SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 10-K

 

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
 SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

MGT CAPITAL INVESTMENTS INC.

(Exact Name of Registrant as Specified in its Charter)

(formerly Medicsight Inc.)

 

 

 

011-44-207-605-1151

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered under section 12(b) of the Exchange Act:  Not applicable

 

Securities registered under section 12(g) of the Exchange Act:  Common stock, par value $0.001 per share

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes o    No  x

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes o    No  x

 

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file), and (2) has been subject to such filing requirements for the past 90 days.    Yes    x    No    o

 

Indicate by check mark if disclosure of delinquent filers is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer," "accelerated filer,” and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer  o		Accelerated filer  x		Non-accelerated Filer  o	Smaller reporting company  o
				(Do not check if smaller reporting company)

 

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

 

As of June 30, 2007, the last day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $75,611,000.

 

The common stock is the registrant’s only class of stock.

 

As of March 17, 2008 the number of shares of common stock, par value $0.001 per share, of MGT Capital Investments, Inc. issued and outstanding was 38,294,982.

 

MGT Capital Investments Inc.

Form 10-K

 

Table of Contents

 

	PART I
Item 1	Business
Item 1A	Risk Factors
Item 1B	Unresolved Staff Comments
Item 2	Properties
Item 3	Legal Proceedings
Item 4	Submission of Matters to a Vote of Security Holders
	PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6	Selected Financial Data
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A	Quantitative and Qualitative Disclosures About Market Risk
Item 8	Financial Statements and Supplementary Data
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A	Controls and Procedures
Item 9B	Other Information
	PART III
Item 10	Directors, Executive Officers and Corporate Governance
Item 11	Executive Compensation
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13	Certain Relationships and Related Transactions, and Director Independence
	PART IV
Item 14	Principal Accountant Fees and Services
Item 15	Exhibits and Financial Statement Schedules
Signatures

 

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

 

 

 

 

NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This Annual Report on Form 10-K, including “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, Inc 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 Securities and Exchange Commission reports filed after this report. 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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PART I

 

ITEM 1                                                        BUSINESS

 

MGT Capital Investments, Inc (“MGT”, “we”, “us” or “the Company”), is a holding company in the global Healthcare Information Technology (“HCIT”) sector.  We currently have a controlling interest in our two main operating subsidiaries: Medicsight PLC (“Medicsight”) and Medicexchange PLC (“Medicexchange”).  We also have wholly owned subsidiaries MGT Capital Investments (UK) Limited, MGT Investments (Gibraltar) Limited, Medicexchange Inc., Medicsight Nominees Limited, HTTP Tech Inc. and Medical Vision Systems Inc.

 

·                  Medicsight and its wholly owned subsidiaries is a medical imaging software development company listed on the AIM market of the London Stock Exchange (Ticker symbol “MDST”) that develops and commercializes enterprise-wide Computer-Aided Detection (“CAD”) applications which analyze Computer Tomography (“CT”) scans to assist radiologists in the early detection and measurement of colorectal polyps and lung lesions.  The Company holds 85 million shares (55%) of the 155 million issued share capital of Medicsight.

 

·                  Medicexchange and its majority owned subsidiaries provide medical imaging professionals with a global web portal containing an online sales channel for diagnostic, treatment and surgery planning solutions.  This combined with a variety of relevant clinical papers, training materials and content gives these professionals access to information and products that they otherwise would have difficulty accessing.  The Company holds 22.5 million shares (73%) of the 30.8 million issued share capital of Medicexchange.  Medicexchange’s shares are not publicly traded.

 

Medicsight

 

Medicsight is a medical imaging software development company and one of the world’s leading developers of enterprise-wide CAD software which analyzes CT scans to assist radiologists in the early detection and measurement of lung lesions and colorectal polyps.

 

Early detection of cancer is the key to better prognosis, less invasive and lower treatment costs, and higher survival rates.  Our CAD software applications are intended to aid clinicians in the early detection of potential abnormalities.

 

Medicsight has focused on two of the leading causes of death, colorectal cancer (also known as colon or bowel cancer) and lung cancer.

 

Colon Cancer

 

World Health Organization data shows that colon cancer causes 655,000 deaths each year. Colon cancer is one of the most prevalent cancers in western countries, and is likely to grow faster in developing countries whose populations are consuming more and more of a western style diet.  If detected early enough, 90 percent of cases can be 100 percent curable. Many western countries operate colon cancer screening programs, and Computer Tomography Colonography (“CTC”) is ideally suited for population screening of asymptomatic adults.

 

Lung Cancer

 

Lung cancer is the most common and deadliest of all cancers.  Worldwide 1.3 million cases of lung cancer are diagnosed each year, and the disease accounts for 17.1 per cent of all global cancer deaths.  The link between smoking and lung cancer has long been accepted.  Clinical research has shown that if detected early and treated, there is more than an 85 per cent chance of a ten year survival rate from lung cancer.  As smoking increases in Asia, it is predicted that the number of cases of lung cancer diagnosed each year in Asia will dramatically increase over the next decade.

 

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Products

 

Medicsight develops and markets ColonCAD, LungCAD and 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.

 

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 a recent study, ColonCAD has 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 on a positive finding; polyps in the 6 to 9 mm range are monitored whilst 10mm or greater polyps are recommended for optical colonoscopy follow-up and possible removal. This is our most sensitive ColonCAD release to date and has been integrated into the visualization workstations of our partners.  We believe that this version of Medicsight ColonCAD is one of the world’s leading colon CAD solutions.  The product 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 at leading radiology conferences.

 

LungCAD

 

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 needs of lung imaging specialists.

 

MedicRead

 

In May 2007 we launched MedicRead Colon — which is Medicsight’s own advanced visualization software application.  MedicRead Colon can be deployed either on a standalone basis or into an existing clinical IT infrastructure.  We believe MedicRead Colon is a flexible option for hospitals and clinics unable to invest large capital sums in new image analysis infrastructure.  The next version of the product will be released in 2008.

 

Clinical Activity

 

Medicsight’s clinical team continued its work with Medicsight’s global network of medical luminaries.  Medicsight’s ColonCAD application is involved in a number of government-funded studies looking at the sensitivity of CTC and the comparison of CTC with existing imaging methods for the early detection of colorectal cancer.

 

The British Special Interest Group in Gastrointestinal and Abdominal Radiology (“SIGGAR”) finished recruiting patients in November 2007 for the largest UK randomized control trial to date. Medicsight CAD is the only CAD product to be involved in this trial which compares CTC with Optical Colonoscopy and Barium Enema x-ray.  Results are expected to be available in mid-2008.

 

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The Medicsight ColonCAD software is also integrated into the visualization software used to read CTC examinations for the French STIC trial “Sciences et Technologies de l’information et de la Communication (Information and Communication Science and Technology)”.  Recruitment for this trial will continue throughout 2008.

 

The Japanese National Cancer Centre in Tokyo has adopted Medicsight ColonCAD for the first CTC colon cancer screening program in Japan.

 

In Japan, Medicsight supported, in co-operation with Toshiba Medical Systems (“Toshiba”), two CTC training workshops at the Japanese Radiological Society (“JRS”), the largest Japanese radiology congress, and the Japan Digestive Disease Week (“JDDW”) conference, the largest Japanese gastroenterological conference. Within the training programs, the effectiveness of ColonCAD was demonstrated reflecting the way it is used at the Japanese National Cancer Centre, Tokyo.  As a result of the success of these workshops, additional training programs are planned for 2008.

