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MGT Capital Investments Inc.

Form 10-K

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All financial amounts are in thousands except share and per share data.

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NOTE REGARDING FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of MGT Capital Investments, IncInc. and its consolidated subsidiaries (the “Company”) to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of revenue, gross margin, expenses, earnings or losses from operations, synergies or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the rate of market development and acceptance of medical imaging technology; the execution of restructuring plans; any statement concerning developments, performance or industry rankings relating to products or services; any statements regarding future economic conditions or performance; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include the performance of contracts by suppliers, customers and partners; employee management issues; the difficulty of aligning expense levels with revenue changes; and other risks that are described herein, including but not limited to the specific risks areas discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this report, and that are otherwise described from time to time in the Company’s periodic disclosure statements and for reports filed with the Securities and Exchange Commission reports filed after this report.Commission. The Company assumes no obligation and does not intend to update these forward-looking statements.

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

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ProductsProduct development

Medicsight’s core technology is the proprietary ColonCAD™ algorithm that is integrated (using application protocol interface (“API”) technology) into visualisation workstations for radiologists to use when reviewing a patient’s colon scan data.  The CAD algorithm assists the radiologist as they search for polyps in the CT scan image data.  The radiologist uses the visualisation software to review the patient’s CT scan images on the screen and search for polyps (potentially pre-cancerous lesions on the wall of the colon).  After a full review the radiologist then activates the Medicsight develops and markets ColonCAD, LungCAD andColonCAD™ software - which immediately displays “CAD marks” on the images, drawing the radiologist’s attention to potential polyps.  The radiologist will then assess the marked regions in order to make the final decision as to the presence or absence of a new MedicRead visualization software application.  The ColonCAD and LungCAD software (and their previous versions, ColonCAR and LungCAR) are application programmable interfaces (“APIs”) which have been seamlessly integrated into our partners’ advanced 3D visualization workstations to give the clinical user a combined visualization and detection solution.lesion.

ColonCADClinical studies have demonstrated that radiologists assisted by Medicsight’s ColonCAD™ technology have a significantly higher sensitivity for the detection of polyps in CT colonography compared to unassisted reading (i.e. traditional reading without the use of ColonCAD™).

During the year Medicsight’s Research and Development Team made a number of enhancements to ColonCAD.  This has resulted in a further improvement in its detection rate of colonic polyps.  According to aA recent study, ColonCAD haspresented by Dr Stuart Taylor (a consultant radiologist at London’s University College Hospital), at the 2008 annual Radiological Society of North America Conference, ColonCAD™ demonstrated a sensitivity of 85% for colonic polyps of size 5mm and larger, and 95% for polyps of 10mm and larger.  Polyp size is the main criterion for follow-up action onafter a positive CT Colonography finding; polyps in the 66mm to 9 mm9mm range are often monitored over time whilst polyps with a diameter of 10mm or greater polyps are recommended for optical colonoscopy follow-upfollow up and possible removal.

During 2008 the Group completed work on ColonCAD 4.0 and formally launched this product at the European Congress of Radiology in March 2009. This isnew release significantly reduces the number of false-positive CAD marks presented to a radiologist reviewing a patient data set.  This should lead to further improvements in reader performance when assisted by the ColonCAD™ software.

This ColonCAD 4.0 upgrade will be integrated in to our most sensitive ColonCAD release to datepartner workstation and has been integratedreleased into the visualization workstations of our partners.European market during 2009.  We believe that this version of Medicsight ColonCAD isColonCAD™ extends Medicsight’s position as a provider of one of the world’s leading colon CAD software solutions.  The productMedicsight’s ColonCAD™ has been developed and validated using a large database of CT scans from hospitals around the world and has been assessed in many clinical studies, the results of which have been published in peer-reviewed publications and presented at leading radiology conferences.

LungCADThe MedicRead product is Medicsight’s advanced visualisation software application with integrated Colon, Lung and Liver modules.  Medicsight launched MedicRead 1.0 in 2008.  The next version of this product will be released in 2009 and will include improved workflow flexibility, improved 3D visualisation options, as well as the ColonCAD 4.0 within the CT Colonography module.

