements.  Our evaluation was performed for the tax yearsended December 31, 2003, 2004, 2005 and 2006, the tax years which remainsubject to examination by major tax jurisdictions as of September 30, 2007.

**Revenue Recognition**

*Medicsight PLC*

 

The Companyrecognizes revenue in accordance with American Institute of Certified PublicAccountants (“AICPA”) Statement of Position (“SOP”) 97-2, Software RevenueRecognition, as amended by SOP 98-4 and SOP 98-9, as well as Technical PracticeAids issued from time to time by the AICPA, and SEC Staff Accounting BulletinNo. 104. The Company recognizes revenue when it is realized or realizableand earned. The Company considers revenue realized or realizable and earnedwhen it has persuasive evidence of an arrangement, the product has been shippedor the services have been provided to the customer, the sales price is fixed ordeterminable, and collectability is probable.

 

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

 

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

 

Providedrevenue recognition criteria are met, license revenue from Resellers isrecognized on a sell-in basis provided the Reseller i) assumes all risk of thepurchase, ii) has the ability and obligation to pay regardless of receiving paymentfrom the end user.

 

Additionally:

 

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

 

 

 

8

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Services —Revenue from maintenance and support arrangements is deferred and recognizedrateably over the term of the maintenance and support arrangements.

 

Multiple-ElementArrangements — The Company enters into arrangements with Resellers that includea combination of software products, maintenance and support. For sucharrangements, the Company recognizes revenue using the residual method. TheCompany allocates the total arrangement fee among the various elements of thearrangement based on the fair value of each of the undelivered elementsdetermined by vendor-specific objective evidence. The fair value of maintenanceand support services is established based on renewal rates. In softwarearrangements for which the Company does not have vendor-specific objectiveevidence of fair value for all elements, revenue is deferred until the earlierof when vendor-specific objective evidence is determined for the undeliveredelements (residual method) or when all elements for which the Company does nothave vendor-specific objective evidence of fair value have been delivered.

 

As at 30September 2007 we have $2,000 of deferred revenue relating to support andmaintenance services (2006: $Nil).

 

*Medicexchange*

 

We recognize revenue from services rendered when thefollowing revenue recognition criteria are met: persuasive evidence of anarrangement exists, services have been rendered, the selling price is fixed ordeterminable, and collectability is reasonably assured.

Deferredrevenue is recorded when payments are received in advance of performing ourservice obligations.

 

As at 30September 2007 we have $6,000 of deferred service revenue (2006: $Nil).

 

**3. Principal activities**

MGT Capital Investments, Inc (“MGT”) is a holdingcompany in the global Healthcare Information Technology sector (“HCIT”). We currently have a controlling interest in two companies: Medicsight PLC andMedicexchange.

*Medicsight PLC (AIM:MDST)*

Medicsight PLC (“Medicsight”) is a medical imagingsoftware development company listed on the AIM Market of the London StockExchange (Ticker symbol “MDST”) that develops and commercializesenterprise-wide Computer-Aided Detection (“CAD”) applications to which analyzeComputer Tomography (“CT”) scans for the early detection and measurement ofcolorectal polyps and lung lesions.

On June 21, 2007, Medicsight completed its InitialPublic Offering on the AIM Market of the London Stock Exchange.  29million new shares were issued to institutional and other investors at a priceof £1.10 ($2.20) per share raising £32 million ($64 million) gross newmoney.  We incurred fees of £1.6 million ($3.2 million), including $298,000with Asia IT Capital Investments Limited “Asia IT” (a related party). £5.5 million ($11.1 million) of the net proceeds were used to repay debt(between Medicsight 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 the Medicsight IPO, MGT solddown, by private placement (via Asia IT — a related party) 11.7 million of itsMedicsight shares.  The shares were priced at £1.10 ($2.20) — the sameprice as the Medicsight PLC IPO. Gross proceeds on the private placement were$25.7 million.  We incurred fees with Asia IT (a related party) of $1.2million, resulting in a net cash inflow of $24.5 million.  These proceedswere received in July 2007.

Consistent with the guidance of Staff AccountingBulletin No. 51 we credited these proceeds to Additional Paid In Capital andMinority Interest and have not recognized any gain from the private placementof the Medicsight shares.

We believe we have sufficient capital tax loss carryforwards to offset the chargeable gain from this disposal.

After the private placement and the IPO, MGT holds 85million (55%) of the 155 million issued share capital of Medicsight PLC. On September 28, 2007, (the third quarter’s last trading day), Medicsightshares closed at a price of £1.10 ($2.25), valuing MGT’s 85 million shares at$191 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 ofrelevant clinical papers, training materials and content gives theseprofessionals access to information and products that they otherwise would havedifficulty accessing.

Medical imaging vendors are provided with a globalonline channel through which they can access a large community of medicalimaging professionals in order to market and sell their productsolutions.  The Medicexchange portal was launched in

9

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November2006, and is now a leading medical imaging news and product informationprovider in the following sectors: Breast, Cardiology, Abdominal-Pelvic,Neurology, Thoracic and Musculoskeletal.

MGT holds 22.5 million shares (73%) of the 30.8million issued share capital of Medicexchange.  In fiscal 2006,Medicexchange raised £5 million ($10 million) through the issuance of 5 millionshares at £1 each, valuing MGT’s holding at £22.5 million ($45 million).  Medicexchange’s shares are not publiclytraded.

*Investments at Cost*

We have two cost basedinvestments: Eurindia and XShares Group LLC.

In 2000, MGT invested in Eurindia PLC, (“Eurindia”) aUK Company that invested in IT start-up companies.  MGT has a 6% holdingin Eurindia and account for this investment on a cost basis. InFebruary 2007, we received a dividend of $206,000 ($0.35 per share). In July, 2007 we received a dividend of $218,000 ($0.37 per share), which werecorded in Other Income. Eurindia has advised us that they intend to pay anadditional dividend and then liquidate the company by December 31, 2007.

In the quarter ended September 30, 2007 we invested $1million in the ordinary shares of XShares Group LLC, a pre-IPO investmentadvisor that creates, issues and supports exchange traded funds (ETF) with aparticular healthcare specialty. We account for this investment on a costbasis.

*Marketable securities*

We have investments in portfolios of cash andmarketable securities managed by AA+ rated private banks.  In the ninemonths ended September 30, 2007 the Company invested in available for salemarketable securities, which at September 30, 2007 were as follows (inthousands):

 
| ** **            | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair Value** | ** ** | **Carrying  Amount** | ** ** |
|-----------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|---------------------|------------|----------------------|------------|
| ** **            | ** ** | ** **          | ** ** | ** **                   | ** ** | ** **                    | ** ** | ** **          | ** ** | ** **           | ** ** |
| At December 31, 2006  |       | $                   | 4,533      |                         | $          | 445                           |       | —              |       | $                    | 4,978      |   | $ | 4,978 |   |
| At September 30, 2007 |       | $                   | 138        |                         | $          | 1                             |       | —              |       | $                    | 139        |   | $ | 139 |   |

 

The increase in net unrealized holding gains onavailable-for-sale securities in the nine months ended September 30, 2007 was$1,000 which was charged to accumulated other comprehensive income.

On July 28, 2007, we converted all but $139,000 ofmarketable securities into cash. The company intends to convert the remainingmarketable securities into cash before year end.

 

**4. Cash**

We invest our cash in short term deposits with majorbanks.  At September 30, 2007 we held $99,624,000 in cash.  In thenine months ended September 30, 2007 we received $1,615,000 in interest incomefrom the cash deposits.

**5. Interest and otherincome**

We had the following interest and other income amounts(in thousands):

 
| ** **      | ** ** | **Three Months ended  September 30,** | ** ** | **Nine months ended   September 30,** | ** ** |
|-----------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **      | ** ** | **2007**                                        | ** ** | **2006**                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|            |       |                                            |       |                                            |       |   |   |   |   |
| Dividend income |       | $                                               | 227        |                                            | $          | — |   | $ | 467 |   | $ | — |   |
| Interest income |       | 1,273                                           |       | 106                                             |       | 1,615 |   | 204 |   |
| Total           |       | $                                               | 1,500      |                                            | $          | 106 |   | $ | 2,082 |   | $ | 204 |   |

 

**6. Comprehensive Income(Loss)**

Comprehensive income as defined by SFAS No. 130, “*Reporting Comprehensive Income*,” includesnet income and items defined as other comprehensive income.  SFASNo. 130 requires that items defined as other comprehensive income, such asforeign currency translation adjustments and unrealized gains and losses oncertain marketable securities, be separately classified in the financialstatements.  Such items are reported in the consolidated statements ofstockholders’ equity as comprehensive income as follows (in thousands):

 

 

10

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| ** **                               | ** ** | **Three Months ended  September 30,** | ** ** | **Nine months ended   September 30,** | ** ** |
|------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                        | ** ** | **2006**                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                     |       |                                            |       |                                            |       |   |   |   |   |
| Net loss as reported                     |       | $                                               | (2,506     | )                                               | $          | (3,907 | ) | $ | (9,807 | ) | $ | (10,938 | ) |
| Unrealized foreign exchange gain         |       | 1,284                                           |       | 121                                             |       | 1,581 |   | 58 |   |
| Unrealized gain on marketable securities |       | 16                                              |       | 86                                              |       | 302 |   | 133 |   |
| Comprehensive loss                       |       | $                                               | (1,206     | )                                               | $          | (3,700 | ) | $ | (7,924 | ) | $ | (10,747 | ) |

 

**7. Income Taxes**

We had the following income taxes payable (in thousands).

 
| ** **            | ** ** | **Three Months ended  September 30,** | ** ** | **Nine months ended   September 30,** | ** ** |
|-----------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **            | ** ** | **2007**                                        | ** ** | **2006**                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| Current income taxes: |       |                                            |       |                                            |       |   |   |   |   |
| Federal               |       | $                                               | 224        |                                            | —     |   | $ | 224 |   | — |   |
| State                 |       | —                                          |       | —                                          |       | — |   | — |   |
| Foreign               |       | —                                          |       | —                                          |       | — |   |   |   |
|                  |       | $                                               | 224        |                                            | —     |   | $ | 224 |   | — |   |

**8.****Segmentreporting**

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

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

Medicsight listed on the AIM Market of the LondonStock Exchange on June 21, 2007.  AIM listing rules require Medicsight topublish results under International Financial Reporting Standards (“IFRS”) inUK Sterling (“GBP”).

The following is a reconciliation between Medicsightpublished financial statements and the US GAAP consolidated results (inthousands):

 

 

11

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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)** | ** ** |
|                                |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| **Three months September 30, 2007** |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| Net revenue to external customers   |       | 12                  |       | —                    |       | 12                  |       | —             |       | —                        |       | 12                 |       |
| Operating loss                      |       | (3,817              | )          | 80                        |       | (3,737              | )          | (1,122             | )          | (133                          | )          | (4,992             | )          |
| Assets                              |       | 55,524              |       | —                    |       | 55,524              |       | 5,266              |       | 54,193                        |       | 114,983            |       |
|                                |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| **Three months September 30, 2006** |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| Net revenue to external customers   |       | —              |       | —                    |       | —              |       | —             |       | —                        |       | —             |       |
| Operating loss                      |       | (1,136              | )          | 83                        |       | (1,053              | )          | (2,017             | )          | (1,058                        | )          | (4,128             | )          |
| Assets                              |       | 2,189               |       | —                    |       | 2,189               |       | 7,710              |       | 18,465                        |       | 28,364             |       |
|  

                       |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| **Nine months September 30, 2007**  |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| Net revenue to external customers   |       | 12                  |       | —                    |       | 12                  |       | —             |       | —                        |       | 12                 |       |
| Operating loss                      |       | (10,872             | )          | 434                       |       | (10,438             | )          | (3,035             | )          | (636                          | )          | (14,109            | )          |
| Assets                              |       | 55,524              |       | —                    |       | 55,524              |       | 5,266              |       | 54,193                        |       | 114,983            |       |
|                                |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| **Nine months September 30, 2006**  |       |                |       |                      |       |                |       |               |       |                          |       |               |       |
| Net revenue to external customers   |       | —              |       | —                    |       | —              |       | —             |       | —                        |       | —             |       |
| Operating loss                      |       | (6,746              | )          | 252                       |       | (6,494              | )          | (4,376             | )          | (387                          | )          | (11,257            | )          |
| Assets                              |       | 2,189               |       | —                    |       | 2,189               |       | 7,710              |       | 18,465                        |       | 28,364             |       |

 

The principle GAAP adjustments being the accountingfor stock options and cumulative translation adjustments.

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

**9. Stock-BasedCompensation**

We have issued stock options from our subsidiarycompanies.

*Medicsight PLC*

Plan A — on February 26, 2003 we approved stockoption plan “A” and in the period ended June 30, 2005 granted options for2,971,000 shares to employees.

 

Plan B — betweenJuly 1, 2003 and March 31, 2005 we granted options for 3,420,500 shares understock option plan “B”. Subsequently on August 15, 2005, we approved the stockoption plan “B”.

Plan C — between April 1, 2005 and June 30, 2006 wegranted options for 515,000 shares under the stock option plan “C”. On August15, 2005, we approved stock option plan “C”.  Options issued under thisplan vest in equal one-thirds after employees have been employed for 12, 24 and36 months from date of grant.

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

Plan E — on February 22, 2007 we approved andgranted options for 5,900,000 shares under stock option plan “E”.  Optionsunder this plan vest in equal one thirds after employees have been employed for12, 24 and 36 months from the grant date.

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

*Medicexchange PLC*

We have two stock option plans in Medicexchange.

 

Plan A — on July 13, 2006 we approvedMedicexchange stock option plan “A” and granted options for 950,000 sharesunder this plan.  Options issued under this plan vest in equal one-thirdsafter employees have been employed for 12, 24 and 36 months from the date ofgrant.

 

 

12

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Plan B — on July 26, 2007 we approved Medicexchangestock option plan “B” and granted options for 300,000 shares under this plan.Options issued under this plan vest equal one-thirds after employees have beenemployed for 12, 24 and 36 months from the date of grant.

The shares in Medicexchange are not publicly traded.

The following assumptions were used to estimate thefair value assumptions for both Medicsight and Medicexchange:

 
|                                                              | ** ** | **For all periods shown** | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------|------------|
|                                                              |       |                                     |       |
| Dividend  yield                                                   |       | 0.0%                                     |       |
| Expected  volatility                                              |       | 59% – 65%                           |       |
| Risk-free  rate                                                   |       | 4.65% –  5.75%                      |       |
| Expected  life of options                                         |       | Up to 4  years                           |       |
| Forfeiture  rates used                                            |       | 0% to 36%                                |       |
| Weighted-average  grant-date fair value—Medicsight Plan E    |       | £0.26 ($0.51)                       |       |
| Weighted-average  grant-date fair value—Medicsight Plan F    |       | £0.33 ($0.65)                       |       |
| Weighted-average  grant-date fair value—Medicexchange Plan B |       | £0.51 ($1.05)                       |       |

 

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 nine months ended September 30, 2007 and the year ended December 31,2006 under all option plans:

 
| ** **                            | ** ** | **Outstanding**            | ** ** | **Exercisable**                             | ** **  |
|---------------------------------------|------------|----------------------------|------------|---------------------------------------------|-------------|
| ** **                            | ** ** | **Number of  Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** **  | **Number of  Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
|                                  |       |                       |       |                                        |        |   |   |   |   |
| Outstanding at December 31, 2005 |       | 4,146,200                  |       | £                                      | 1.00 ($1.96 | ) | 3,362,850 |   | £ | 1.00 ($1.96 | ) |
|                                  |       |                       |       |                                        |        |   |   |   |   |
| Granted                               |       | 2,610,000                  |       | £                                      | 1.05 ($2.06 | ) |   |   |   |   |
| Exercised                             |       | —                     |       | —                                      |        |   |   |   |   |
| Forfeited                             |       | (1,716,200                 | )          | £                                      | 1.00 ($1.96 | ) |   |   |   |   |
|                                  |       |                       |       |                                        |        |   |   |   |   |
| Outstanding at December 31, 2006 |       | 5,040,000                  |       | £                                      | 0.91 ($1.79 | ) | 2,256,200 |   | £ | 1.00 ($1.96 | ) |
|                                  |       |                       |       |                                        |        |   |   |   |   |
| Granted                               |       | 6,550,000                  |       | £                                      | 0.54 ($1.05 | ) |   |   |   |   |
| Exercised                             |       | —                     |       | —                                      |        |   |   |   |   |
| Forfeited                             |       | (1,245,000                 | )          | £                                      | 0.71 ($1.39 | ) |   |   |   |   |
|                                  |       |                       |       |                                        |        |   |   |   |   |
| Outstanding at September 30, 2007     |       | 10,345,000                 |       | £                                      | 0.60 ($1.17 | ) | 2,221,667 |   | £ | 0.72 ($1.42 | ) |

 

The following is a summary of the status of the stockoptions outstanding at September 30, 2007:

 
| ** **           | ** ** | **Outstanding Options** | ** ** | **Exercisable Options**                  | ** ** |
|----------------------|------------|------------------------------|------------|-----------------------------------------------|------------|
| ** **           | ** ** | **Number**                   | ** ** | **Remaining  Contractual Life  (years)** | ** ** | **Average  Exercise Price** | ** ** | **Number** | ** ** | **Average Exercise  price** | ** ** |
|                 |       |                         |       |                                          |       |   |   |   |   |   |   |
| Medicsight Plan A    |       | 488,000                      |       | 5.8                                           |       | £ | 0.75 ($1.54 | ) | 488,000 |   | £ | 0.75 ($1.54 | ) |
| Medicsight Plan B    |       | 897,000                      |       | 7.0                                           |       | £ | 0.75 ($1.54 | ) | 897,000 |   | £ | 0.75 ($1.54 | ) |
| Medicsight Plan C    |       | 235,000                      |       | 7.8                                           |       | £ | 0.75 ($1.54 | ) | 111,667 |   | £ | 0.75 ($1.54 | ) |
| Medicsight Plan D    |       | 1,375,000                    |       | 8.8                                           |       | £ | 0.83 ($1.70 | ) | 458,333 |   | £ | 0.83 ($1.70 | ) |
| Medicsight Plan E    |       | 5,900,000                    |       | 9.4                                           |       | £ | 0.50 ($1.02 | ) | — |   | — |   |
| Medicsight Plan F    |       | 350,000                      |       | 9.7                                           |       | £ | 0.75 ($1.54 | ) | — |   | — |   |
| Medicexchange Plan A |       | 800,000                      |       | 9.0                                           |       | £ | 0.40 ($0.82 | ) | 266,667 |   | £ | 0.40 ($0.82 | ) |
| Medicexchange Plan B |       | 300,000                      |       | 9.8                                           |       | £ | 1.00 ($2.05 | ) | — |   | — |   |

 

 

 

 

 

13

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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 nine months ended September 30, 2007 was $148,000.

We recorded the following amounts related toshare-based expenses in the Statement of Operations for the following periods(in thousands):

 
| ** **                          | ** ** | **Three Months  ended  September 30,** | ** ** | **Three Months  ended  September 30,** | ** ** | **Nine Months  ended  September 30,** | ** ** | **Nine Months  ended  September 30,** | ** ** |
|-------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| ** **                          | ** ** | **2007**                                    | ** ** | **2006**                                    | ** ** | **2007**                              | ** ** | **2006**                              | ** ** |
|                                |       |                                        |       |                                        |       |                                  |       |                                  |       |
| Selling, general and administrative |       | $                                           | 133        |                                        | $          | 170                                   |       | $                                     | 806        |   | $ | 353 |   |
|                                |       |                                        |       |                                        |       |                                  |       |                                  |       |
| Research and development            |       | $                                           | 78         |                                        | $          | —                                |       | $                                     | 123        |   | $ | — |   |
|                                |       |                                        |       |                                        |       |                                  |       |                                  |       |
| Total                               |       | $                                           | 211        |                                        | $          | 170                                   |       | $                                     | 929        |   | $ | 353 |   |

 

No compensation costs were capitalized.

The aggregate intrinsic value for options outstandingand exercisable at September 30, 2007 was approximately $1,645,000.

A summary of non-vested options at September 30, 2007and the change during the nine months ended September 30, 2007 is presentedbelow:

 
| ** **                       | ** ** | **Number of  Options** | ** ** | **Weighted Average  Grant Date Fair  Value** | ** **  |
|----------------------------------|------------|-----------------------------|------------|-------------------------------------------------------------|-------------|
|                             |       |                        |       |                                                        |        |
| Non-vested at January 1, 2007    |       | 2,783,800                   |       | £                                                      | 0.41 ($0.82 | ) |
| Granted                          |       | 6,550,000                   |       | £                                                      | 0.28 ($0.55 | ) |
| Vested                           |       | (945,467                    | )          | £                                                      | 0.42 ($0.83 | ) |
| Forfeited                        |       | (265,000                    | )          | £                                                      | 0.32 ($0.63 | ) |
| Non-vested at September 30, 2007 |       | 8,123,333                   |       | £                                                      | 0.30 ($0.61 | ) |

 

At September 30, 2007, there was $4,851,000 of totalunrecognized compensation cost related to non-vested share based compensationarrangements granted under the option plans.  The cost is expected to berecognized over a weighted average period of 3.7 years.

**10. Minority Interest**

The company has minority investors in bothMedicexchange and Medicsight PLC as follows (in thousands):

 
| ** **                                       | ** ** | **Medicsight** | ** ** | **Medicexchange** | ** ** | **Total** | ** ** |
|--------------------------------------------------|------------|----------------|------------|-------------------|------------|-----------|------------|
|                                             |       |           |       |              |       |      |       |
| Minority Interest at January 1, 2007             |       | $              | 12,359     |              | $          | 9,351     |       | $ | 21,710 |   |
| 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               |       | (1,901         | )          | (543              | )          | (2,444    | )          |
| Medicexchange China — incorporation         |       | —         |       | 30                |       | 30        |       |
| Minority Interest at September 30, 2007          |       | $              | 76,573     |              | $          | 8,838     |       | $ | 85,411 |   |

 

 

14

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**11. Related Party Transactions**

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

In the six months 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 $25,736,000 due from Asia IT CapitalInvestments Ltd, which consisted of the consideration from the MDST pre-IPOprivate placement.  This amount was received in full in July 2007.

Tim Paterson-Brown is also a Non-executive Director ofAccsys Technologies PLC, which has a subsidiary company Titan Wood Limited.Titan Wood Limited rents space in 66 Hammersmith Road. In the nine month periodended 30 September 2007, $192,000 of office related costs were recharged toTitan Wood Limited. At September 30, 2007 there was a balance receivable fromTitan Wood Limited of $50,000, of which $23,000 remains unpaid. This is payablewithin 30 days under the terms of the invoice.

**12.****Lease Commitments and Security Deposit**

On August 25, 2006, we executed a 10 year agreementwith Pirbright Holdings Limited, to lease 8,787 square feet of office space atthe Kensington Centre, 66 Hammersmith Road, London W14 8UD, UK, andsimultaneously vacated our previous corporate office (46 Berkeley Square,London W1J 5AT, UK).

Under this new lease agreement our UK property rent,services and related costs will be approximately £330,000 ($675,000) 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 subjectto 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.  Wehave accounted for this lease as an Operating Lease, and have accounted for thelease rental expenses on a straight line basis over the period of the lease.

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

 
| **Year Ending December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2007                                        |       | $          | 166        |   |
| 2008                                        |       | 674        |       |
| 2009                                        |       | 497        |       |
| 2010                                        |       | 468        |       |
| 2011                                        |       | 186        |       |
| Later Years                                 |       | 1,948      |       |
| **Total Minimum**                           |       | $          | 3,939      |   |

 

**Recent AccountingPronouncements**

 

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

 

15

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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 ValueOption for Financial Assets and Financial Liabilities* ” (“SFAS No. 159”), which permits entities to choose to measure manyfinancial instruments and certain other items at fair value that are notcurrently required to be measured at fair value. SFAS No. 159 will beeffective for the Company on January 1, 2008. The Company is currentlyevaluating the impact the adoption of SFAS No.159 will have on its financialposition and results of operations.

**Item 2. Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

This report contains forward-looking statements madein reliance upon the safe harbor provisions of Section 27A of the SecuritiesAct of 1933, as amended, and Section 21E of the Securities Exchange Act of1934, as amended.  These statements may be identified by the use of wordssuch as “anticipate,” “estimates,” “should,” “expect,” “guidance,” “project,” “intend,”“plan,” “believe” and other words and terms of similar meaning, in connectionwith any discussion of our financial statements, business, results ofoperations, liquidity and future operating or financial performance. Please also refer to our “Note Regards Forward Looking Statements” at the frontof this Form.

MGT is a holding company in the global HealthcareInformation Technology (“HCIT”) market.  We have two subsidiaries,Medicsight and Medicexchange.

**Medicsight PLC (“MDST”)**

MDST is a medical imaging software development companydeveloping enterprise-wide Computer-Aided Detection (CAD) software whichanalyses computer tomography (CT) scans for the early detection and measurementof 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 increasing evidence in management’s view thatearly detection of colon cancer or lung cancer leads to an improved lifeexpectancy.

*Colon Cancer*

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

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

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

a.                               less invasive;

b.                              less time consuming;

c.                               less costly;

d.                              and can be at least aseffective.

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 of lung cancer are diagnosed eachyear, and the disease accounts for 17.1 per cent of all global cancer deaths.

 

The link between smoking and lung cancer has long beenaccepted.  However, clinical research has shown that if detected early andtreated, there is more than an 85 per cent chance of a ten year survival ratefrom 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.

 

16

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*Medicsight’s ProductDevelopment 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 recognized 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.   detect potential abnormalities at anearly stage; and

b.  accurately monitor 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 withobvious symptoms).

In a screening scenario providing population screeningof high risk asymptomatic patients, CAD CT seeks to provide a cost effectivesolution by identifying certain diseases sufficiently early in the life of thedisease, to be more cost effective in terms of life years saved and theresource costs of disease management.  The application of CAD to aiddetection and diagnosis in symptomatic patients supports diagnosticdecision-making and treatment planning through the identification andmeasurement tracking of lesions.

Clinical Validation

*Colon CAD*

Medicsight’s Colon CAD research focuses on the accurateidentification of colon polyps. A recent clinical research study showed theMedicsight ColonCARTM system to have superior detection characteristics whencompared with three experienced (human) readers and our software performancehas been peer reviewed and commended in a majority of the top internationallyrecognized 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 wasperformed using the principles of evidence-based medicine and systematic reviewin order to search the available medical literature in an unbiasedfashion.  The aim was to determine the volume and quality of medicalresearch available for commercially available CAD for CT colonography fromcompanies providing systems both independently and as CT vendors.

The most exacting standard for medical research ispeer-reviewed full papers published in indexed medical journals.  Only 6papers were identified. 5 (83%) of these were from a single company, MedicsightPLC. No other independent CAD manufacturer was able to contribute a paper. Thesingle additional full-paper identified 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 Medicsight CAD outperformed experiencedreaders, and was more time-efficient than conventional reading. Medicsight has also published peer-reviewed data relating to successfulautomatic measurement of polyp diameter.  The single other peer-reviewedpaper retrieved (from Siemens) found per-polyp detection rates of 82% formedium polyps and 100% for large, but using an internal validation methodology(i.e. the same data source was used to both train and test the software).

19 abstracts of research findings presented at keyscientific medical meetings were identified.  Medicsight PLC was again thelargest single contributor (9 abstracts, 47% of total).  Moreover, thethree remaining independent CAD companies contributed only a single abstractbetween them. The remaining 9 abstracts were from CT scanner vendors — 8 fromSiemens, 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.  Thelargest study was from Medicsight (10 readers, 107 patients), which found thatCAD significantly increased per-patient and per-polyp sensitivity without asignificant detrimental effect on specificity.  The next largest study waspresented by Siemens (7 readers, 30 patients). While sensitivity was improvedsignificantly, the authors claimed a detrimental effect on specificity.

 

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 CAD research has focussed on boththe detection of lung lesions (nodules and cancers) and the accuracy of the CADin automatically measuring lesions.  Accurate measurement is crucial forthe correct diagnosis and management of lung

 

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lesions. Accurate measurement of lesions allows theirgrowth 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 CAD products have been used in:University College Hospital, London St. Mark’s Hospital (London), University ofWisconsin Hospital, University of Rome and The National Cancer Centre (Tokyo).Our Lung CAD products have been used in: The London Chest Hospital, The RoyalBrompton Hospital, Cornell Medical Centre New York, Vanderbilt Medical Centre(Tennessee), The University Health Network (Toronto, Canada), The University ofNavarra Medical Centre (Pamplona, Spain) and The National Cancer Centre(Tokyo).

These results have been crucial in developingMedicsight’s CAD products to meet the absolute requirements of clinical endusers, and in driving the use of CAD in routine clinical practice.  Tofacilitate this collaborative program, during 2006 Medicsight heldinternational Medical Advisory Board meetings with key luminaries andpractitioners in the fields of CT colonography and lung disease. MedicalAdvisory Board meetings took place in Europe, North America and Japan, drawingtogether international expertise and understanding of the current and futureclinical requirements and vision for CAD and medical image analysis software.

The use of Medicsight’s products in clinical practicehas seen the recent introduction of Medicsight ColonCAD into the SIGGAR1 Trialin the UK.  SIGGAR1 is the largest multi-centre trial of its kind in theUK to date and compares CT colonography, optical colonoscopy and barium enemavia a randomised controlled clinical trial.  Medicsight’s ColonCAD hasalso been introduced into the STIC Trial in France, a similar programinvestigating the medical and economic health benefits of CTcolonography.  In mid 2007, the first CTC colorectal cancer screeningprogram in Japan will commence and a key feature of this program will be theuse 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 relationships include:

Colon CAD Products

 

•                              Dr. David Burling at St. Mark’sHospital, London

•                              Prof. Steve Halligan and Dr.Stuart Taylor at University College Hospital, London

•                              Prof. Moriyama at the NationalCancer Centre, Tokyo

•                              Dr. Gen Iinuma at the NationalCancer Centre, Tokyo

•                              President Xu Ju at the ChineseSociety of Radiology, Tianjin, China

•                              Dr. Perry Pickhardt at theUniversity of Wisconsin Medical Centre, Madison, Wisconsin

Lung CADProducts

•                              Dr. Steve Ellis at the LondonChest Hospital

•                              Dr. Simon Padley at the RoyalBrompton Hospital

•                              Prof. Moriyama at the NationalCancer Centre, Tokyo

•                              Dr. Gen Iinuma at the NationalCancer Centre, Tokyo

•                              Dr. Ning Wu at the ChineseCancer Institute, Beijing

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

•                              Dr. Ryutaro Kakinuma at theNational Cancer Centre, Tokyo

In a growing commitment to clinician educationprograms, Medicsight has also supported the European Society ofGastrointestinal and Abdominal Radiology (ESGAR) through active participationin ESGAR’s series of international CT Colonography workshops.  Workshopsare targeted at both novices and those currently undertaking CTC practice andgive attendees the opportunity to experience Medicsight ColonCAD with hands-ontraining using multiple Medicsight partner 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 receivededicated tutorials lead by CTC luminaries Dr’s Matt Barish and Michael Zalisof Harvard Medical School, and training on Viatronix software systemsincorporating Medicsight ColonCAD.

 

Regulatory Environment

 

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 Drug Administration (FDA) is theregulatory authority. In Europe, regulatory approval is gained throughConformité Europeène (CE) marking. Other markets such as China (SFDA — StateFood & Drug Administration); Japan (MHLW — Ministry of Health, Labour andWelfare); Australia (TGA — Therapeutic Goods Administration); South Korea (KFDA—

 

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Korea Food & Drugs Administration); and Canada(CMDCAS — Canadian Medical Device Conformity Assessment System) have their ownregulatory bodies but these often require companies outside of these markets toshow evidence of an existing CE or FDA approval for a product before gaining approvalin 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 to receiveapprovals for the MedicRead Colon (which includes ColonCAD) during 2007.

*Australia and Brazil*

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

Medicsight’s Growth 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, strategic merger and acquisition opportunitieswill be actively sought.

This is intended to be achieved by:

a.                                Signing new distributionagreements for ColonCAD and LungCAD.

b.                               Aggressively driving the use anddistribution of the existing ColonCAD and LungCAD products (offices havebeen        established in both Japan andChina specifically for this purpose).

c.                                Generating additional revenueopportunities through the per click model.

d.                               Continuing to invest inimproved clinical awareness and validation.

e.                                Working with governments, internationalhealth organisations and medical institutions to promote the benefits of earlydisease detection and to publicise the potential for population screeningprograms to reduce premature deaths from diseases that can be curable ifdetected early in the disease process.

f.                                  Actively promote CAD throughsupport of accredited training programs.

g.                               To introduce additionalproducts into the Company’s portfolio by a combination of internal research anddevelopment and acquisitions.

 

The Company has signed a number of non-exclusiveglobal agreements for the distribution of its products with the followingpartners:

a.                                       Vital Images Inc. — ColonCADTM has beensuccessfully integrated into its CT colonography application which is part ofthe Vitrea software package;

b.                                      Viatronix Inc. — ColonCADTM andLungCADTM  have been successfully integrated into its V3DTM  Colonsoftware;

 

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c.                                       TeraRecon Inc. — which has successfullyintegrated ColonCADTM and LungCADTM into its Aquarius family of medical imagingapplications;

d.                                      3mensio Medical Imaging BV —which has integrated LungCADTM in the 3viseon range of products Medicsight isalso in discussion with a number of other major imaging companies and expectsto finalise distribution agreements in Japan and Europe over the coming months.

e.                                       Barco NV — ColonCAD has beenintegrated into Barco’s Colonmetrix solution and will be sold as standard withevery Colonmetrix solution going forward.

Competition

The Company’s main competitors can be divided into twocategories:

a.                               MDCT scanner manufacturers such as GE, Hitachi, Philips, Siemensand Toshiba;

b.                      IndependentCAD software providers.

The Company is not aware of any MDCT manufacturers whohave a colon CAD product other than Siemens which has a CAD-like colonproduct.  Only Siemens has a commercially available lung CAD productalthough GE has a CAD-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 CADproduct that is CE certified but not FDA approved;

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

c.                                       QI (Quantitative Imaging) (USA) — hasdeveloped a Colon CAD product that is integrated only with the Viatronixplatform.  This CAD application is not FDA approved;

d.                                      R2 (USA) — has developed a Lung CAD productthat is FDA approved.

As described earlier, Professor Steve Halligan ofUniversity College Hospital London conducted an independent systematic reviewof peer reviewed clinical research on each of the above Colon CAD applicationsthat concluded that Medicsight’s Colon CAD software not only had more peerreviewed clinical data to support its claims, but also that the quality of thedata was superior to the competition.

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

**Medicsight PLC admissionto the AIM Market of the London Stock Exchange**

On June 21, 2007, Medicsight PLC completed its initialpublic offering on the AIM Market of the London Stock Exchange.  29million new shares were issued to institutional and other investors at a priceof £1.10 ($2.20) per share raising £32 million ($64 million) gross newmoney.  We incurred fees of £1.6 million ($3.2 million), including$298,000 with Asia IT Capital Investments Ltd (a related party).  £5.5million ($11.1 million) of the net proceeds were used to repay debt (betweenMedicsight PLC and MGT).  The remaining £24.9 million ($49.8 million) cashinflow from the IPO will be used for working capital and business development.

Immediately prior to the Medicsight PLC IPO, we solddown, by private placement via Asia IT Capital Investments Ltd (a relatedparty) 11.7 million of our Medicsight PLC shares.  The shares were pricedat £1.10 ($2.20) — the same price as the Medicsight IPO.  Gross proceedson the private placement were $25.7 million.  We incurred fees with AsiaIT Capital Investments Ltd (a related party) of $1.2 million.  Theseproceeds were received on July 27, 2007.  We believe we have sufficientbrought forward capital tax losses to offset the chargeable gain from thisdisposal.

 

After the private placement and the IPO, MGT holds 85million (55%) of the 155 million issued share capital of Medicsight PLC. On September 30, 2007, Medicsight PLC shares closed at a price of £1.10 ($2.25),valuing MGT’s 85 million shares at $191 million.

**Medicexchange (“MDX”)**

Medicexchange provides medical imaging professionalswith a global web portal containing an online sales channel for diagnostic,treatment and surgery planning solutions. This combined with a variety ofrelevant news, jobs, clinical papers, training materials and content givesthese professionals access to information and products that they otherwisewould have difficulty accessing.

 

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

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

The Medicexchange portal covers the following imagingspecialty areas: Breast, Cardiology, Abdominal-Pelvic, Neurology, Thoracic andMusculoskeletal.

Medicexchange has offices in the UK, USA and China.

Benefits for Medical Imaging Vendors

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

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

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

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

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

Benefits for Radiologists

Medicexchange adds value for radiologists bydelivering a centralized meeting place for news, clinical information, jobs productsand collaboration.

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

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

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

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

Market Opportunity

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

 

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

What differentiates the company?

By creating strong commercial relationships with ourthird party partner vendors Medicexchange intends to develop the clinicalinformation and contacts, provide products and product demonstrations, trainingand support that will result in Medicexchange achieving its aim to be theleading global portal for clinical vendors and professionals.

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

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

 

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

Recent achievements

•                                          Exclusive sponsor of theAuntMinnie software center

•                                          Exclusive agreement withChinese Journal of Radiology

•                                          Over 850% growth in monthlytraffic since January 2007

•                                          Agreements signed with MedicalImaging vendors to list their products on Medicexchange.com

•                                          Agreements signed with Chinesedealer network giving access to 80% of Tier 1 and Tier 2 hospitals in Chineseurban centers

•                                          Over 200 providers nowsupplying the Medicexchange site with updated news and articles

•                                          Agreement signed with ValleyForge to sell online advertising.

•                                          Agreement signed with Vivalogtechnologies to supply clinical cases.

**Employees**

As of September 30, 2007, the Company and itssubsidiaries had 77 employees, all of whom are full-time employees.  Ouremployees are not part of a union.  We believe that we have an excellentrelationship with our employees.

**Patents and Trademarks**

Protection of our proprietary technology and ourrights over that technology, from copy or unchallenged and improper use, isessential to our future success. Any challenges to, or disputes concerning, ourcore technology may result in great expense to us, delays in bringing productsto market and disruption of our focus on our core activities.  They 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 has filed patent applications in theUnited Kingdom, the United States, the European Patent Office, Japan, South Korea,Australia, Canada, and under the International Patent Cooperation Treaty (whichcurrently has 128 member countries) covering its core technologies and theirapplications.  We have recently filed new patent applications coveringtechnology of both Medicsight CAD and Medicexchange and intend to continuefiling new applications in the future.  Two patents have been granted inthe US covering aspects of Medicsight CAD technology.  Although prior artsearches have been carried out, we cannot provide assurance that any or all ofthe pending patents will be granted or that they will not be challenged, orthat rights granted to us will actually provide us with advantage over ourcompetitors.  The Company actively reviews third party patents and is notcurrently aware of any that our products will infringe.

We have filed applications to register “Medicsight”TM ,“Medicsight Colon Screen”TM , “Medicsight Heart Screen”TM ,  “MedicsightLung Screen”TM , “Medicsight Colon CAR”TM , “Medicsight Lung CAR”TM , “MedicsightComputer Assisted Reader”TM , “Medicsight See More, Save More”TM , “Lung CAR”TM, “MedicsightImageView”, “MedicRead”,  “MedicexchangeTM”, and “MedicView” as trademarksin the United Kingdom, the European Community and the United States, and in anumber of other countries.  These trademarks are important to thecorporate identity in connection with Medicsight CAD.

 

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

**Research and Development**

Under United States generally accepted accountingprinciples, costs incurred in connection with the development of softwareproducts that are intended for sale are accounted for in accordance withStatement of Financial Accounting Standards No. 86, *Accounting for the Costs of Computer Software to be Sold, Leased, orOtherwise Marketed*.  Costs incurred prior to technologicalfeasibility being established for the product are expensed as incurred. Technological feasibility is established upon completion of a detailed programdesign or, in its absence, completion of a working model.  Thereafter, allsoftware production costs can be capitalized and subsequently reported at thelower of unamortized cost or net realizable value.  Capitalized costs areamortized based on current and future revenue for each product with an annualminimum equal to the straight-line amortization over the remaining estimatedeconomic life of the product. Amortization commences when the product isavailable for general release to customers.

The Company concluded that capitalizing suchexpenditures on completion of a working model was inappropriate because theCompany did not incur any material software production costs and therefore hasdecided to expense all research and development costs.  The Company’sresearch and development costs are comprised of staff and consultancy costsexpensed on the Medicsight products.

 

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In the ninemonths ended September 30, 2007 and 2006 the Company expensed $1,576,000, and$1,634,000 respectively for research and development expenses for itsproducts.  We cannot predict the amount of additional expenditures thatwill be necessary prior to achieving commercialization of our products.

**General**

MGT was originally incorporated as a Utah corporationin 1977 and was re-incorporated in Delaware in 2000.  At September 30,2007 the Company’s authorized share capital was 75,000,000 shares of commonstock, par value of $0.001.

In January 2007 the Company increased its authorizedshare capital from 40,000,000 shares to 75,000,000 shares of common stock, parvalue $0.001 and changed its name from Medicsight, Inc. to MGT CapitalInvestments, Inc.  At September 30, 2007, 38,900,383 shares of commonstock had been issued.

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

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

**Critical AccountingPolicies and the Use of Estimates**

We believe there have been no significant changes inour critical accounting policies during the nine months ended September 30,2007 as compared to our previous disclosures in Management’s Discussion andAnalysis of Financial Condition and Results of Operations included in ourAnnual Report on Form 10-K for the fiscal year ended December 31, 2006.

The accompanying discussion and analysis of ourfinancial condition and results of operations are based upon our condensedconsolidated financial statements and the related disclosures, which have beenprepared in accordance with U.S. generally accepted accounting principles(GAAP).  The preparation of these condensed consolidated financialstatements requires us to make estimates, assumptions and judgments that affectthe reported amounts in our condensed consolidated financial statements andaccompanying notes.  These estimates form the basis for making judgmentsabout the carrying values of assets and liabilities.  We base ourestimates and judgments on historical experience and on various otherassumptions that we believe to be reasonable under the circumstances. Actualresults could differ materially from these estimates.

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

*Revenue Recognition*

 

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

 

Thesignificant judgments for revenue recognition typically involve determining theexact date when licenses are sold to end users and the date from which supportand maintenance commences. In addition, our transactions often consist ofmultiple element arrangements, which must be analyzed to determine the fairvalue of each element, the amount of revenue to be recognized initially, andthe period and conditions under which deferred revenue should berecognized.  As a result, if facts and circumstances change that affectour current judgments, our revenue could be materially different in the future.

 

We recognizerevenue in accordance with American Institute of Certified Public Accountants (“AICPA”)Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended bySOP 98-4 and SOP 98-9, as well as Technical Practice Aids issued from time totime by the AICPA, and SEC Staff Accounting Bulletin No. 104. We recognizerevenue when it is realized or realizable and earned. We consider revenuerealized or realizable and earned when we have persuasive evidence of anarrangement, the product has been provided to the customer, the sales price isfixed or determinable, and collectability is probable.

*Income Taxes*

Although we have pre-tax losses for financialreporting purposes for the nine months ended 30 September 2007, there are stillincome taxes payable. These have been derived from tax on interest income anddividend income earned within the parent company accounts of MGT.

 

*Stock Based Compensation*

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

 

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The value of a stock option is derived from itspotential 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.  The longer the term, the more time theoption holder has to allow the stock price to increase without a cashinvestment and thus, the more valuable the option.  When establishing anestimate of the expected term, we consider the vesting period for the award andour estimate of employee’s likely stock option exercises, the expectedvolatility, and a comparison to relevant peer group data.

At the time of the respective stock options weregranted, the shares underlying the awarded stock options were not publiclytraded shares.  We review our valuation assumptions at each grant dateand, as a result, we are likely to change our valuation assumptions used tovalue stock based awards granted in future periods. Actual results, and futurechanges in estimates, may differ substantially from our currentestimates.  As a result, if factors change and we use differentassumptions, our stock-based compensation expense could be materially differentin the future.

**Results of Operations**

*Revenues*

For the nine months ended September 30, 2007 andSeptember 30, 2006 our revenues from operations were $12,000 and $nil,resulting from the sale of Medicsight software licenses.

*Selling, General and Administrative Expenses*

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

 

| ** **                                   | ** ** | **Three Months ended  September 30,** | ** ** | **Nine months ended   September 30,** | ** ** |
|----------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                   | ** ** | **2007**                                        | ** ** | **2006**                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                         |       |                                            |       |                                            |       |   |   |   |   |
| Selling, general and administrative expenses |       | $                                               | 4,564      |                                            | $          | 3,634 |   | $ | 12,545 |   | $ | 9,623 |   |
|                                         |       |                                            |       |                                            |       |   |   |   |   |
|                                              |            |                                                 |            |                                                 |            |  |  |  |  |  |  |  |  |

 

Our selling, general and administrative expenses haveincreased as we expand our international commercial operations.  Thesignificant elements being: (a) an increase in people related costs on theprior period as we paid an IPO bonus to Medicsight PLC employees of $890,000 inJune 2007; (b) an increase in stock option costs due to the E and F grants inMedicsight PLC and Plan B grants in Medicexchange and the modifications made inFebruary 2007 to the existing A to D option plans in Medicsight PLC.

*Research and Development(in thousands):*

 

| ** **                        | ** ** | **Three Months ended  September 30,** | ** ** | **Nine months ended   September 30,** | ** ** |
|-----------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                        | ** ** | **2007**                                        | ** ** | **2006**                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|                              |       |                                            |       |                                            |       |   |   |   |   |
| Research and development expenses |       | $                                               | 440        |                                            | $          | 494 |   | $ | 1,576 |   | $ | 1,634 |   |
|                              |       |                                            |       |                                            |       |   |   |   |   |
|                                   |            |                                                 |            |                                                 |            |  |  |  |  |  |  |  |  |

 

**Private placement ofMedicsight PLC shares**

In June 2007, immediately prior to the IPO ofMedicsight PLC, we sold by a private placement via Asia IT Capital InvestmentsLtd (a related party), 11.7 million of our Medicsight PLC shares. The shareswere priced at £1.10 ($2.20) — the same price as the Medicsight IPO. Grossproceeds on the private placement were $25.7 million.  We incurred feeswith Asia IT Capital Investments Ltd (a related party) of $1.2 million,resulting in a net cash inflow of $24.5 million.  These proceeds werereceived in July 2007.  We believe we have sufficient capital tax losscarry forwards to offset the chargeable gain from this disposal.

Immediately before the private placement we held 96.7million (77%) of the 126 million issued share capital of Medicsight PLC. Afterthe private placement we held 85 million (67%) of the 126 million issued sharecapital 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 guidance of Staff AccountingBulletin No. 51 we credited these proceeds to Additional Paid in Capital andMinority Interest and have not recognized any gain from the private placementof the Medicsight PLC shares.  At this time we do not expect a similartransaction to occur in the future.

 

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**Liquidity and CapitalResources**

*Working CapitalInformation (in thousands):*

 

| ** **                                     | ** ** | **September 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                     | ** ** | **(unaudited)**             | ** ** | ** **                      | ** ** |
|                                           |       |                        |       |                            |       |
| Cash & Marketable Securities               |       | 99,763                      |       | 24,735                          |       |
|                                           |       |                        |       |                            |       |
| Current Assets                                 |       | 100,580                     |       | 25,306                          |       |
| Current Liabilities                            |       | (3,726                      | )          | (3,378                          | )          |
| Working Capital Surplus                        |       | 96,854                      |       | 21,928                          |       |
|                                           |       |                        |       |                            |       |
| Ratio of Current Assets to Current Liabilities |       | 27                          |       | 7.5                             |       |

 

As of September 30, 2007 we had $99,624,000 in cash(compared to $10,955,000 at September 30, 2006) and $139,000 in marketablesecurities compared to $3,644,000 at September 30, 2006.

Net cash used in operating activities was$(10,953,000) for the nine months ended September 30, 2007 ($10,656,000 for thenine month period ended September 30, 2006). This resulted primarily from:

a.                                        our net loss of $9,807,000compared with a net loss of $10,938,000 for the nine month period endedSeptember 30, 2006;

b.                                       adjusted for depreciation andstock-based compensation expenses (non cash items) of $1,184,000 ($557,000 forthe nine month period ended September 30, 2006);

c.                                        an overall increase in currentassets and liabilities (excluding cash items) of $108,000 in the period endedSeptember 30, 2007 compared to $171,000 ( reduction) for the period endedSeptember 30, 2006.

d.                                       loss attributable to minorityinterest of $2,444,000 for the nine month period September 30, 2007 compared to$115,000 as at September 30, 2006.

Net cash provided in investing activities was$3,730,000 for the nine months ended September 30, 2007 and $91,000 for thenine months ended September 30, 2006 consisted primarily of:

e.                                       in the nine months endedSeptember 30, 2007 we received $5,141,000 from the sale of available for salemarketable securities as compared to $(3,511,000) which was used for purchasesof available for sale marketable securities for the nine month period endedSeptember 30, 2006;

f.                                       in the nine months endedSeptember 30, 2007 we used $(411,000) in capital expenditure ($398,000) for thenine months ended September 30, 2006.

g.                                    in the nine months endedSeptember 30, 2007 we used $(1,000,000) for the purchase of Investments atCost.

h.                                      September 30, 2006 included acash inflow of $4,000,000 representing cash held for common stock subscribedbut not issued.

Net cash flows provided by financing activities of$85,611,000 for the nine month period ended September 30, 2007 (compared to$14,285,000 provided by financing activities for the nine months endedSeptember 30, 2006). This primarily consisted of a cash inflow of $85,618,000(net of commissions) relating to the IPO of Medicsight PLC. Net proceeds fromthe issue of shares in the nine month period ended September 30, 2006 totalled$17,898,000.

The company considers that current cash flows areadequate to cover the business operations for the next twelve months.

 

 

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**Item 3.****                                       ****Quantitativeand Qualitative Disclosures About Market Risk**

*Interest Rate Risk*

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

*Evaluation of DisclosureControls and 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 September30, 2007.  This evaluation was carried out under the supervision and withthe participation of our management, including our Chief Executive Officer andChief Financial Officer. As defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act, disclosure controls and procedures are controls and otherprocedures of the Company that are designed to ensure that information requiredto be disclosed by the Company in the reports it files or submits under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in the Securities and Exchange Commission’s rules andforms.  Disclosure controls and procedures include, without limitation,controls and procedures designed to ensure that information required to bedisclosed by the Company in the reports it files or submits under the ExchangeAct is accumulated and communicated to the Company’s management, including ourChief Executive Officer and Chief Financial Officer, as appropriate, to allowtimely decisions regarding required disclosure.

Based upon that evaluation, our Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective as of September 30, 2007.  It should be notedthat the design of any system of controls is based in part upon certainassumptions about the likelihood of future events, and there can be noassurance that any design will succeed in achieving its stated goals under allpotential future conditions, regardless of how remote.

*Changes in Internal Control over Financial 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 nine months endedSeptember 30, 2007, that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.  Basedon that evaluation during the quarter ended September 30, 2007 there has beenno change in our internal control over financial reporting that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover 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 the documentation, testing and review of ourinternal controls under the direction of senior management.

 

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**PART II.  OTHER INFORMATION**

**Item 1.**                                           **LegalProceedings**

There are 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 factors setforth below.  They describe various risks and uncertainties to which weare 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,strategies or prospects in a material and adverse manner.  New risks mayemerge at any time, and we cannot predict those risks or estimate the extent towhich they may affect financial performance.  Each of the risks describedbelow could adversely impact the value of our securities.  Thesestatements, like all statements in this report, speak only as of the date ofthis report (unless another date is indicated), and we undertake no obligationto update or revise the statements in light of future 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 face obstacles in commercializing theMedicsight CAD products and the Medicexchange portal and in generatingoperating 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, inour view, such other systems are more dependent than ours on human resources tocarry out the analysis.  We are not aware of other systems in the fieldthat have the automated capability of our products.

The Company has had only a limited operating historyand has only just started generating revenues from its continuing operationsupon which an evaluation of its prospects 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 can be no assurance that the Companywill be able to achieve profitable operations in the foreseeable future or atall.

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 medicalcommunity may resist the Medicsight CAD and Medicexchange products or be slowerto accept them than we expect.  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 additional cost in obtaining regulatoryapprovals for our products in our targeted markets.

*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.  Inaddition these competitors may have significantly greater resources than theCompany.  We cannot make any assurance that they will not attempt todevelop such offerings, that they will not be successful in developing suchofferings or that any offerings they do develop will not have a competitiveedge over Medicsight CAD products and Medicexchange.

 

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*Financial Risk*

The Company has incurred significant operating lossessince inception and has just commenced generating revenues from continuingoperations. As a result, the Company has generated negative cash flows fromoperations and has an accumulated deficit at September 30, 2007.  TheCompany is operating in a developing industry based on new technology and itsprimary source of funds to date has been through theissuance of securities andborrowed funds.  While the Company is optimistic and believes appropriateactions are being taken, there can be no assurance that management’s effortswill be successful or that the products the Company develops and markets willbe accepted by consumers.

*Corporate Structure*

The Company’s corporate structure may make it moredifficult or costly to take certain actions.  The Company conducts itsbusiness through: (a) Medicsight PLC, a U.K. public company which is 55% ownedby the Company, and through Medicsight PLC’s subsidiaries in the UnitedKingdom, the United States, Japan and Gibraltar and; (b) through theMedicexchange subsidiaries, which the Company holdings range between 73% and90%.  Although the Company and Medicsight PLC and Medicexchange PLC sharesome directors and management, they are required to comply with corporategovernance and other laws and rules applicable to public companies inthe United Kingdom and the United States.  Should the Company propose totake any action, such as a transfer or allocation of assets or liabilitiesbetween the Company its subsidiaries, the Company would have to take intoconsideration the potentially conflicting interests of the Company’sstockholders and the minority stockholders.  This may deter the Companyfrom taking such actions that might otherwise be in the best interest of theCompany or cause the Company to incur additional costs in taking suchactions.  The subsidiary companies would not be able to pay dividends ormake other distributions of profits or assets to the Company withoutmaking pro rata payments or distributions to the respective minoritystockholders.  Although neither the subsidiary companies nor theCompany has plans to pay dividends or make distributions to its shareholders,the Company’s corporate structure may deter its subsidiaries from doing so inthe future.

*The protection of ourintellectual property may be uncertain, and we may face possible claims ofothers.*

Although we have received patents and have filed patentapplications with respect to certain aspects of our technology, we generally donot rely on patent protection with respect to our products andtechnologies.  Instead, we rely primarily on a combination of trade secretand copyright law, employee and third-party nondisclosure agreements and otherprotective measures to protect intellectual property rights pertaining to ourproducts and technologies.  Such measures may not provide meaningfulprotection of our trade secrets, know-how or other intellectual property in theevent of any unauthorized use, misappropriation or disclosure.  Others mayindependently develop similar technologies or duplicate our technologies. In addition, to the extent that we apply for any patents, such applications maynot result in issued patents or, if issued, such patents may not be valid or ofvalue.  Third parties could, in the future, assert infringement ormisappropriation claims against us with respect to our current or futureproducts and technologies, or we may need to assert claims of infringementagainst third parties.  Any infringement or misappropriation claim by usor against us could place significant strain on our financial resources, divertmanagement’s attention from our business and harm our reputation.  The costsof prosecuting or defending an intellectual property claim could be substantialand could adversely affect our business, even if we are ultimately successfulin prosecuting or defending any such claims. If our products or technologiesare found to infringe the rights of a third party, we could be required to paysignificant damages or license fees or cease production, any of which couldhave a material adverse effect on our business.

*If we fail to attract andretain qualified personnel, our business would be harmed.*

We expect to rapidly expand our operations and growour sales, research and development and administrative operations.  Thisexpansion is expected to place a significant strain on our management and willrequire hiring a significant number of qualified personnel. Accordingly,recruiting and retaining such personnel in the future will be critical to oursuccess.  There is intense competition from other companies, research andacademic institutions, government entities and other organizations forqualified personnel in the areas of our activities.  If we fail toidentify, attract, retain and motivate these highly skilled personnel, we maybe unable to continue our marketing and development activities.

*If we do not effectivelymanage changes in our business, these changes could place a significant strainon our management and operations and, as a result, our business might notsucceed.*

Our ability to grow successfully requires an effectiveplanning and management process.  The expansion and growth of our businesscould place a significant strain on our management systems, infrastructure andother resources.  To manage our growth successfully, we must continue toimprove and expand our systems and infrastructure in a timely and efficient manner. Our controls, systems, procedures and resources may not be adequate to supporta changing and growing company.  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.

 

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*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.

 

*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 internalaccounting controls, as such standards are modified, supplemented or amendedfrom time to time, we may not be able to ensure that we can conclude on anongoing basis that we have effective internal controls over financial reportingin accordance with Section 404. Failure to achieve and maintain an effectiveinternal control environment could cause us to face regulatory action and alsocause investors to lose confidence in our reported financial information,either of which could have an adverse effect on our stock price.

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

In the nine months ended September 30, 2007 no sharesin common stock were issued.

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

None.

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

None.

**Item 5.**                                           **OtherInformation**

None.

 

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**Exhibits and Reports onForm 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 |
|                    |                           |   |
|                    |                           |   |
| November  7 , 2007 |                           |   |

 

 

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