 

There has also been significant progress in the USA in relation to the acceptance of CTC into mainstream medical practice.  In September 2007 the American College of Radiology Imaging Network (“ACRIN”) concluded a national trial in the USA to clinically validate the widespread application of CTC as a screening tool for the detection of colon cancer.  The preliminary results have shown the benefits of CTC in both clinical and economic terms.  A further study conducted by the University of Wisconsin Medical Center, the results of which were published in the New England Journal of Medicine in October 2007, supported the use of CTC as a primary screening tool.  On 5 March 2008, the American Cancer Society (“ACS”) issued new Colorectal Cancer Screening guidelines recommending that CTC be added to the panel of tests that physicians have at their disposal when screening for colorectal cancer.  The ACS endorsement is expected to lead to routine reimbursement for CTC and to a material increase in the use of CTC for screening those populations who are most at risk of developing this devastating condition.

 

CTC as a diagnostic examination for the early detection of colorectal cancer is increasingly becoming accepted as mainstream clinical practice. The Virtual Screening for Cancer Act 2007 was introduced in the US Congress in December 2007.  If passed into law, the bill would allow CTC to form part of the US government’s Medicare program and under certain circumstances would allow full reimbursement.  This measure should increase the number of CTC examinations performed in the US and provide a significant revenue opportunity for Medicsight.  The Company is monitoring this development closely.

 

Medicsight’s products have been profiled at major international radiology conferences throughout 2007.  The Company exhibited its ColonCAD and MedicRead Colon applications at (a) the Radiological Society of North America (“RSNA”) annual meeting in Chicago in November 2007; (b) the European Congress of Radiology (“ECR”) annual meeting (Vienna, March 2007); and (c) the European Society of Gastrointestinal and Abdominal Radiology (“ESGAR”) in June 2007; as well as exhibiting at other international radiology conferences.

 

In 2007 Medicsight continued its support of education within the international medical community by sponsoring US and European CTC workshops.  These workshops train radiologists to interpret CTC images using the latest visualization and CAD technology.

 

Regulatory Environment

 

Our CAD software applications are medical devices and require local regulatory approvals. In the USA, the Food and Drug Administration (FDA) is the regulatory authority. In Europe, regulatory approval is gained through Conformité Europeène (CE) marking. Other markets such as China (SFDA — State Food & Drug Administration); Japan (MHLW — Ministry of Health, Labor and Welfare); Australia (TGA — Therapeutic Goods Administration); South Korea (KFDA — Korea Food & Drugs Administration); and Canada (CMDCAS — Canadian Medical Device Conformity Assessment System) have their own regulatory bodies, but these countries often require foreign applicants

 

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to show evidence of an existing CE or FDA approval for a product before gaining approval in the local market.

 

At the beginning of 2007 the Company’s ColonCAD and LungCAD products had regulatory approval only in the European Union (CE Marking).

 

During 2007 the Company was granted Medical Device Licenses from the Therapeutic Products Directorate of Health in Canada and from the Department of Health and Ageing Therapeutic Goods Administration of Australia for ColonCAD, LungCAD and MedicRead Colon; and MedicRead Colon was CE Marked in the European Union.

 

Applications are ongoing for FDA clearance in the USA and for regulatory approval in China, Japan and Brazil.  These are expected to be granted in 2008.

 

Markets & Opportunity

 

We market our ColonCAD and LungCAD products through partners.  The Company has signed a number of non-exclusive integration and distribution agreements with the following visualization partners:

 

·                  Vital Images Inc — ColonCAD has been integrated into Vital’s CTC application which is part of the Vitrea software package;

 

·                  TeraRecon Inc —have successfully integrated ColonCAD and LungCAD into the Aquarius family of medical imaging applications;

 

·                  Viatronix Inc — ColonCAD and LungCAD have been successfully integrated into the Viatronix V3D Colon and V3D Explorer software;

 

·                  3mensio Medical Imaging BV — have integrated ColonCAD and LungCAD into the 3viseon application;

 

·                  Barco NV - have integrated ColonCAD into the Voxar 3D ColonMetrix application.

 

In February 2008 Medicsight signed a Preliminary Agreement with the System Integration (PACS) Division of Toshiba for the resale of MedicRead Colon in Japan.

 

Medicsight is also in discussion with a number of other major imaging companies and expects to finalize distribution agreements in America, Asia and Europe in 2008.

 

Revenue and Growth Strategy

 

The year ended December 31, 2007 saw Medicsight book its first ColonCAD revenues through its partners in Europe.  We plan to build on this and accelerate revenues through:

 

·                  signing new distribution agreements for the Colon and Lung CAD products and the MedicRead applications;

 

·                  continuing to invest in improved clinical awareness and validation;

 

·                  working with governments, international health organizations and medical institutions to promote the benefits of early disease detection and to publicize the potential for population screening programs to reduce premature deaths from diseases that can be curable if detected early in the disease process;

 

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·                  actively promoting CAD through support of accredited training programs;

 

·                  introducing additional products into the Company’s portfolio by a combination of internal research and development and acquisitions.

 

Competition

 

The Company’s competitors can be divided into two categories: (a) MDCT scanner manufacturers such as GE, Hitachi, Philips, Siemens and Toshiba; and (b) independent CAD software providers.

 

A number of MDCT manufacturers offer CAD solutions that are available in European markets, however currently the only FDA approved CAD is Siemens Lung CAD.

 

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

 

·                  im3D (Italy) — have developed a Colon CAD product that is CE certified but not FDA cleared;

 

·                  Median Technologies (France) — have developed a Colon CAD product and a Lung CAD (CAD-lung) — both have CE approval but not FDA clearance;

 

·                  Hologic Inc. (R2) (USA) — have developed a Lung CAD product that is FDA approved.

 

Medicsight’s admission to the AIM Market of the London Stock Exchange

 

On June 21, 2007, Medicsight completed its initial public offering on the AIM Market of the London Stock Exchange.  29 million new shares were issued to institutional and other investors at a price of £1.10 ($2.20) per share raising £32,000  ($64,115) gross new money.  Medicsight incurred fees of £1,550 ($3,096), including fees of $298 with Asia IT Capital Investments Ltd (a related party).  £5,500 ($11,100) of the net proceeds were used to repay debt (between Medicsight and the Company).  The remaining £24,900 ($49,800) cash inflow from the IPO will be used for working capital and business development.

 

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 holds 85 million (55%) of the 155 million issued share capital of Medicsight.  On December 31, 2007, Medicsight PLC shares closed at a price of £1.06 ($2.12), valuing MGT’s 85 million shares at $180,000.

 

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Medicexchange PLC

 

Medicexchange PLC operates Medicexchange.com, an online portal for radiologists and medical imaging professionals.  Medicexchange PLC also has operations in Beijing, (China) offering western vendors a sales, regulatory and marketing route into the Chinese market place.

 

Medicexchange.com

 

Medicexchange.com was launched in November 2006 and provides users with: (a) daily news coverage from over 240 original author sources; (b) conference coverage including exclusive reports and interviews; (c) product and clinical community news; (d) job and recruitment boards; and (e) clinical product information and the opportunity to buy on-line.