In 2007 we enhanced our LungCAD software application, complementing our LungCAD nodule detection and measurement tools with additional features to create a disease management suite which we believe will meet the clinical needs2

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Immediately prior to the Medicsight IPO the Company sold down, by private placement, 11.7 million of its Medicsight plc shares.  The shares were priced at £1.10 ($2.20) — the same price as the Medicsight IPO.  Gross proceeds on the private placement were £12,845 ($25,736).  We incurred fees with Asia IT Capital Investments Ltd (a related party) of £578 ($1,167).  These proceeds were received on July 27, 2007.

After the Company’s private placement and the Medicsight IPO, the Company held 85 million of the 155 million issued share capital of Medicsight.  Since the IPO the Company bought back 1 million of Medicsight’s shares bringing our holding to 86 million shares, which is 55% of the outstanding share capital of Medicsight.

Medicexchange Limited

Medicexchange is an embryonic global imaging portal focusing on the medical vision sector that owns and operates two websites, Medicexchange.com aimed at North America and Europe and Maydeal.com in China (acquired in April 2008).

Medicexchange has endeavored to build traffic, registered users and revenues from North America, Europe and China.

Whilst user numbers have been increasing, revenue generation has not been forthcoming due to tightening of corporate advertising budgets and the general global economic conditions.

Management are currently reviewing options for the Medicexchange business.

Other investments

In addition to Medicsight and Medicexchange we have small investments in XShares LLC, Hipcricket Inc and Eurindia Limited. Due to general economic conditions all three of these investments have been impaired during 2008 (See note 5).  We are currently reviewing our strategy for these investments.

Employees strategy

As of December 31, 2008 the Company and its subsidiaries had 96 employees, all of whom were full-time employees.  Our employees are not part of a union.

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Financial Information

Note 1416 to the Consolidated Financial Statements provides information on the Company’s segment reporting.

General

MGT was originally incorporated as a Utah corporation in 1977 and was re-incorporated in Delaware in 2000.  At December 31, 20072008 the Company’s authorized share capital was 75,000,000 shares of common stock, par value of $0.001.

In January 2007 the Company changed its name from Medicsight Inc. to MGT Capital Investments, Inc.

At March 17, 2008, 38,294,98227, 2009, 38,900,383 shares of our common stock had been issued.issued and 32,550,590 were outstanding.

Our principal executive office is located at Kensington Centre, 66 Hammersmith Road, London W14 8UD, United Kingdom, telephone 011-44-207-605-1151, facsimile 011-44-207-605-1171.

Our web address is www.mgtci.com. Information on our website is not deemed to beincluded as a part of this Annual Report.

Available information

We will provide, upon request and free of charge, paper copies of our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, including any amendments to the foregoing reports, as soon as is reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission.  These materials along with our Code of Business Conduct and Ethics are also available through our corporate website at www.mgtci.com.  A copy of this annual report on Form 10-K is located at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549.  Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.  The public may also download these materials from the Securities and Exchange Commission’s website at http://www.sec.gov.  Any amendments to, and waivers of, our Code of Business Conduct and Ethics will be posted on our corporate website.

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approvals for our products in our targeted markets.  The failure to obtain these approvals and/or the associated costs could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

Competitive Risk: The medical imaging market we operate in is highly competitive.

There are a number of groups and organizations, such as software companies in the medical imaging field, MDCT scanner manufacturers, screening companies and other healthcare providers that may develop a competitive offering to the Medicsight CAD products and Medicexchange.com.  In addition these competitors may have significantly greater resources than MGT. We cannot make any assurance that they will not attempt to develop such offerings, that they will not be successful in developing such offerings or that any offerings they domay develop will not have a competitive edge over Medicsight CAD products and Medicexchange.com. Should a superior offering market come to market, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

Financial Risk: We are a developing company with limited revenues from operations.

MGT has incurred significant operating losses since inception and has only recently commenced generating revenues from operations. As a result, MGT has generated negative cash flows from operations and has

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intellectual property rights pertaining to our products and technologies. Such measures may not provide meaningful protection of our trade secrets, know-how or other intellectual property in the event of any unauthorized use, misappropriation or disclosure. Others may independently develop similar technologies or duplicate our technologies. In addition, to the extent that we apply for any patents, such applications may not result in issued patents or, if issued, such patents may not be valid or of value. Third parties could, in the future, assert infringement or misappropriation claims against us with respect to our current or future products and technologies, or we may need to assert claims of infringement against third parties. Any infringement or misappropriation claim by us or against us could place significant strain on our financial resources, divert management’s attention from our business and harm our reputation. The costs of prosecuting or defending an intellectual property claim could be substantial and could adversely affect our business, even if we are ultimately successful in prosecuting or defending any such claims. If our products or technologies are found to infringe the rights of a third party, we could be required to pay significant damages or license fees or cease production, any of which could have a material adverse effect on our business.  If a claim is brought against us, or we ultimately prove unsuccessful on the claims on our merits, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

If weWe may fail to attract and retain qualified personnel, our business would be harmed:  personnel.

We expect to rapidly expand our operations and grow our sales, research and development and administrative operations. This expansion is expected to place a significant strain on our management and will require hiring a significant number of qualified personnel. Accordingly, recruiting and retaining such personnel in the future will be critical to our success. There is intense competition from other companies, research and academic institutions, government entities and other organizations for qualified personnel in the areas of our activities. If we fail to identify, attract, retain and motivate these highly skilled personnel, we may be unable to continue our marketing and development activities.activities, and this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

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

Our ability to grow successfully requires an effective planning and management process. The expansion and growth of our business could place a significant strain on our management systems, infrastructure and other resources. To manage our growth successfully, we must continue to improve and expand our systems and infrastructure in a timely and efficient manner. Our controls, systems, procedures and resources may not be adequate to support a changing and growing company. If our management fails to respond effectively to changes and growth in our business, including acquisitions, such failurethis could have a material adverse effect on our business.the Company’s business, financial condition, results of operations and future prospects.

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believe to be fair, this could be hindered byhave a material effect on the Company’s business, financial condition, results of operations and future prospects.

General market risks such as the loss of key personnel or the patents and trademarks being successfully challenged or credit facilities being reduced or terminated by lenders.

Internal Controls: We may not be able to access credit.

We face the risk that we may not be able to access credit, either from lenders or suppliers, or have facilities reduced or terminated.  Failure to achieve and maintain effective internal controls in accordance with Section 404access credit from any of the Sarbanes-Oxley Act of 2002these sources could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

Recent global economic trends could adversely affect our business, liquidity and operatingfinancial results.

Recent global economic conditions, including disruption of financial markets, could adversely affect us, primarily through limiting our access to capital and disrupting our clients’ businesses.  In addition, as a consequencecontinuation or worsening of such failure, currentgeneral market conditions in economies important to our businesses may adversely affect our clients’ level of spending and potential stockholders could lose confidence in ourability to obtain financing, leading to us being unable to generate the levels of sales that we require.  Current and continued disruption of financial reporting, whichmarkets could have ana material adverse effect on our stock price. Effective internal controls are necessary for us to prevent reliablethe Company’s business, financial reportscondition, results of operations and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we could be subject to regulatory action or other litigation and our operating results could be harmed.future prospects.

Commencing with our fiscal year ending December 31, 2007, we were requiredWe may not be able to document and test ourmaintain effective internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires our management to annually asses the effectiveness of our internal controls over financial reporting, and our independent registered public accounting firm to report on these assessments.controls.

If we fail to maintain the adequacy of our internal accounting controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Failure to achieve and maintain an effective internal control environment could cause us to face regulatory action and also cause investors to lose confidence in our reported financial information, either of which could have ana material adverse effect on our stock price.the Company’s business, financial condition, results of operations and future prospects.

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ITEM 1B.

ITEM 1B.UNRESOLVED STAFF COMMENTS

None.

ITEM 2PROPERTIES

Our principal executive office is located at Kensington Centre, 66 Hammersmith Road, London W14 8UD, United Kingdom where we occupy 8,787 square feet under a lease that expires on August 25, 2016.  We have additional satellite offices in Japan (occupied by Medicsight), China (occupied by Medicexchange), and ChinaNew York City (occupied by Medicexchange).

ITEM 3LEGAL PROCEEDINGS

The Company is not engaged in any material legal proceedings at this time nor are we aware of any pending legal proceedings.

ITEM 4SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to the vote of the Company’s security holders during the fourth quarter of the fiscal year ended December 31, 2007.2008.

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PART II

ITEM 5MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER’S PURCHASES OF EQUITY SECURITIES.

Market Information

The Company’s common stock is traded on the American Stock Exchange (www.amex.com)NYSE AMEX stock exchange (www.nyse.com) under the symbol “MGT”.  The following table sets forth the range of high and low sales prices per share of our common stock for each quarterly period during 20062008 and 2007.