 

Medicexchange.com is aimed at the estimated 1.2 million plus medical imaging professionals around the world, many of whom from market research stated a preference for the concept of web-based downloadable products and a “per use” pricing model.

 

China operations

 

In Fiscal 2007, Medicexchange opened an office in Beijing and has established a distribution network with access to over 1,000 distributors serving 80% of tier 1 and 2 urban hospitals.  Medicexchange now offers sales, marketing and regulatory affairs consulting services for medical vendors to enter the Chinese market.

 

Employees

 

As of December 31, 2007, the Company and its subsidiaries had 80 employees, all of whom are full-time employees.  Our employees are not part of a union.  We believe that we have an excellent relationship with our employees.

 

Patents and Trademarks

 

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

 

Medicsight has filed patent applications in the United Kingdom, the United States, the European Patent Office, Japan, South Korea, Australia, Canada, and under the International Patent Cooperation Treaty (which currently has 128 member countries) covering our core technologies and their applications.  We have recently filed new patent applications covering technology of both Medicsight CAD and Medicexchange and intend to continue filing new applications in the future.  Two patents have been granted in the US covering aspects of Medicsight CAD technology.  Although prior art searches have been carried out, we cannot provide assurance that any or all of the pending patents will be granted or that they will not be challenged, or that rights granted to us will actually provide us with advantage over our competitors. Medicsight actively reviews third party patents and is not currently aware of any that our products will infringe.

 

“Medicsight”®, “Medicsight Colon Screen”®, “Medicsight Lung Screen”®, “Medicsight Colon CAR”®, “Medicsight Lung CAR”®, “Medicsight Computer Assisted Reader” ®, “Medicsight See More, Save More” ® and “Lung CAR” ® have been registered as trademarks in the United Kingdom.  “Medicsight”®  has also been registered in the United States, the European Union, Australia, China and a number of other countries.  “MedicRead”® has been registered as a trademark in the European Union.  These trademarks are important to the corporate identity in connection with Medicsight CAD.

 

Failure to register appropriate patents, copyrights or trademarks in any jurisdiction may impede our ability to create brand awareness in our products, result in expenses in pursuing our rights with respect to our intellectual property, or result in lost revenues due to intellectual property disputes. Where we may be required to purchase

 

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licenses from sellers with prior rights in any country, we cannot assure you that we will be able to do so at a commercially acceptable cost.

 

Financial Information about Medicsight and Medicexchange

 

Note 14 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, 2007 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, 38,294,982 shares of our common stock had been issued.

 

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 be 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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ITEM 1A.                                            RISK FACTORS

 

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

 

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

 

MGT has had only a limited operating history and has just commenced generating revenue from operations upon which an evaluation of its prospects can be made. MGT’s prospects must be considered keeping in mind the risks, expenses and difficulties frequently encountered in the establishment of a new business in a constantly changing industry. There can be no assurance that MGT will be able to achieve profitable operations in the foreseeable future or at all.

 

MGT has identified a number of specific risk areas that may affect MGT’s operations and results in the future:

 

Technical Risks:  The Medicsight CAD system may not deliver the levels of accuracy and reliability needed, or the development of such accuracy and reliability may be delayed.

 

Market Risk:  The market for the Medicsight CAD products and Medicexchange.com may be slower to develop or smaller than estimated or it may be more difficult to build the market than anticipated. The medical community may resist Medicsight CAD and the Medicexchange.com products or be slower to accept them than we anticipate. Revenues from Medicsight CAD and Medicexchange.com may be delayed or costs may be higher than anticipated which may result in the Company requiring additional funding.

 

Regulatory Risks: The Medicsight CAD system is subject to regulatory requirements in the United States of America, Europe, Japan, China and our other targeted markets. Necessary regulatory approvals may not be obtained or may be delayed.  We may incur substantial additional cost in obtaining regulatory approvals for our products in our targeted markets.

 

Competitive Risk: 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 do develop will not have a competitive edge over Medicsight CAD products and Medicexchange.com.

 

Financial Risk: 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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an accumulated deficit at December 31, 2007. MGT is operating in a developing industry based on new technology and its primary source of funds to date has been through the issuance of securities and borrowed funds. While MGT is optimistic and believes appropriate actions are being taken, there can be no assurance that management’s efforts will be successful or that the products MGT develops and markets will be accepted by consumers.

 

Corporate Structure: MGT’s corporate structure may make it more difficult or costly to take certain actions. MGT conducts its business through: (a) Medicsight, a UK public company which is 55% owned by the Company, and through Medicsight’s subsidiaries in the United Kingdom, the United States, Japan and Gibraltar and; (b) the Medicexchange subsidiaries, in which MGT’s holdings range between 75% and 100%.  Although MGT, Medicsight and Medicexchange share some directors and management, they are required to comply with corporate governance and other laws and rules applicable to public companies in the United Kingdom and the United States.  Should MGT propose to take any action, such as a transfer or allocation of assets or liabilities between MGT and its subsidiaries, MGT would have to take into consideration the potentially conflicting interests of MGT’s stockholders and the minority stockholders.  This may deter MGT from taking such actions that might otherwise be in the best interest of MGT or cause MGT to incur additional costs in taking such actions. The subsidiary companies would not be able to pay dividends or make other distributions of profits or assets to MGT without making pro-rata payments or distributions to the respective minority stockholders.  Although neither the subsidiary companies nor MGT has plans to pay dividends or make distributions to its shareholders, MGT’s corporate structure may deter its subsidiaries from doing so in the future.

 

The protection of our intellectual property may be uncertain, and we may face possible claims of others: Although we have received patents and have filed patent applications with respect to certain aspects of our technology, we generally do not rely on patent protection with respect to our products and technologies. Instead, we rely primarily on a combination of trade secret and copyright law, employee and third-party nondisclosure agreements and other protective measures to protect 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 we fail to attract and retain qualified personnel, our business would be harmed:  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.

 

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:  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 failure could have a material adverse effect on our business.

 

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Foreign Exchange Risks: As MGT’s main operating currency is UK sterling (£) and its financial statements are reported in US Dollars, MGT’s assets and liabilities and its results of operations are affected by movements in the $:£ exchange rate.

 

Other Risks: MGT’s ability to deliver its software could be hindered by 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: Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and operating results. In addition, as a consequence of such failure, current and potential stockholders could lose confidence in our financial reporting, which could have an adverse effect on our stock price. Effective internal controls are necessary for us to prevent reliable financial reports 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.

 

Commencing with our fiscal year ending December 31, 2007, we were required to document and test our 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.

 

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 an adverse effect on our stock price.

 

ITEM 1B.                                            UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2                                                        PROPERTIES

 

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) and China (occupied by Medicexchange).

 

ITEM 3                                                        LEGAL PROCEEDINGS

 

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

 

ITEM 4                                                        SUBMISSION 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.

 

11

 

PART II

 

ITEM 5                                                        MARKET 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) 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 2006 and 2007.

 

 

On March 14, 2008, the Company’s common stock closed on the American Stock Exchange at $2.90 per share.

 

As of March 14, 2008, there were 775 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.

 

12

 

ITEM 6                                                        SELECTED FINANCIAL DATA.