On March 14, 2008,27, 2009 the Company’s common stock closed on the American Stock ExchangeNYSE Alternext US stock exchange at $2.90$0.50 per share.

As of March 14, 2008,27, 2009 there were 775737 holders of record of the Company’s common stock.

Dividends

The Company has never declared or paid cash dividends on its common stock. The Company currently intends to retain earnings, if any, to support its growth strategy and does not anticipate paying cash dividends in the foreseeable future. Payment of future dividends, if any, will be at the discretion of the Company’s Board of Directors after taking into account various factors, including the Company’s financial condition, operating results, current and anticipated cash needs and plans for expansion.

Recent Sales of Unregistered Securities

None.

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Operating costs have increased primarily as a result of increased spend on commercial operations in Medicsight as we try to develop market opportunities in regions where we have regulatory approvals pending and try to drive increased sales where approvals are already granted. Costs have also been impacted by increased legal and professional fees in MGT Capital Investments, Inc. attributable to fees paid for a share buy-back program and tax advice.

Our balance sheet strengthened significantlyremains strong with cash, cash equivalents and marketable securities being $94,592of $40,178 compared to $24,735$94,592 in 2006. This2007. The movement is asmainly attributable to the purchase of our own and subsidiary company stock ($20,163), cash used in operating activities ($20,039), cash used in investing activities ($3,772) and the effects of exchange rates ($10,105).

As of the date of the filing of this report, we have concluded that our current method of valuing our goodwill is going to be impacted by the significant volatility in financial markets during the first quarter of 2009, which adversely affected the share price of our subsidiary Medicsight shareholding.  As a result of the Medicsight IPO and MGT’s salethis decline in market value, we could be required to take a charge for impairment against goodwill in 2009.

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Critical accounting policies and estimates

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The notes to the consolidated financial statements contained in this Annual Report describe our significant accounting policies used in the preparation of the consolidated financial statements. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. We continually evaluate our critical accounting policies and estimates.

We believe the critical accounting policies listed below reflect significant judgments, estimates and assumptions used in the preparation of our consolidated financial statements.

Revenue Recognition

Medicsight

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

License fee revenue is derived from the licensing of computer software. Maintenance revenue is derived from software maintenance. The Company’s software licenses are generally sold as part of an arrangement that includes maintenance and support.

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

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

Additionally:

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

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

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Multiple-Element Arrangements — The Company enters into arrangements with Resellers that include a combination of software products, maintenance and support. For such arrangements, the Company recognizes revenue using the residual method. The Company allocates the total arrangement fee among the various elements of the arrangement based on the fair value of each of the undelivered elements determined by vendor-specific objective evidence. The fair value of maintenance and support services is evidence of fair value for all elements, revenue is deferred until the earlier of when vendor-specific objective evidence is determined for the undelivered elements (residual method) or when all elements for which the Company does not have vendor-specific objective evidence of fair value have been delivered.

Medicexchange

We recognize revenue when the following revenue recognition criteria are met:  persuasive evidence of an arrangement exists, services have been rendered, the selling price is fixed or determinable and collectibilitycollectability is reasonable assured.  Deferred revenue is recorded when payments are received in advance of performing our service obligations.

Goodwill

We account for goodwill in accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets.”  Under SFAS No. 142, goodwill and intangible assets with indefinite lives are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The first step of the goodwill impairment test, used to identify potential impairment,

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compares the fair value of a reporting unit with its carrying amount, including goodwill. We compare the book value to the market value (market capitalization plus a control premium) for the reporting unit. If the market value exceeds the book value, goodwill is considered not impaired, and thus the second step of the impairment test is not necessary. If our book value exceeds the market value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of the goodwill with the book value of the goodwill. If the carrying value of the goodwill exceeds the implied fair value of the goodwill, an impairment loss would be recognized in an amount equal to the excess. Any loss recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill is its new accounting basis. Subsequent reversal of a previously recognized goodwill impairment loss is prohibited once the measurement of that loss is completed. We completed the annual goodwill impairment assessment as of December 31, 2007,2008, in which no impairment was identified. Goodwill was $11,200$12,157 as of December 31, 2007.2008.

As of the date of the filing of this report, we have concluded that our current method of valuing our goodwill is going to be impacted by the significant volatility in financial markets during the first quarter of 2009, which affected the share price of our subsidiary Medicsight shareholding.  As a result of this decline in market value, we could be required to take a charge for impairment against goodwill in 2009. While this situation does not affect our results for the period covered by this report, we have decided to perform an independent valuation of Medicsight goodwill during the first quarter of 2009 to determine if any impairment is required in the first quarter 2009 results.

Equity-based compensation

Effective January 1, 2006 we adopted the fair value recognition provisions of SFAS No. 123(R), using the modified prospective transition method, and therefore have not restated prior periods’ results. Under this method, we recognize compensation expense for all equity-based payments granted on or after January 1, 2006 and prior to but not yet vested as of January 1, 2006 in accordance with SFAS No. 123(R). Under the fair value recognition provisions of SFAS No. 123(R), we recognize equity-based compensation net of an estimated forfeiture rate and recognize compensation cost only for those shares expected to vest over the requisite service period of the award. Prior to SFAS No.123(R) adoption, we accounted for equity-based payments under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and accordingly did not recognize equity-based compensation related to these options, as the exercise price equaled the fair market value of the common stock on the date of grant.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model requires the development of assumptions that are input into the model. These assumptions are the expected stock volatility, the risk-free interest rate, the option’s expected life and the dividend yield on the underlying stock. Expected volatility is calculated based on the historical volatility of our common stock over the expected option life and other appropriate factors. Risk-free interest rates are calculated based on continuously compounded risk-free rates for the appropriate term. The dividend yield is assumed to be zero as we have never paid or declared any cash dividends on our common stock and do not intend to pay dividends on our common stock in the foreseeable future. The expected forfeiture rate is estimated based on historical experience.

Determining the appropriate fair value model and calculating the fair value of equity-based payment awards require the input of the subjective assumptions described above. The assumptions used in calculating the fair value of equity-based payment awards represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our equity-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest. If our actual

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forfeiture rate is materially different from our estimate, the equity-based compensation expense could be significantly different from what we have recorded in the current period.

Research and Developmentdevelopment

Costs incurred in connection with the development of software products that are intended for sale are accounted for in accordance with Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”. Costs incurred prior to technological feasibility being established for the product are expensed as incurred. Technological feasibility is established upon completion of a detail program design or, in its absence, completion of a working model. Thereafter, all software production costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product. Amortization commences when the product is available for general release to customers.

The Company concluded that capitalizing such expenditures on completion of a working model was inappropriate because the Company did not incur any material software production costs and therefore has decided to expense all research and development costs. The Company’s research and development costs are comprised of staff, consultancy and consultancyother costs expensed on the Medicsight products.

Fair value of financial instruments

On January 1, 2008 the Company adopted the provisions of SFAS No. 157, “Fair Value Measurements,” for financial assets and financial liabilities.  Applying fair value measurements to our financial instruments requires management’s judgement, especially when using Level 2 and Level 3 inputs as defined in SFAS 157’s fair value hierarchy.

Impairment of Long-lived Assetslong-lived assets and Long-lived Assets To Be Disposedlong-lived assets to be disposed of

The Company evaluates the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s assessment for impairment of an asset involves estimating the undiscounted cash flows expected to result from use of the asset and its eventual disposition. An impairment loss recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Calculating the estimated fair value of an asset involves significant judgments and a variety of assumptions. Judgments that the Company makes concerning the value of its intangible assets include assessing time and cost involved for development, time to market, and risks of

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regulatory failure or obsolescence (due to market, environmental or technological advances for example). For calculating fair value based on discounted cash flows, we forecast future operating results and future cash flows, which include long-term forecasts of revenue growth, gross margins and capital expenditures.

An impairment analysis was performed as of December 31, 2007 and 20062008 and the Company concluded there was no impairment loss.

We are exposeddecided to foreign currency exchange rate fluctuations relatedimpair its investment in Eurindia to the operationvalue of our international subsidiaries.  Our main operating currency is UK sterling (£).Wethe expected liquidating dividend.  This resulted in an impairment loss of $183 for the year ending December 31, 2008.

The Company also have subsidiary operationsimpaired its holding in Japan and China who operateXShares LLC, resulting in their local currencies.an impairment loss of $2,400.

Results of Operations

Fiscal Year Ended December 31, 20072008 vs. Fiscal Year Ended December 31, 20062007

Revenue & Margin

The Company has generated revenues of $89$354 and gross margin of $238 for Fiscal 2008, compared to $89 and $54 for Fiscal 2007,2007. Both Medicsight and Medicexchange have increased revenues in the period.