 

The following table should be read in conjunction with our Consolidated Financial Statements and notes thereto appearing elsewhere in this Form 10-K.

 

All figures in thousands, except share and per share data:

 

		2007(1)			2006 (1)			2005			2004			2003
Revenues - continuing operations		$	89		$	—		$	—		$	—		$	—
Gross Margin - Continuing operations		$	54		$	—		$	—		$	—		$	—
Loss from continuing operations		(13,800		)	(14,935		)	(10,738		)	(12,885		)	(8,941		)
Loss from discontinued operations		—			–			(1,478		)	(2,145		)	(1,155		)
Net loss		(13,800		)	(14,935		)	(12,216		)	(15,030		)	(10,096		)
Loss per share from continuing operations		(0.35		)	(0.39		)	(0.31		)	(0.42		)	(0.40		)
Dividends declared per common share ($)		—			—			—			—			—
Total Assets		109,020			38,469			24,486			21,041			17,649
Long term obligations		—			—			6			223			306
Cash, cash equivalents and marketable securities		94,592			24,735			11,249			5,276			845
Current assets		95,319			25,306			11,867			6,515			2,144
Current liabilities		(4,420		)	(3,378		)	(2,746		)	(2,353		)	(6,540		)
Working capital surplus (deficit)		$	90,899		$	21,928		$	9,121		$	4,162		$	(4,396	)

(1)          Includes equity-based compensation of $1,541 for Fiscal 2007 and $440 for Fiscal 2006.

 

ITEM 7                                                       MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

All figures in thousands except share and per share data.

 

Executive Summary

 

                MGT achieved the following results in 2007:

 

·                  Revenue from license and other sales $89 compared to nil in 2006.

 

·                  Operating expenses increased 40% to $21,977 compared to $15,712 in 2006.

 

·                  Net loss reduced 8% to $13,800 and resulted in a loss per share of $0.35 compared to a net loss of $14,935 and net loss per share of $0.39 in 2006.

 

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Our balance sheet strengthened significantly with cash, cash equivalents and marketable securities being $94,592 compared to $24,735 in 2006. This is as a result of the Medicsight IPO and MGT’s sale of Medicsight shares.

 

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 collectibility 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, 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, in which no impairment was identified. Goodwill was $11,200 as of December 31, 2007.

 

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

 

 

15

 

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 Development

 

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 and consultancy costs expensed on the Medicsight products.

 

Impairment of Long-lived Assets and Long-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 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 2006 and the Company concluded there was no impairment loss.

 

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

 

Results of Operations

 

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

 

Revenue

 

The Company has generated revenues of $89 and gross margin of $54 for Fiscal 2007, compared to $nil and $nil for Fiscal 2006.

 

Research and Development

 

The Company’s research and development expenses for Fiscal 2007 were $2,670 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 Medicsight’s products.

 

 

16

 

Selling, General and Administrative Expenses

 

The Company’s selling, general and administrative expenses from continuing operations for Fiscal 2007 were $19,307 as compared to $12,842 for Fiscal 2006, the significant items being:

 

		2007			2006
Salaries and directors’ compensation (including payroll taxes)		$	4,886		$	3,938
Contractors and consultants		974			687
Bonus payments		2,190			68
Total People costs		8,050			4,693
Stock options		1,334			403
Professional fees		1,935			1,087
Property rent and rates		991			1,165
Travel		1,295			565
Software and related		141			450
Product delivery		995			230
Marketing, conferences and public relations		2,375			2,384
Recruitment fees		216			273

 

Points to note are:

 

·                  People related costs increased by $3,357 (72%) as we continued to expand our operations. In Medicsight the operations and sales and marketing teams have increased in size in order to develop product pipeline and initialize commercialization. In Medicexchange the UK has 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 have increased significantly in the year, $931 (231%). This is as a result of several new grants being undertaken in the year across the 3 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 have been increased fees with regard to investor relations as a result of the Medicsight IPO.

 

·                  Travel expense has increased $730 (129%) as the business has continued to expand internationally and employees have travelled to overseas offices. In addition further cooperation with overseas partners and involvement in overseas conferences has 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 last year as a result of continuing to supporting our Medicsight partners, promoting our international presence and building the Medicexchange business and brand.

 

 

17

 

Income Tax Benefit Realized

 

Our effective tax rate for fiscal year 2007 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 credit 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.

 

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 Commitments

 

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 right to terminate on the expiration of the fifth year of the lease.  The Company terminated its lease 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:

 

 

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

 

18

 

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

 

Research and Development

 

The Company’s 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 comprised of staff, staff related, consultancy, stock options, and product development software costs expensed on the research and development of Medicsights PLCs’s products.

 

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):

 

		2006			2005
Salaries and directors’ compensation (including payroll taxes)		$	3,938		$	3,884
Contractors and consultants		687			266
People costs		4,625			4,150
Stock options		403			—
Professional fees		1,087			507
Property rent and rates		1,165			892
Travel		565			458
Software and related		450			72
Marketing, conferences and public relations		2,384			1,569
Recruitment fees		273			118

 

Points to note are:

 

·	People related costs increased by $475 (11%) as we expanded our operations in Medicsight and Medicexchange in Japan and China respectively. Recruitment fees also increased year on year as a result.
·	Professional fees increased $580 (114%) due to international expansion and increased work on commercial agreements.
·	Software and related increased $378 (525%) as we expensed the initial website build costs and ongoing hosting fees of medicexchange.com
·	Marketing, conferences and public relations increased $815 (52%) as a result of supporting our Medicsight partners, promoting our international presence and building the Medicexchange business brand.

 

19

 

 

Income Tax Benefit Realized

 

In Fiscal 2005, Medicsight PLC received a tax credit 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.

 

Net Loss and Net Loss per Share

 

Net loss was $14,935 for Fiscal 2006 compared to a net loss of $12,216 for fiscal 2005.  Net loss per share for Fiscal 2006 was $0.39 (based on weighted average shares outstanding of 38,092,965), compared to $0.36 for Fiscal 2005 (based on weighted average shares outstanding of 34,224,023).  The increase net loss for Fiscal 2006 is principally due to the increase in selling, general and administrative costs and reduction in realized income tax benefit.

 

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 2006, the average rate was $1.85:£1.00 and for Fiscal 2005 the rate was $1.80:£1.00, an increase of 2.8%.

 

Contractual Obligations and Commitments

 

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 with a right to terminate on the expiry of the fifth year of the lease.  The Company has offices in New York, Tokyo (Japan) and Beijing (China) with notice periods of between one and three months to cancel.  Our minimum annual lease commitments under these arrangements are (in thousands):

 

 

As of December 31, 2006, the Company was party to a capital lease obligation in the amount of $7 for motor vehicles.  The obligation for the vehicle lease requires monthly payments of $2, including interest, through April 2007.  The underlying vehicles secure the lease.

 

20

 

 

Liquidity and Capital Resources

 

Working Capital information as at December 31:

 

		2007			2006			2005
Cash, Cash Equivalents and Marketable Securities		$	94,592		$	24,735		$	11,249
Current Assets		95,319			25,306			11,867
Current Liabilities		(4,420		)	(3,378		)	(2,746		)
Working Capital Surplus		$	90,899		$	21,928		$	9,121
Ratio of Current Assets to Current Liabilities		21.6			7.5			4.3

 

Net change in Cash, Cash Equivalents and Marketable Securities

 

As of December 31, 2007 we had $92,373 in cash and cash equivalents (compared to $19,757 at December 31, 2006) and $94,592 in cash, cash equivalents and marketable securities, compared to $24,735 at December 31, 2006.

 

Net cash used in operating activities was $14,426 for the year ended December 31, 2007 and $13,990 for the year ended December 31, 2006).  This resulted primarily from:

 

a.               our net loss of $17,875 ($15,412 for Fiscal 2006), before Minority Interest of $4,075 ($477 in Fiscal 2006);

 

b.              adjusted for depreciation and stock-based compensation expenses (non cash items) of $1,908 ($718 for Fiscal 2006);

 

c.               losses on disposal of fixed assets were $6 in the year ended December 31, 2007 compared to $13 in the year ended December 31, 2006;

 

d.              an overall net reduction in the movement on current assets (excluding cash items and marketable securities) and current liabilities of $1,535 in the year ended December 31, 2007 (compared to $691 in Fiscal 2006) — primarily due to the timing of payments in the year ended December 31, 2006;

 

Net cash returned from investing activities of $842 in the year ended December 31, 2007 (compared to $1,255 used for the year ended December 31, 2006), which consisted primarily of:

 

a.               a $960 purchase of shares in Xshares Group LLC, a pre-IPO investment advisor;

 

b.              a $2,000 purchase of securities in HipCricket Inc.;

 

c.               a cash inflow of $4,395 from the sale of marketable securities held with Bank Sarasin & Company Limited. In the period ended December 31, 2006 there was a cash outflow of $4,533 for the purchase of available for sale marketable securities;

 

d.              a cash outflow of $593 in the year ended December 31, 2007 from the purchase of fixed assets ($722 in Fiscal 2006).

 

Net cash flows from financing activities were $85,611 for the year ended December 31, 2007 (compared to $27,586 December 31, 2006), consisting mainly of:

 

        In Fiscal 2007 we:

 

a.               Received net proceeds of $24,569 from the sell down of 11.7 million shares in Medicsight PLC.

 

b.              Received net proceeds of $61,019 from the Medicsight PLC initial public offering (“IPO”), and $30 from private funding in Medicexchange China, increasing our minority interest by $61,049.

 

                In Fiscal 2006 we:

 

a.               Received $9,017 for the sale of our common stock.

 

b.              Received $22,187 from the sale of common stock in Medicexchange PLC and Medicsight PLC.

 

c.               Less the $3,600 net movement of monies received for common stock subscribed but unissued.

 

21

 

 

A reduction in our principal payments under our capital lease obligations — in the year ended December 31, 2007 we paid the final $7 compared to $18 paid in the year ended December 31, 2006.

 

Additional capital funding requirements

 

On June 21, 2007, Medicsight PLC completed its initial public offering on the AIM Market of the London Stock Exchange.  Approximately 29,000,000 new shares were issued to institutional and other investors at a price of £1.10 ($2.20) per share raising £32,000 ($64,115) gross new money.  We incurred fees of approximately £1,550 ($3,096), including approximately £147 ($298) with Asia IT Capital Investments Ltd (a related party).  £5,500 ($11,100) of the net proceeds were used to repay debt (between Medicsight PLC and the Company).  The remaining £24,900 ($49,800) cash inflow from the IPO will be used for working capital and business development.

 

Immediately prior to the Medicsight PLC IPO, the Company sold down, by private placement approximately 11,700,000 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 approximately £12,845 ($25,736).  We incurred fees with Asia IT Capital Investments Ltd (a related party) of approximately £578 ($1,167).  These proceeds were received on July 27, 2007.

 

After the private placement and the IPO, MGT holds 85,000,000 (55%) of the approximately 155,000,000 issued share capital of Medicsight.  On December 31, 2007, Medicsight’s shares closed at a price of £1.06 ($2.12), valuing MGT’s 85,000,000 shares at £90,100 ($180,200).

 

To date we have primarily financed our operations through private placements of equity securities. At December 31, 2007 we had issued 38,900,383 of our 75,000,000 authorized share capital.  We have also raised capital through the sale of ordinary shares of our principal subsidiaries — Medicsight and Medicexchange.

 

Risks and Uncertainties Related to Our Future Capital Requirements

 

To the extent that additional capital is raised through the sale of equity or equity-related securities of the Company or its subsidiaries, the issuance of such securities could result in dilution to the Company’s stockholders.

 

No assurance can be given, however, that we will have access to the capital markets in the future, or that financing will be available on acceptable terms to satisfy the Company’s cash requirements to implement its business strategies.

 

If we are unable to access the capital markets or obtain acceptable financing, our results of operations and financial conditions could be materially and adversely affected.  We may be required to raise substantial additional funds through other means.

 

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

 

If adequate funds are not available to us, we may be required to curtail operations significantly or to obtain funds through entering into arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies or products that we would not otherwise relinquish.

 

Recent Accounting Pronouncements.

 

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 applies to other

 

 

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accounting standards that require or permit fair value measurements. Accordingly, it does not require any new fair value measurement. SFAS No. 157 will be effective for the Company on January 1, 2009. The Company is currently evaluating the impact the adoption of SFAS No. 157 will have on its financial position and results of operations.

 

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

 

ITEM 7A.                                            QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Interest Rate and Marketable Security Prices Risk - Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We place our investments in a mixture of (a) cash deposits on either overnight or 30 day rates; (b) highly liquid blue chip available-for-sale market securities. A decline in interest rates or a decline in the equity markets would have an adverse impact on interest income.  We do not have any debt and we do not use derivative financial instruments.

 

Based upon the balance of our cash, cash equivalents and marketable securities at December 31, 2007, for each one percentage point reduction in interest rates, the Company would suffer a reduction of approximately $1,000 in interest income.  A severe decline in the equity markets would be likely to reduce the Company’s dividend income to nil and considerably lower the capital value of the equities held.

 

Foreign Currency Risk - We are exposed to foreign currency exchange rate fluctuations related to the operation of our international subsidiaries.  Our main operating currency is UK sterling (£).  We also have subsidiary operations in Japan and China which operate in their local currencies.  At the end of each reporting period, expenses of the subsidiaries are converted into US dollars using the average currency rate in effect for the period and assets and liabilities are converted into US dollars using either historical rates or the exchange rate in effect at the end of the period.  Additionally, we are exposed to foreign currency exchange rate fluctuations relating to payments we make to vendors and suppliers using foreign currencies.  We currently do not hedge against this foreign currency risk. Fluctuations in exchange rates may impact our financial condition and results of operations.

 

Our operating costs in Fiscal 2007 were predominantly in UK sterling.  We do not foresee any change in Fiscal 2008.  A ten percent increase or decline in the US dollar exchange rate against UK sterling would have created an increase or decline in our Fiscal 2007 operating costs of approximately $2,000.

 

ITEM 8                                                        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

See Financial Statements and Schedules attached hereto.

 

ITEM 9                                                        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
  DISCLOSURE.

 

None.

 

ITEM 9A.                                            CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

 

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The Company has established controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.  The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report (the “Evaluation Date”).  There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.  Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.  Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective at a reasonable assurance level.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting consists of policies and procedures that are designed and operated to provide reasonable assurance about the reliability of the Company’s financial reporting and its process for preparing financial statements in accordance with generally accepted accounting principles (“GAAP”). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

 

Management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer (Principal Financial Officer), assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, management used the criteria described in Internal Control — Integrated Framework issued by The Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of this assessment, management (including our Chief Executive Officer and our Chief Financial Officer (Principal Financial Officer)) has concluded that, as of December 31, 2007, our internal control over financial reporting was effective at a reasonable assurance level.

 

The Company’s internal control over financial reporting as of December 31, 2007 has been audited by Amper Politziner & Mattia, PC, the independent registered public accounting firm which audited the financial statements in this Annual Report, as stated in their report which appears herein.

 

Changes in Internal Control Over Financial Reporting

 

No changes in the Company’s internal control over financial reporting have occurred during the quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

ITEM 9B.               OTHER INFORMATION.

 

On February 14, 2008 MGT Capital Investments, Inc. announced that its Board of Directors has authorized the repurchase of up to 1,000,000 shares during the year ended 2008.

 

The repurchase of shares will be made from time to time in the open market on the American Stock Exchange (“AMEX”) and in private transactions.

 

The repurchase program does not require the Company to acquire a specific number of shares.  The share repurchases will be funded from the Company’s working capital.  Any shares that are repurchased under the program will be returned to the state of authorized but unissued shares of common stock.

 

On March 11, 2008 the Board of Directors authorized the Chief Executive Officer and the Chief Financial Officer to execute an additional buyback of up to 5,350,000 shares of MGT common stock.  Following Board approval, the Company has contracted to buy back 5,349,793 shares of its common stock at $3.00 per share in a transaction costing $16,049 (before fees).

 

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PART III

 

 

ITEM 10                DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

The following table sets forth the current officers and directors of MGT.

 

 

Directors are elected in accordance with the Company’s by-laws to serve until the next annual stockholders meeting and until their successors are elected in their stead.  Officers are appointed by the Board of Directors and hold office until their successors are chosen and qualified, until their death or until they resign or have been removed from office. All corporate officers serve at the discretion of the Board of Directors. There are no family relationships between any director or executive officer and any other director or executive officer of the Company.

 

Tim Paterson-Brown joined the Company in December 2003 as a director, was appointed Chief Executive Officer in September 2004 and Chairman in June 2007.  Tim is also Chairman of the Company’s main subsidiaries, Medicsight PLC and Medicexchange PLC.  He qualified as a Chartered Surveyor with Strutt and Parker in 1984 following degrees at London University and Magdalene College, Cambridge. In 1987 Tim joined Leisure Investments PLC.  Between 1990 and 2003 Tim worked in a variety of capacities to assist and invest in a number of leisure and technology businesses, including Accsys Technologies PLC, a UK-listed company, of which Tim is a non-executive Director.

 

Allan Rowley joined the Company in April 2006 as Finance Director of both Medicsight and Medicexchange and was appointed the Company’s Chief Financial Officer in August 2006.  Prior to joining, Allan served in a corporate development role at ComMedica Limited, a UK-based medical software company specializing in Picture Archiving & Communication System (“PACS”) software. In this role he worked on financing and acquisition opportunities and on commercial proposals with the sales and finance group. Before joining ComMedica, Allan was revenue controller and a director of European Finance at Bea Systems, a NASDAQ-listed US-based software company.  Allan has several years of experience in public accounting in the United Kingdom and United States with Arthur Andersen and Ernst & Young, respectively. He is a member of the Institute of Chartered Accountants in England and Wales and holds a Master of Philosophy and a Bachelor of Science degree from Aberystwyth University College of Wales.

 

Neal Wyman trained as a Chartered Accountant with Coopers and Lybrand before moving to KPMG where he worked in the Far East. He moved into the recruitment industry in London specializing in financial services, gaining experience with a diverse range of clients. He entered executive search in 1981, initially specializing in the financial services industry before broadening into general appointments and professional services. He now focuses on general management, finance and non-executive appointments in both private and quoted companies, with particular focus on venture capital. He is a graduate of the London School of Economics. Neal was appointed an independent director of the Company and a member of the Audit Committee in November 2004.

 

 

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Dr L. Peter Fielding, M.D. is an experienced physician who provides consulting services to healthcare and academic organizations, in addition to his departmental and institutional responsibilities at WellSpan Surgical Associates. His clients in the past five years have included, in the U.S.A. National Cancer Institute; American Joint Committee on Cancer; Taiko Post University — Connecticut; Purely Cotton Inc. — Seattle; Musculoskeletal Systems Inc. - Pittsburgh; University of Connecticut Medical School, and, in the U.K.: Imperial College for Science, Technology and Medicine and the Association of Surgeons in the United Kingdom and Ireland.  Dr Fielding specializes in healthcare strategic planning, organizational structure and operational issues. He has participated in the organization and development of the Pain Relief Center; Hyperbaric Medicine and Advanced Wound Care Center; Clinical Weight Reduction Center; York Hospital Human Motion Institute and the Molecular Biology Research Laboratory. Peter was appointed an independent director of the Company and a member of the Audit Committee in July 2005.

 

Peter Venton, OBE has over 30 years’ experience in the computing and telecommunications industry and holds several patents in the sector. He is a former Chief Executive of Plessey Radar and of GEC-Marconi Prime Contracts. Peter currently serves as the Technical Audit Chairman for the Defence Evaluation & Research Agency and joined the Board of Medicsight as an independent director in April 2007.  He was also an independent director of Medicsight between November 2001 and July 2005.  Peter was appointed an independent director of the Company and a member of the Audit Committee in November 2004.

 

Sir Christopher Paine was the President of the British Medical Association until 2001. He is currently the chairman of the Medical Advisory Board of the International Hospitals Group, chairman of Royal Society of Medicine Support Services Ltd and a trustee of the London Clinic.  He was Medical Director of the Advisory Committee on Distinction Awards for the National Health Service until the end of 1999 and has been President of the Royal College of Radiologists and The Royal Society of Medicine. Sir Christopher is a Medical Oncologist. He was a consultant clinical oncologist from 1970 at the Churchill Hospital in Oxford.  He also served as director of clinical studies at the medical school. He was district general manager of the Oxford Health Authority from 1984-88. In addition, he has served on the Animal Welfare Council and Imperial Cancer Research Fund. Sir Christopher was appointed an independent director of the Company in November 2004.

 

Dr Allan Miller qualified in medicine at St Bartholomew’s Hospital Medical School, London in 1961. In 1965 Allan was admitted to the Royal College of Physicians. After spending eight years in general practice he joined, Hoffman La Roche where he held the positions of Head of Clinical Cardiovascular Research Worldwide, Head of Dermatological Research Worldwide and Head of Clinical Research UK.  Allan spent 14 years as Medical Director for Napp Pharmaceuticals Ltd and four years as European Medical Research Director of the Purdue Pharma, Mundipharma, Napp group based in Cambridge, England.  Allan is a Member of the British Medical Association and a Fellow of the Royal Society of Medicine. Allan was appointed an independent director of the Company in December 2002.

 

Corporate Code of Ethics

 

On July 1, 2007, the Company became an accelerated filer and subject to the provisions of the Sarbanes-Oxley Act of 2002.

 

On December 28, 2007, the Board of Directors adopted a new Code of Business Conduct and Ethics which applies to all directors and employees including the Company’s principal executive officer, principal financial officer and principal accounting officer or persons performing similar functions.

 

Prior to December 28, 2007 the Company’s employees were subject to the previous Code of Ethics adopted by the Board of Directors on November 25, 2004.

 

On December 28, 2007, the Board of Directors adopted the MGT Share Dealing Code, an Anti-Fraud Policy, a Whistleblowing Policy and a Fraud Response Plan.  The Board of Directors of Medicsight adopted the Medicsight Share Dealing Code on June 6, 2007.

 

 

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Copies of the Code of Business Conduct and Ethics, the Anti-Fraud Policy, the Whistleblowing Policy, the MGT Share Dealing Code and the Medicsight Share Dealing Code can be obtained, without charge by writing to the Corporate Secretary at MGT Capital Investments Inc., Kensington Centre, 66 Hammersmith Road, London W14 8UD, United Kingdom.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Under the securities laws of the United States, the Company’s directors, its executive officers, and any persons holding more than five percent of the Company’s common stock are required to report their initial ownership of the Company’s common stock and any subsequent changes in that ownership to the Securities and Exchange Commission (the “Commission”).  Specific due dates for these reports have been established and the Company is required to disclose any failure to file by these dates.  The Company can report that there were no delinquent filings to report in Fiscal 2007.

 

Audit Committee and Audit Committee Financial Expert

 

On November 25, 2004, the Company’s Board of Directors established an Audit Committee to carry out its audit functions.  At December 31, 2007, the membership of the Audit Committee was Peter Venton as Chairman and Neal Wyman and Dr L Peter Fielding as members.

 

The Company’s Board of Directors has determined that Peter Venton, an independent director, is the audit committee financial expert, as defined in Regulation S-K promulgated under the Securities and Exchange Act of 1934, serving on its audit committee.

 

ITEM 11                EXECUTIVE COMPENSATION.

 

Compensation Discussion and Analysis

 

Goals of our compensation program

 

We provide a compensation package for our executive officers we refer to as our “named executive officers” that we believe is designed to fairly compensate them and to enhance shareholder value. We have disclosed the compensation packages for our named executive officers in the summary compensation table and related tables below. We have structured our compensation packages to motivate our named officers to achieve the Company’s business objectives and to align their interests with the interests of our shareholders. Specifically, our compensation program is designed to achieve the following objectives:

 

·                  Attract and retain excellent executives who are appropriate for the Company’s needs;

 

·                  Motivate and reward executives whose knowledge, skills and performance are critical to the Company’s success;

 

·                  Motivate the executives to increase shareholder value for both the Company and its subsidiary operations through the use of options; and

 

·                  Tie compensation to corporate and individual performance.

 

We use various elements of compensation to reward specific types of performance. Our employment agreements for each for our named executive officers determine the salary of each officer, which provides the basic level of compensation for performing the job expected of them. We use cash bonus awards as an incentive that

 

 

27

 

provides a timely reward for attainment of exemplary corporate and individual performance in a particular period. We use stock options to provide a long term incentive, which adds value to compensation packages if the value of our common stock rises and aligns the interest of our executives with those of shareholders.

 

Elements of our compensation program

 

Our total compensation package for named executive officers consists of salary, bonuses and options. Each element of compensation is considered separately and we do not generally take into account amounts realized from prior compensation in establishing other elements of compensation. Our goal is to provide a total compensation package that we believe our named officers and our shareholders will view as fair and equitable. We consider the pay of each named executive officer relative to each other named executive officer so that the total compensation program is consistent for our executives. This is not a mechanical process, and our Board of Directors has used its judgment and experience and works with our Remuneration and Nomination Committees to determine the appropriate mix of compensation for each individual.

 

Named Executive Officers

 

We have the following named executive officers:

 

·                  Tim Paterson-Brown - Chairman and Chief Executive Officer, MGT Capital Investments, Inc; Chairman, Medicsight PLC; and Chairman, Medicexchange PLC.

 

·                  Allan Rowley - Chief Financial Officer, MGT Capital Investments, Inc; Chief Financial Officer, Medicsight PLC; and Chief Financial Officer, Medicexchange PLC.

 

·                  David Sumner — Chief Executive Officer, Medicsight PLC.

 

·                  Adam Boyse — Chief Executive Officer, Medicexchange PLC.

 

Salary

 

Each named executive officer’s employment agreement determines his salary which varies with the scope of his responsibilities.  These agreements provide for an annual base salary of $240 increased to $480 effective from October 1, 2007 for Tim Paterson-Brown; $200 increased to $320 effective from October 1, 2007 for Allan Rowley; $240 increased to $400 effective October 1, 2007 for David Sumner and $240 increased to $247 effective January 1, 2008 for Adam Boyse.  We believe that the annual salary must be competitive with the market with respect to the skills and experience that are necessary to meet the requirements of the named executive officers position with us.

 

Bonus

 

The employment agreement in effect for each named executive officer provides for the possibility of a cash performance bonus as determined by our Board of Directors based upon the attainment of performance goals conveyed to the officer. The Board of Directors has the discretion to increase the cash performance bonus for any year.

 

Stock options and option exercises of stock vested

 

Options to the named executive officers may be granted from the Company and or its subsidiaries. We have stock option plans in MGT Capital Investments Inc. and in its subsidiary companies Medicsight (whose shares are listed on the AIM market of the London Stock Exchange under the ticker symbol MDST.L) and Medicexchange (whose shares are not listed on any stock exchange at this time).

 

We award options to align the interests of our executives with the interest of our shareholders by having the realizable value depend on an increase in our stock price. We believe this will motivate our officers to return value

 

 

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to our shareholders through future appreciation of our stock price. The options provide a long term incentive because they vest over a period of time (typically three years) and remain outstanding for ten years, encouraging executives to focus energies on long term corporate performance. The vesting requirements are designed to encourage retention of our officers.

 

In Fiscal 2007 none of the named executive officers exercised any of their stock options that had vested.

 

Pension and retirement benefits

 

Our named executive officers do not participate in any deferred benefit retirement plans such as a pension plan.

 

Non-qualified deferred compensation

 

We do not have any deferred compensation programs for our named executive officers.

 

Other benefits

 

We provide car allowances and private health care to some of our named executives.

 

Performance awards

 

Our named executive officers are entitled to cash bonuses, as determined by our Remuneration and Nominations Committees and Board of Directors, based upon the attainment of commercial goals conveyed to that executive.

 

Our Compensation process

 

We have a Remuneration and Nominations Committee that is comprised of Neal Wyman and Peter Venton (two of the Company’s independent directors) that determines the compensation of the MGT Capital Investments Inc.’s executive officers. The Board of Directors generally follows these recommendations.  Medicsight PLC has its own Remuneration and Nominations Committee and Board of Directors that determines the executive compensation for David Sumner (Chief Executive Officer of Medicsight).  The Medicexchange Chairman determines the executive compensation for the Chief Executive Officer of Medicexchange (Adam Boyse).

 

We do not formally benchmark our compensation against any peer group. However we informally consider competitive market practices with respect to the salaries and total compensation of our named executive officers. We review the market practices by reviewing publicly available information of other companies in the HCIT sector and our geographical areas. However while we review such market information, it is only one factor we considered in establishing compensation, and we did not make use of any formula incorporating such data.

 

Generally in determining whether to increase or decrease compensation to our named executive officers, we take into account any changes, of which we are aware, in the market pay levels, the performance of the executive officer, any increase or decrease in responsibilities and roles of the executive officer, the business needs for the executive officer, the transferability of managerial skills to another employer, the relevance of the executives officers experience to other potential employers and the readiness of the executive officer to assume a more significant role within the organization.

 

Change in Control

 

The Company may immediately terminate the employment of any named executive officer for gross misconduct.  Both Tim Paterson-Brown and Allan Rowley have change in control provisions in their service contracts.  On a change in control event, Tim Paterson-Brown would be entitled to an immediate payment of 3 years’ basic salary and all stock options would become immediately vested and exercisable within the following 3 years.  On a change in control event, Allan Rowley would be entitled to an immediate payment of 2 years’ basic salary and all stock options would become immediately vested and exercisable within the following 2 years.

 

Stock ownership guidelines

 

We have not implemented any stock ownership requirements for our named execuvtive officers. We have issued stock options to our named executive officers which we believe allows management to own equity in the Company and accordingly align their interest with those of other shareholders.

 

 

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Summary Compensation Table

 

The following table summarizes Fiscal Years 2007, 2006 and 2005 compensation for services in all capacities of the Company’s named executive officers.

 

Name Principal Position		Year		Salary			Bonus			Option  Awards (5)			All Other  Compensation			Total  Compensation
Tim Paterson-Brown		2007		$	300		$	500		$	207		$	—		$	1,007
Chairman and CEO (1)		2006		$	222		$	11		$	7		$	—		$	240
		2005		$	217		$	16		—			$	—		$	233
Allan Rowley		2007		$	230		$	380		$	168		$	—		$	778
CFO (4)		2006		$	77		$	6		$	38		$	—		$	121
Glyn Thomas		2006		$	40		$	—		$	—		$	—		$	40
CFO (3)
Paul Gothard		2006		$	119		—			$	48		$	—		$	167
CFO (2)		2005		$	163		$	12		—			$	—		$	175
David Sumner		2007		$	280		$	430		$	140		$	18		$	868
CEO, Medicsight PLC		2006		$	178		$	27		$	11		$	—		$	216
Adam Boyse		2007		$	240		$	12		$	87		$	—		$	339
CEO, Medicexchange PLC		2006		$	211		$	11		$	48		$	—		$	270

 

(1)                          Tim Paterson-Brown was appointed Chief Executive Officer on September 21, 2004 and Chairman on June 21, 2007.

(2)                          Paul Gothard resigned as the Company’s Chief Financial Officer effective March 31, 2006.

(3)                          Glyn Thomas was appointed Chief Financial Officer on an interim basis. Glyn was appointed on April 3, 2006 and resigned on August 4, 2006.

(4)                          Allan Rowley was appointed Chief Financial Officer on August 4, 2006.

(5)                          This column discloses the dollar amount recognized for financial reporting purposes with respect to fiscal year 2007 and 2006 in accordance with FAS 123(R).

 

 

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Outstanding Equity Awards at December 31, 2007

 

 

Name				Number of securities  underlying unexercised Options Exercisable		Number of securities  underlying unexercised Unearned Options		Option Exercise  Price		Option Expiry Dates
Tim Paterson-Brown
Medicexchange PLC		Plan A		50,000		100,000		£0.40 ($0.80)		June 30, 2016
Medicsight PLC		Plan E		—		1,000,000		£0.50 ($1.00)		December 31, 2016
		Plan F		—		250,000		£0.75 ($1.50)		March 31, 2017
		Plan G		—		500,000		£1.10 ($2.20)		November 30, 2017
MGT Capital Investments Inc		2007 Plan		—		1,000,000		$3.69		December 5, 2017
Allan Rowley
Medicexchange PLC		Plan A		50,000		100,000		£0.40 ($0.80)		June 30, 2016
Medicsight PLC		Plan D		83,333		166,667		£0.83 ($1.65)		June 30, 2016
		Plan E		—		500,000		£0.50 ($1.00)		December 31, 2016
		Plan G		—		250,000		£1.10 ($2.20)		November 30, 2017
MGT Capital Investments Inc		2007 Plan		—		500,000		$3.69		December 5, 2017
David Sumner
Medicexchange PLC		Plan A		50,000		100,000		£0.40 ($0.80)		June 30, 2016
Medicsight PLC		Plan A		50,000		—		£0.75 ($1.50)		September 30, 2012
		Plan B		50,000		—		£0.75 ($1.50)		June 30, 2014
		Plan E		—		900,000		£0.50 ($1.00)		December 31, 2016
		Plan G		—		500,000		£1.10 ($2.20)		November 30, 2017
Adam Boyse
Medicexchange PLC		Plan A		50,000		100,000		£0.40 ($0.80)		June 30, 2016
Medicsight PLC		Plan C		66,667		33,333		£0.75 ($1.50)		June 30, 2015
		Plan D		50,000		100,000		£0.83 ($1.65)		June 30, 2016

 

 

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Grants of Plan-Based Awards

 

Name		Option Grant Dates (1)		Number of  options		Option Exercise  Price		Grant Date Fair Value (2)
Tim Paterson-Brown
Medicexchange PLC		July 20, 2006		150,000		£0.40 ($0.80)		$	60
Medicsight PLC		February 22, 2007		1,000,000		£0.50 ($1.00)		$	520
		May 16, 2007		250,000		£0.75 ($1.50)		$	165
		December 18, 2007		500,000		£1.10 ($2.20)		$	430
MGT Capital Investments Inc		December 5, 2007		1,000,000		$3.69		$	1,600
Allan Rowley
Medicexchange PLC		July 20, 2006		150,000		£0.40 ($0.80)		$	60
Medicsight PLC		July 13, 2006		250,000		£0.83 ($1.65)		$	275
		February 22, 2007		500,000		£0.50 ($1.00)		$	260
		December 18, 2007		250,000		£1.10 ($2.20)		$	215
MGT Capital Investments Inc		December 5, 2007		500,000		$3.69		$	800
David Sumner
Medicexchange PLC		July 20, 2006		150,000		£0.40 ($0.80)		$	60
Medicsight PLC		March 20, 2003 (*)		50,000		£0.75 ($1.50)		$	38
		September 9, 2004 (*)		50,000		£0.75 ($1.50)		$	38
		February 22, 2007		900,000		£0.50 ($1.00)		$	468
		December 18, 2007		500,000		£1.10 ($2.20)		$	430
Adam Boyse
Medicexchange PLC		July 20, 2006		150,000		£0.40 ($0.80)		$	60
Medicsight PLC		June 30, 2005		100,000		£0.75 ($1.50)		$	94
		July 13, 2006		150,000		£0.83 ($1.65)		$	165

 

(1)	One-third of options vest on each of the first, second and third anniversaries of the grant date, except for the items marked (*) which were fully vested at December 31, 2007.
(2)	Grant date fair value was computed in accordance with FAS 123(R). We estimated the fair value for the stock options using the Black-Scholes option pricing model.

 

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