Medicsight has sold licences primarily in Europe where it has regulatory approvals.

Medicexchange increased the level of equipment sales in China with revenue of $131 compared to $nil and $nil for Fiscal 2006.$35 in 2007. Revenue from advertising on its website has increased from $13 in 2007 to $32 in 2008.

Research and DevelopmentOperating Expenses

The Company’s research and development expenses for Fiscal 20072008 were $2,670$3,665 compared to $2,870$2,670 for Fiscal 2006.2007. The Company’s research and development costs were comprised of staff, staff related consultancy, stock options and product development software costs expensed on the research and development of Medicsight’s products.

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Income Tax Benefit Realized

Our effective tax rate for fiscal year 20072008 is 0%.  The difference in the Company’s effective tax rate from the Federal statutory rate is primarily due to a 100% valuation allowance provided for all deferred tax assets.

In Fiscal 2005 Medicsight PLC received a tax credit17

Table of $858 from the United Kingdom taxation authorities under its Research & Development tax relief scheme for small and medium sized enterprises. The tax credit relates to expenditures incurred between November 2001 and December 2003. The Company has not accrued for any subsequent tax credits as it has determined that the completion date (under rules of the scheme) of the new technology occurred at the end of Fiscal 2003.Contents

Net Lossloss and net loss per share

Net Lossloss was $20,001 for Fiscal 2008 compared to a net loss of $13,800 for Fiscal 2007. Net loss per Shareshare for Fiscal 2008 was $0.60 (based on weighted average shares outstanding of 33,188,294), compared to $0.35 for Fiscal 2007 (based on weighted average shares outstanding of 38,900,383). The weighted average shares outstanding decreased as a result of the buyback of 6,349,793 shares that remain in treasury.

Operational currency

The Company’s main operating currency is UK sterling (£). Its results of operations are affected by changes in the $: £ rates used to translate the operational result. For Fiscal 2008, the average rate was $1.85: £1.00 and for Fiscal 2007 the rate was $2.01:£1.00, a decrease of 7.9%.

Fiscal Year Ended December 31, 2007 vs. Fiscal Year Ended December 31, 2006

Revenue & Margin

The Company generated revenues of $89 and gross margin of $54 for Fiscal 2007, compared to $nil and $nil for Fiscal 2006. Both Medicsight and Medicexchange increased revenues in the period.

Medicexchange increased the level of equipment sales in China with revenue of $35 compared to $nil in 2007. Revenue from advertising on its website also increased to $13 from $nil in 2007.

Operating Expenses

The Company’s research and development expenses for Fiscal 2007 were $2,670 as compared to $2,870 for Fiscal 2006.  The Company’s research and development costs were comprised of staff, staff related, consultancy, stock options, and product development software costs expensed on the research and development of Medicsights PLCs’s products.

People related costs increased by $3,357 (72%) as we continued to expand our operations. In Medicsight the operations and sales and marketing teams increased in size in order to develop product pipeline and initialize commercialization. In Medicexchange the UK remained stable with a small increase in headcount in China.

Bonus payments contributed significantly to the increase in people costs. Medicsight employees received a bonus on completion of the IPO. In addition all employees received a year end bonus.

Stock option charges increased significantly in the year by $931 (231%). This was as a result of several new grants being undertaken in the year across the three companies, and the repricing of some of the earlier Medicsight options.

Professional fees increased $848 (78%) due to fees incurred for Sarbanes Oxley compliance, consultancy and audit. In addition, there were been increased fees with regard to investor relations as a result of the Medicsight IPO.

Travel expense increased $730 (129%) as the business continued to expand internationally and employees travelled to overseas offices. In addition further cooperation with overseas partners and involvement in overseas conferences increased the level of spend.

Software and related decreased $309 (69%) as the initial website build costs were expensed in the previous year.

Marketing, conferences and public relations remained in line with the prior year as a result of continuing to supporting our Medicsight partners, promoting our international presence and building the Medicexchange business and brand.

Income Tax

Our effective tax rate for fiscal year 2007 was 0%.  The difference in the Company’s effective tax rate from the Federal statutory rate was primarily due to a 100% valuation allowance provided for all deferred tax assets.

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Net loss and net loss per share

Net loss was $13,800 for Fiscal 2007 compared to a net loss of $14,935 for Fiscal 2006. Net loss per share for Fiscal 2007 was $0.35 (based on weighted average shares outstanding of 38,900,383), compared to $0.39 for Fiscal 2006 (based on weighted average shares outstanding of 38,092,965).  For Fiscal 2007 increased operating expenses have been offset by interest and other income, and an increase in amounts attributable to minority interests which increased significantly following the Medicsight IPO and the MGT Capital Investments Inc sale of shares in MDST.

Operational currency

The Company’s main operating currency is UK sterling (£). Its results of operations are affected by changes in the $: £ rates used to translate the operational result. For Fiscal 2007, the average rate was $2.01: £1.00 and for Fiscal 2006 the rate was $1.85:£1.00, an increase of 8.6%.

Contractual Obligations and CommitmentsOperating results by business segment

The Company’s corporate offices are at the Kensington Centre, 66 Hammersmith Road, London W14 8UD, UK.  This property is leased on a 10 year agreement (commencing August 2006) with a rightWe consider MGT’s business segments to terminate on the expirationbe those of the fifth year of the lease.  The Company terminated its leasetwo operating subsidiaries, Medicsight and vacated the office in New York before December 31, 2007. The Tokyo (Japan) operation moved to new offices in the month of December 2007 and signed a lease for a 40 month period. The Beijing (China) office has not changed. All have notice periods of between one and 6 months to cancel.  Our minimum annual lease commitments under these arrangements are:Medicexchange.

As of December 31, 2007, the Company had repaid all amounts due as party to a capital lease and no further obligation existed.

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Fiscal Year Ended December 31, 2006 vs. Fiscal Year Ended December 31, 2005Medicsight

ResearchMedicsight revenue improved in Fiscal 2008 due to increased interest in our ColonCAD™ product as it develops traction in the market.  Whilst we have regulatory approval in a number of territories, our revenues have been generated almost entirely in the EU.  We expect European revenues to continue to improve, but believe that the US and DevelopmentJapanese markets offer a higher revenue opportunities once regulatory approval is granted.  Support and maintenance revenue is currently low, but we intend to build this as a revenue stream.

The Company’sOur ColonCAD™ product has a very high margin, though revenue from MedicRead and Insufflator products in the future will incur a more significant cost of sales.

Included in operating expenses are costs that we allocate to research and development expenses for Fiscal 2006 were $2,870 as compared to $2,363 for Fiscal 2005.  The Company’s research and development costs were compriseddevelopment.  This is made up of staff, staff related consultancy, stock options and product development software costs expensed on the research and development of Medicsights PLCs’sMedicsight’s products.These have increased in Fiscal 2008 compared to the previous two years due to expenditure on developing a software interface for one of our products and a joint research project with University College London.  We are currently reviewing our research and development expenditure to ensure that it retains a commercial focus.

Selling, General and Administrative Expenses

The Company’s selling, general and administrative expenses from continuing operations for Fiscal 2006 were $12,842 as compared to $9,300 for Fiscal 2005, the significant items being (in thousands):following table shows some of Medicsight’s larger expense categories in operating costs.

PointsIncremental headcount is the main reason for the increase in operating costs.  We have recruited staff in our commercial, marketing and business development departments in 2008.  Fiscal 2008 also includes a full year of salaries for the staff in the US and Japan that were employed towards the end of 2007.  In 2007 we paid an IPO bonus to note are:certain Medicsight employees that was not repeated in 2008.  However, we are currently streamlining Medicsight’s operations and reducing staff numbers in order to reduce our operating costs and cashflow.  We therefore expect costs in 2009 to be lower due to reduced salary costs.  This headcount reduction is being implemented across multiple departments and all locations.

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We also use less office space and the lower number of staff has lead to a lower level of ancillary costs.  We have also reduced our discretionary spending, demonstrated by the continued reduction in commercial and marketing costs.  Our travel costs have picked up in 2008 due to travel to our China office and our focus on New York.  We expect travel costs to reduce in 2009.

Professional fees increased in 2008 because of fees incurred in acquiring Maydeal.  These Chinese fees are not expected to be ongoing.

The stock based compensation charge increased year on year due to modifications made to the plans of a number of employees who left Medicexchange during the year.  Net assets have reduced as a result of net losses during the year.

Liquidity and Capital Resources

Working Capital information as at December 31: