**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-K**

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

**(Mark One)**

**x**                              ANNUALREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**Forthe fiscal year ended: December 31, 2004.**

**OR**

**o**                                 TRANSITIONREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934.

**Forthe transition period from***         *     to *         *    

**MEDICSIGHT, INC.**

(Exact Name of Registrantas Specified in its Charter)

| **Delaware**                                                                | **0-26886**               | **13-4148725**                        |
|-----------------------------------------------------------------------------|---------------------------|---------------------------------------|
| (State or Other  Jurisdiction  of Incorporation or Organization)            | (Commission  File Number) | (I.R.S. Employer  Identification No.) |
| **46 Berkeley Square, London, W1J 5AT, United  Kingdom**                    |
| (Address  of Principal Executive Offices)    (Zip Code) |
| **011-44-20-7598-4070**                                                     |
| (Registrant’s  Telephone Number, Including Area Code)                  |

 

Securities registeredunder section 12(b) of the Exchange Act: **Not applicable**

Securities registeredunder section 12(g) of the Exchange Act:  **Common Stock, par value$0.001 per share**

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

Indicate by check mark ifdisclosure of delinquent filers is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K.    o

Indicate by check markwhether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes    o      No    x

The aggregate market valueof the common equity of Medicsight, Inc. held by non-affiliates was$17,238,922 based on the average bid and asked prices of such common equity asof June 30, 2004.

**APPLICABLE ONLY TOREGISTRANTS INVOLVED IN BANKRUPTCYPROCEEDINGS DURING THE PAST FIVE YEARS**

Check whether theregistrant has filed all documents and reports required to be filed by Section 12,13 or 15(d) of the Exchange Act after the distribution of securities undera plan confirmed by a court.   Yes    o      No    o

**APPLICABLE ONLY TOCORPORATE REGISTRANTS**

As of March 29, 2005the number of shares of Common Stock, par value $0.001 per share, of Medicsight, Inc.issued and outstanding was 33,571,127.

**DOCUMENTS INCORPORATED BYREFERENCE**

None.

 

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**NOTE REGARDING FORWARD LOOKING STATEMENTS**

This Annual Report on Form 10-K, including “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inItem 7, contains forward-looking statements that involve risks anduncertainties, as well as assumptions that, if they never materialize or proveincorrect, could cause the results of Medicsight, Inc and its consolidatedsubsidiaries (the “Company”) to differ materially from those expressed orimplied by such forward-looking statements. All statements other thanstatements of historical fact are statements that could be deemedforward-looking statements, including any projections of revenue, gross margin,expenses, earnings or losses from operations, synergies or other financial items;any statements of the plans, strategies and objectives of management for futureoperations, including the rate of market development and acceptance of medicalimaging technology; the execution of restructuring plans; any statementconcerning developments, performance or industry rankings relating to productsor services; any statements regarding future economic conditions orperformance; any statements of expectation or belief; and any statements ofassumptions underlying any of the foregoing. The risks, uncertainties andassumptions referred to above include the performance of contracts bysuppliers, customers and partners; employee management issues; the difficultyof aligning expense levels with revenue changes; and other risks that aredescribed herein, including but not limited to the specific risks areasdiscussed in “Management’s Discussion and Analysis of Financial Condition andResults of Operations” in Item 7 of this report, and that are otherwisedescribed from time to time in the Company’s Securities and Exchange Commissionreports filed after this report. The Company assumes no obligation and does notintend to update these forward-looking statements.

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

**NOTE REGARDING NUMBER OF SHARES AND SHARE PRICES**

On January 27, 2004, the Company amended itsCertificate of Incorporation, increasing the number of shares the Company isauthorized to issue from 25,000,000 shares to 40,000,000.

On July 31, 2003, the Company amended itsCertificate of Incorporation, reducing the number of shares the Company isauthorized to issue from 100,000,000 shares to 25,000,000.

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**PART I**

**ITEM 1.**                BUSINESS.

**General**

Medicsight, Inc. (formerly HTTP Technology, Inc.)and its subsidiaries are collectively referred to in this report as the “Company”.Our business objective is to conceive, develop and commercialize innovativemedical imaging applications derived from our core technology through ourmajority-owned subsidiary, Medicsight PLC (“MS-PLC”).

We were originally incorporated as a Utah corporationin 1977. On December 19, 2000, we entered into an Agreement and Plan ofMerger with our wholly owned subsidiary HTTP Technology, Inc., a Delawarecorporation, and thereby effected a re-incorporation of the company from Utahto Delaware. All references in this report to “the Company”, “we” or “us” referto Medicsight, Inc., the resultant Delaware corporation and subsidiaries,where the context concerns events which occurred on or after December 19,2000, and to HTTP Technology, Inc., the Utah corporation and subsidiaries,where the context concerns events which occurred prior to December 19, 2000.On July 31, 2003, the Company reduced its authorized share capital from100,000,000 shares to 25,000,000 shares. On January 27, 2004, the Companyincreased its authorized share capital from 25,000,000 shares to 40,000,000shares.

During the year ended December 31, 2004 theCompany raised $23,310,000 (net of commission and expenses) by issuing8,579,000 restricted shares of stock. Between January 1, 2005 andMarch 10, 2005 the Company has issued a further 504,000 shares of stock at$4.00 per share raising a further $1,814,000 (net of commissions). Theseprivate placements were underwritten by Asia IT Investments Limited (“Asia IT”),a related party.

During the year ended December 31, 2003 theCompany issued 3,333,333 restricted shares of stock in a $10,000,000 privateplacement underwritten by Asia IT.

Our business is focused on the medical imagingapplications derived from our core technology. We have concluded the process ofincorporating all research, software development, and management and marketingactivities related to our medical imaging initiatives into MS-PLC. In November 2001,assets were transferred from our other subsidiaries to MS-PLC, and the costsincurred on the development of the MedicsightTM system, our state-of-the-artdigital disease detection software system comprising MedicColonTM, MedicHeartTM,MedicLungTM, Colon CARTM and Lung CARTM.

On October 28, 2002, the Company’s name waschanged from HTTP Technology, Inc. to Medicsight, Inc.

We maintain our corporateoffices at 46 Berkeley Square, London, W1J 5AT, United Kingdom, telephone +44(0) 207-598-4070, facsimile: +44 (0) 207-598-4071.

**Business Strategy**

We are developers of software technology for medicaldiagnostic applications such as Computer Aided Detection (“CAD”) and ComputerAssisted Reader (“CAR”) software products in differing business models. We havefour principal operating subsidiaries: Medicsight PLC (“MS-PLC”), Lifesyne UKLimited (“Lifesyne”), Medicsight U.S.A., Inc (“MS-US”) (previously LifesyneU.S.A.) and Medicsight (International) Limited (“MIL”). Medicsight AssetManagement Limited (“MAM”) will cease operations in the next few months.

*MS-PLC*.   Ourmajority-owned subsidiary, MS-PLC, is currently engaged in efforts tocommercialize a state-of-the-art digital expert recognition software system fordigital data derived from medical imaging hardware. At December 31, 2004,the Company owned 70,677,300 ordinary shares in MS-PLC, constituting 

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81.8% of the outstandingshares. At December 31, 2003 the Company owned 68,677,300 shares inMS-PLC. The increase is due to MS-PLC issuing 2,000,000 shares to the Companyon June 30, 2004 to settle debt of $3,240,000 due by MS-PLC to theCompany. This transaction resulted in an increase to the minority interest inMS-PLC of $459,000.

*Lifesyne UK*.   Lifesyneis a wholly owned subsidiary of MS-PLC that was established in September 2002for the purpose of providing a branded operating entity for the United Kingdomand Ireland markets. Lifesyne operates scanning centers in the United Kingdom.As the Company has decided to focus on the delivery of software, no furtherdevelopment of the Lifesyne strategy is envisaged beyond the Company’s currentscanning requirements. We are now focusing Lifesyne on the rapid acquisition ofpatient scan data necessary to enable our expert software to refine itscharacterization capabilities.

*MS-US.  *MS-US(previously Lifesyne US) is also a wholly owned subsidiary of MS-PLC, wasestablished to co-ordinate operations in the United States of America and isbased in Nashville, Tennessee.

*MIL.  *MIL, awholly owned subsidiary of MS-PLC, was established to co-ordinate operationsoutside the United States of America and Europe and is based in Geneva,Switzerland. It has established a further office in China.

*MAM*.   MAM isalso a wholly owned subsidiary of MS-PLC that was established in September 2002for the purpose of acquiring fixed assets on behalf of the operating entitiesin the group. As Lifesyne’s strategy changed MAM’s business was limited so allassets were transferred to MS-PLC or Lifesyne at market value on December 31,2004 or are in the process of being sold to interested third parties. MAM willcease operations in the next few months once all assets are disposed of.

Medicsight is a medical imaging software company. TheCompany’s core technology is focused on developing automatic detection andanalytical tools for clinicians to improve their ability to diagnose and treatdiseases. For the last four years the Company has been working on developingalgorithms in this area through a team of over 30 scientists and softwaredevelopers.

Medicsight has focused so far on 3 therapeutic areas—threeleading causes of premature death, lung cancer, coronary heart disease andcolorectal cancer. Between them these diseases are responsible for over 8.5million premature deaths globally. There’s increasing evidence in all threeareas that early detection leads to an improved life expectancy and this facthas been a core focus of our product development. However, our technology isapplicable to many other diseases and we are already starting to plan for suchpotential expansion in the application of our products.

The Company has to dateprimarily focused on multi slice computed tomography (“CT”) scan analysis. Inthe world today there are over 120 million scans done a year. Over a third ofthese are conducted in the U.S and, of that number, around seven million scansare lung scans and approximately one million are heart scans. These are nearlyall diagnostic scans—that is, scans on patients with symptoms. When screeningof asymptomatic patients begins (scans of patients without specific symptoms),these figures are expected to increase dramatically. The Company’s technologyis equally applicable to magnetic resonance imaging (“MRI”) and Medicsight hasbegun research into brain diseases with a leading global institution.

***Mission Statement***

The Company aims bea leading global supplier of medical imaging analysis software, through

·       Focusingon developing our core technology

·       Creatinga global network of leading medical partners

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·       Developingindustry best data collection programmes and validation studies

·       Stayingahead of the competition by continuously developing our databases, technologyand products

***Corporate Strategy Objectives***

·       Developingthe broadest range of detection and analysis products in CT and MRI technology

·       Workingwith third parties to develop the necessary distribution channels

·       Developinga strategic presence in Asia

·       Makingselective acquisitions/partnerships that broaden

·        Productrange/rate of product development

·        Geographicscope

·        The skills base

***What differentiates the Company***

We are 100% focusedin our field and in delivering our vision, which is to take CAD software beyonddetection to diagnosis and patient management. This is a clearlydifferentiating position from the competition who are more focused on detectiononly. To make this claim, the Company needs to be able to combine:

·       Worldleading science

·       Worldleading medical expertise

·       The largest patient andscan databases

***How does this evidence itself?***

As far as science is concerned, we have had over 30PhDs and software engineers working on developing the core algorithms for thelast four years. We believe we have developed more sophisticated tools thanothers currently available in the market place. The key to reliable detectionand to accurate measurement is accurate boundary identification of the suspectlesion. If your software does not distinguish the lesion from the wall tissue,it is self evident that you will not be able to reliably detect or accuratelymeasure; this is where we have focused much of our scientific development.

In each of the therapeutic areas, heart, lung andcolon, we are working in, we have attracted many of the world’s leadingradiologists, including Drs Henschke and Yankelvitz from Cornell, the leadingworld opinions in lung cancer screening and also Drs Pickhardt and Nugent whoconducted the ground breaking colon study published in New England MedicalJournal in December 2003. Doctors of this caliber are integral to ourproduct strategy and our data collection strategy.

The third area, afterscience and medical expertise, is data; data is crucial to the training andtesting of our products; the more data you have the better your productperformance and we have, we believe access to the world’s largest lung andcolon scan databases; however, it’s not just quantity of data that counts, ourdatabases include the proven outcomes (cancers) and patient managementhistories so analysing these will allow us to go beyond basic nodule or polypdetection. As the databases grow and our access to them increases, it willenable the Company to continue to stay ahead of the field in the area of dataacquisition and thus improve the development of the Company’s software products—aclearly sustainable point of differentiation.

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***Product Portfolio***

Our products currently target three therapeutic areas:colon, lung and heart.

Medicsight introduced a number of innovations to themarket in 2004:

·       Thefirst approved joint read detection products

·       Thefirst colon detection product

·       Thefirst adjustable filter system to allow radiologists to adjust their settingsto suite their requirements

Medicsight was the first company to use the term,Computer Assisted ReaderTM or CARTM, a term gaining much industry usage now. CARsignifies “joint-read” software that assists radiologists in detecting andevaluating lesions or nodules found during CT scans of the lung or colon.Unlike current “second-read” software, in which software is employed afterradiologists have completed their reviews, joint-read software enables theradiologist to review “unfiltered” images side-by-side and simultaneously withsoftware-enhanced regions of interest. For a radiologist reviewing up to 600images from a single CT scan, the joint-read capability saves time and aids inthe evaluation of nodules.

There is increasing evidence in all three areas thatearly detection may lead to improved life expectancy and this has been a corefocus of our product development. However, our technology is applicable to manyother diseases and we are already starting to plan for this.

In terms of clinical practice and therefore marketsegmentation, the products can be split between diagnostic treatment andscreening;

*Diagnostic; incidental detection and”disease tracking” products*.   These are products designedfor symptomatic patients to detect disease incidentally (for example when apatient is being scanned for another symptom/disease), and then subsequentlytrack disease progress and monitor treatment effectiveness. The primary applicationsin this area are Lung nodule tracking and Heart calcium scoring though theCompany believes there will be a growing requirement for polyp tracking in thecolon as CT colonography becomes more established

“*Screening”products*; *for population screeningof asymptomatic patients*.   There is much evidence todemonstrate that the early detection of colon, lung and heart disease leads toan improved life expectancy. CAD CT will provide a cost effective solution inidentifying these diseases early enough to significantly alter the economics ofpopulation screening programs in these areas.

In October 2004, MS-PLC received clearance fromthe U.S. Food and Drug Administration (“FDA”) for its Colon CARTM product, animage analysis software tool that is used with CT colonography (“virtual colonoscopy”)to assist radiologists in searching for and measuring potential colorectalpolyps. Virtual colonoscopy uses a CT scanner to generate both two-dimensionaland three-dimensional views of inside of the colon so is non-invasive, asopposed to the traditional colonoscopy, in which a viewing instrument isphysically inserted into the bowel. Colon cancers most often start whenmalignant cells form within polyps attached to the inner surface of the largebowel. Detection and removal of these polyps can prevent them from becomingcancerous.

Medicsight Colon CARTM works by using MS-PLC’s CARtechnology to deploy a series of filters against image data derived from CTcolonographies. These filters highlight spherical areas of the image as smallas 5 mm or the size of a small pea, which could be potential polyps. Theradiologist is also able to manually highlight any irregularities for closerinspection. Once suspect polyps are found, the software can precisely identifythe boundaries and features and show them in 3D with a volume measurement,diameter, shape and location. This allows the radiologist to accurately reviewand track any growth in the polyps.

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In July 2004, MS-PLC received clearance from theFDA and Conformité Europeène (“CE”) certification for its Lung CARTM product; animage analysis software tool that assists radiologists in evaluating lesions ornodules found during CT scans of the lung. MS-PLC’s Lung CARTM is the first “joint-read” softwareavailable for CT lung scans.

Lung CARTM works by deploying a series of filtersagainst the image data derived from CT scans. The software has a number ofautomatic and manual measurement tools to aid diagnosis, including 3D volumemeasurement and the ability to review follow up scans and doubling times.

The Company’s heartproduct, MedicHeart received FDA approval in November 2003. MedicHeart isa software application for annotating MSCT scans of the heart used byradiologists to identify coronary artery calcium (“CAC”). The reason weconsider that this software product is superior to other products in itscategory is due to its extensive segmentation capabilities, which enable theradiologist to accurately extract the CAC boundary and therefore accuratelymeasure it. This means that the radiologist can accurately track CAC growth orregression.

***Business Development***

In November 2004 MS-PLC announced that it hadsigned letters of intent with Agfa-Gevaert N.V. and Viatronix and a commercialagreement with Vital Images for global distribution of MS-PLC’s medical imagingsoftware products. These agreements are the first of their kind for Medicsightand represent a major step forward in the Company’s plans to commercialize itsadvanced imaging technology on a worldwide basis. The intent is to incorporateMS-PLC’s software into the three companies’ existing product offerings. MS-PLC’ssoftware was demonstrated at the exhibitor booths of Agfa, Vital Images, andViatronix during the annual meeting of the Radiological Society of NorthAmerica (RSNA) that was held at the end of November 2004 in Chicago,Illinois.

Vital Images will be integrating MS-PLC’s Colon CARTMsoftware into its CT colon product InnerviewGITM. The letter of intent signed byViatronix and MS-PLC includes MS-PLC’s Lung CARTM and Colon CARTM software. Theletter of intent with Agfa is for all three products.

On the marketing side theCompany achieved success in 2004, with a significant number of articles in themedical press concerning the Company and its products culminating in beingvoted “Best Industry Newcomer” by AuntMinnie (*www.auntminnie.com*)at the Radiological Society of North America 2004 conference. These articlescan be viewed on our website: *www.medicsight.com.*

***Expanding distribution***

Medicsight aims to buildon the progress made in 2004 by announcing new distribution partnerships in2005; these will both expand the geographic scope and depth of our marketpenetration. The Company’s aim is for an additional three to five partners tobe signed up during 2005, not just in the US but also in the key Asia markets.The company sees Japan and China, in particular, as strategically important;significant business development has already taken place that should lead toannouncements in the first half of the year in those areas.

***Expanding product range and range of technologies***

Whilst there is a significant ongoing investment ininternal new product development programmes, the company is always seeking tobuild on its leading position. The market for advanced software applications isstill embryonic, its ultimate structure still to be defined; we aim to be oneof the leaders and drivers of change and ultimately one of the consolidators inthe sector.

Medicsight has stated aspart of its corporate objectives that it will expand its operations viaacquisition to fill in gaps in technology or product. During 2005 we aim to putthis into practice; a number 

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ofinteresting targets have been identified already that will enhance ourabilities to offer innovative, integrated clinical solutions to our partners.We believe we are in an excellent position to leverage our strong financialbase and develop differences between the competition and ourselves in this way.MS-PLC is also reviewing other potential distribution channels including aweb-based browser.

***International Advisory Board***

As the Company’s strategy has evolved, in particular,following the decision to concentrate our efforts on software development andinternational product distribution, we have acted to align our medical advisorymechanisms to the new circumstances. The Company has therefore set up threeInternational Advisory Boards (“IAB”). The IABs have recruited and willcontinue to recruit individuals with the relevant expertise to become membersand encourage the involvement of the radiologists undertaking beta testing ofour products, providing data for software development and participating in ourscientific program.

Some members of theoriginal Medical Board have accepted appointments to the new IABs. New memberswill include persons with relevant expertise from the United States, Germany,France, Italy, and Japan. The IABs are co-chaired by Dr. John Costello(MS-PLC’s medical director), who reports back to the MS-PLC Board; however,much of the scientific advice and leadership will be provided through aco-chairman, chosen from the IAB members.

***Terms of Reference of the International Advisory Board***

The IABs will meet twice a year and fulfill thefollowing roles:

·       Adviseon the development and application of Medicsight CT image analysis software inthe territories represented.

·       Providelinks to users of CT image analysis systems in their respective territories.

·       Assistin investor relations on an international basis.

·       Adviseon, and participate in, clinical development programs for the Company’ssoftware.

·       Actas advisors in relation to regulatory submissions for the Company’s products.

·       Adviseon sources of library data (CT scans) to support training and development ofthe Company’s software.

***Objectives of the International Advisory Board***

The objectives ofthe IAB meetings may be varied from time-to-time, as agreed with MS-PLC, butwill include the following:

·       Ensurethat members have a full understanding of the Medicsight technology and aremotivated to participate in its development and application, both locally andinternationally.

·       Ensurethat the clinical development program is compatible with local clinicalpractice.

·       Ensurethat the clinical development program is compatible with local regulatoryguidelines.

·       Obtaininsight into local issues with respect to marketing of the Company’s products.

***Risk Factors***

We cannot assure you that the Company will besuccessful in commercializing the MedicsightTM system, or if such a system iscommercialized, that its use will be profitable to the Company. We face 

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obstacles incommercializing our core technology and in generating operating revenues suchas, but not limited to, successful development, testing of and gainingregulatory approval for the technology.

The Company does not believe that there is currentlyany comparable system that is competitive with the MedicsightTM system. Thereare computer-aided diagnostic systems that operate in the field, but, inour view, such other systems are overly dependent on human resources to carryout the analysis, as none have the automated capability of the MedicsightTMsystem.

The Company has had only a limited operating historyupon which an evaluation of its prospects can be made. The Company’s prospectsmust be considered keeping in mind the risks, expenses and difficultiesfrequently encountered in the establishment of a new business in anever-changing industry. There can be no assurance that the Company will be ableto achieve profitable operations.

The Company has identified a number of other specificrisk areas that may affect the Company’s operations and results in the future:

*Technical Risks.  *TheMedicsightTM system may not deliver the levels of accuracy and reliabilityneeded, or the development of such accuracy and reliability may be delayed.

*Market Risks.  *The marketfor the MedicsightTM system may be slower to develop or smaller than estimatedor it may be more difficult to build the market than anticipated. The medicalcommunity may resist the MedicsightTM system or be slower to accept it than weexpect. Revenues from the LifesyneTM scanning centers and the licensing of theMedicsightTM system may be delayed or costs may be higher than expected whichmay result in the Company requiring additional funding.

*Regulatory Risks.  *TheMedicsightTM system is subject to regulatory requirements in both the UnitedStates and Europe. Approvals may not be obtained, may be delayed or incuradditional cost to the MedicsightTM system.

*Competitive Risks.  *Thereare a number of groups and organizations, such as software companies in themedical imaging field, scanner manufacturers, screening companies and otherhealthcare providers that may develop a competitive offering to the MedicsightTMsystem. In addition these competitors may have significantly greater resourcesthan the Company. We cannot make any assurance that they will not attempt todevelop such offerings, that they will not be successful in developing suchofferings or that any offerings they do develop will not have a competitiveedge over the MedicsightTM system.

*Foreign Exchange Risks.  *Asthe Company’s operating currency is UK sterling (£) and its financialstatements are reported in US Dollars, the Company’s assets and liabilities andits results of operations are affected by movements in the $: £ exchange rate.

*OtherRisks.  *The Company’s ability to deliver its softwarecould be hindered by risks such as the loss of key personnel or the patents andtrademarks being successfully challenged or credit facilities being reduced orterminated by lenders.

**Employees**

As of March 21, 2005,the Company and its subsidiaries had 66 employees, all of whom are full-timeemployees. Our employees are not part of a union. We believe that we have anexcellent relationship with our employees.

**Patents and Trademarks**

Protection of our proprietary technology and ourrights over that technology, from copy or unchallenged and improper use, isessential to our future success. Any challenges to, or disputes concerning, ourcore technology may result in great expense to us, delays in bringing productsto market 

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and disruption of ourfocus on our core activities. They may also result in loss of rights over ourtechnology or the right to operate in particular markets due to adverse legaldecisions against us.

The Company has filed patent applications in theUnited Kingdom, the United States and under the International Patent Treaty(which has approximately 70 member countries) covering the application of ourcore technology. However, we have not as yet been granted any patents. Inaddition, we are in the process of preparing to file patent applicationscovering our MedicColonTM, MedicHeartTM, and MedicLungTM products. We cannotprovide assurance that any or all of these patents will be granted or that theywill not be challenged, or that rights granted to us would actually provide uswith advantage over our competitors. Prior art searches have taken place, andthe Company believes that we will not infringe any current third party patents.

We have filed applications to register “Medicsight”TM, “Lifesyne”TM“MedicColon”TM, “MedicHeart”TM, “MedicLung”TM, “Colon CAR”TM, “Lung CAR”TM and“Computer Assisted Reader” TM as trademarks in the United Kingdom,the European Community and the United States. These trademarks are essential tothe corporate identity that we are seeking to create in connection with theMedicsightTM system.

Failure to registerappropriate patents, copyrights or trademarks in any jurisdiction may impedeour ability to create brand awareness in our products, result in expenses inpursuing or our rights with respect to our intellectual property, or result inlost revenues through delays incurred due to intellectual property disputes.Where we may be required to purchase licenses from sellers with prior rights inany country, we cannot assure you that we will be able to do so at acommercially acceptable cost.

**Research and Development**

Under United States generally accepted accountingprinciples, until the technology is determined to be feasible, all relatedresearch and development expenditures must be expensed rather than capitalized.Once the software is determined as feasible (commercially viable), expendituremay be capitalized. The Company has concluded that capitalizing suchexpenditure was inappropriate, because of the difficulty in allocating costsaccurately among the products and versions being developed as technical and developmentstaff are moved from product to product and version to version on a regularbasis. Therefore the Company has decided to expense all research anddevelopment costs. The Company’s research and development costs are comprisedof staff and consultancy costs expensed on the MedicsightTM system.

The Company’s expenditureson research and development comprise of staff and consultants employed in thedevelopment of the MedicsightTM system. During the twelve months ended December 31,2004, December 31, 2003 and December 31, 2002, we expended$2,972,000, $2,498,000 and $1,239,000 respectively for research and developmentfor the MedicsightTM system. We cannot predict the amount of additionalexpenditures that will be necessary prior to achieving commercialization of ourproducts.

**Major Customers**

In Fiscal 2004 and Fiscal2003, the Company’s gross revenues from operations were derived solely from theCompany’s LifesyneTM scanning operations. The Company derived its 2002 revenuesfrom software maintenance.

**Governmental Regulation**

The MedicsightTM system hasbeen designed to analyze digital data from medical scanners, such as CT, MRIand CAT scans, and provides improved analysis to enable the clinician toidentify areas of possible abnormality. The MedicsightTM system will be subjectto governmental regulation in the United Kingdom, Europe and the United States.We are not currently certain of the level of regulation that will be applied tothe MedicsightTM system in any specific jurisdiction. The level of governmentalregulation in the 

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jurisdictionswe engage, or expect to engage, in business may vary. Any such regulation coulddelay the commercial introduction of the MedicsightTM system and couldsignificantly increase our costs of operations.

**General**

Our corporate address is46 Berkeley Square, London W1J 5AT, United Kingdom. Our telephone number is011-44-20-7598-4070. Our Internet address is *http://www.medicsight.com*.Information on our website is not deemed to be a part of this Annual Report.

**ITEM 2.**                PROPERTIES.

We maintain our corporate offices at 46 BerkeleySquare, London W1J 5AT, United Kingdom. The office is comprised of 9,642 squarefeet. We do not have a formal, written lease for these offices. Until June 30,2003, rent was paid quarterly in advance to a property management company,Berkeley Square Ventures Limited, which in turn collects the rent forInternational Cellulose Company Limited (“ICCL”), the entity that holds thelease on the property. Subsequent to June 30, 2003, rent has been paiddirectly to ICCL. In November 2001, ICCL was acquired by STG Holdings PLC(“STG”), a major shareholder of the Company. We have additional satelliteoffices in Nashville, Tennessee and China.

We operate one LifesyneTMscanning center at our flagship center in Westminster, London. The Ravenscourttest center in West London, which is surplus to requirements, has been closedand its assets have been transferred to other companies in our group or arecurrently for sale to third parties.

**ITEM 3.**                LEGAL PROCEEDINGS.

The Company is involvedwith various legal actions and claims arising in the ordinary course ofbusiness. Management believes that the outcome of any such litigation andclaims will not have a material effect on the Company’s financial position orresults of operations.

**ITEM 4.**                SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS.

None.

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**PART II**

**ITEM 5.**                MARKET FORREGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

**Market Information**

The shares of our Common Stock are quoted on theOTC-Bulletin Board, maintained by the National Association of SecuritiesDealers, Inc. The Common Stock is trading under the symbol “MSHT”.

Thefollowing table sets forth the range of high and low bid information forMedicsight, Inc Common Stock for each quarter within the last two fiscal years,after giving effect to the 2002 stock split.
| ** **                       | ** ** | **Bid Quotations ($)** | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| **Period**                       | ** ** | ** **                       | ** ** | **High** | ** ** | **Low** | ** ** |
| *2005*                           |       |                             |       |   |   |
| January 1 to  March 29 |       | 5.15                             |       | 4.85 |   |
| *2004*                           |       |                             |       |   |   |
| First Quarter                    |       | 4.60                             |       | 3.20 |   |
| Second Quarter                   |       | 4.75                             |       | 4.48 |   |
| Third Quarter                    |       | 4.85                             |       | 4.40 |   |
| Fourth Quarter                   |       | 5.50                             |       | 4.35 |   |
| *2003*                           |       |                             |       |   |   |
| First Quarter                    |       | 5.55                             |       | 2.55 |   |
| Second Quarter                   |       | 3.50                             |       | 1.75 |   |
| Third Quarter                    |       | 3.95                             |       | 2.70 |   |
| Fourth Quarter                   |       | 3.84                             |       | 3.10 |   |
|                                  |            |                                  |            |  |  |  |  |

 

These over-the-counter market quotations reflectinter-dealer prices, without retail mark-up, markdown or commission and may notnecessarily represent actual transactions.

As of March 29, 2005,there were 899 holders of record of the Company’s Common Stock.

**Dividends**

The Company has neverdeclared or paid cash dividends on the Common Stock. The Company currentlyintends to retain earnings, if any, to support its growth strategy and does notanticipate paying cash dividends in the foreseeable future. Payment of futuredividends, if any, will be at the discretion of the Company’s Board ofDirectors after taking into account various factors, including the Company’sfinancial condition, operating results, current and anticipated cash needs andplans for expansion.

**SecuritiesAuthorized for Issuance Under Equity Compensation Plans**

On March 20, 2003, the Company’s majority-ownedsubsidiary, MS-PLC, approved the Medicsight PLC Share Option Plan. The Planprovides for the issuance of up to 4,000,000 shares of MS-PLC common stock. On April 30,2003, 2,828,600 options to shares were issued under the Plan.

The term of the MS-PLC stock options granted expire 10years after the grant date. The exercise price of the options and the marketprice of MS-PLC’s common stock at the date of grant was £1.00 ($1.65). Underprovisions of APB 25, no compensation expense has been recorded.

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Thefollowing table summarizes the MS-PLC Stock Option and activity:
| ** **                         | ** ** | **Stock Options Outstanding** | ** ** |
|------------------------------------|------------|-----------------------------------------|------------|
| ** **                         | ** ** | **Shares**                              | ** ** | **Exercise  Price  Per Share** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| Balance  January 1, 2003      |       | —                                  |       |   | — |   |   |   | — |   |   |
| Granted                            |       | 2,828,600                               |       |   | $ | 1.65 |   |   |   | $ | 1.65 |   |   |
| Forfeited                          |       | (452,900                                | )          |   |   |   |   |   |   |   |   |
| Exercised                          |       | —                                  |       |   | — |   |   |   | — |   |   |
| Outstanding December 31, 2003 |       | 2,375,700                               |       |   | $ | 1.65 |   |   |   | $ | 1.65 |   |   |
| Granted                            |       | —                                  |       |   | — |   |   |   | — |   |   |
| Forfeited                          |       | (400,450                                | )          |   |   |   |   |   |   |   |   |
| Exercised                          |       | —                                  |       |   | — |   |   |   | — |   |   |
| Outstanding December 31, 2004 |       | 1,975,250                               |       |   | $ | 1.65 |   |   |   | $ | 1.65 |   |   |
| Options exercisable at:            |       |                                    |       |   |   |   |   |   |   |   |   |
| December 31,  2004            |       | 1,094,250                               |       |   | $ | 1.65 |   |   |   | $ | 1.65 |   |   |

 

**RecentSales of Unregistered Securities**

*Regulation SPlacements.*

Between January 1, 2004 and September 30,2004 the Company issued 8,204,000 shares of common stock at $3.00 per share toa number of institutional investors and private individuals as part of aprivate placement raising approximately $22,185,000 net of commissions payableto Asia IT, a related party. The shares of common stock were issued withoutregistration in reliance upon the exemption provided by Section 4(2) ofthe Securities Act of 1933. The funds raised were used to fund ongoingoperations and the acquisition of property and equipment at its subsidiary,MS-PLC and group.

On July 12, 2004 the Company issued 250,000shares of common stock at $3.00 per share to Asia IT as part settlement ofoutstanding commissions due to Asia IT. The shares of common stock were issuedwithout registration in reliance upon the exemption provided by Section 4(2) ofthe Securities Act of 1933.

On July 21, 2004 the Company issued 125,000shares of common stock at $3.00 per share to Asia IT as part settlement of theline of credit with Asia IT. The shares of common stock were issued withoutregistration in reliance upon the exemption provided by Section 4(2) ofthe Securities Act of 1933.

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**ITEM 6.**                SELECTED FINANCIAL DATA.

Theselected financial data set forth below have been derived from the consolidatedfinancial statements of the Company and the related notes thereto. Thestatement of operations data for the five years ended December 31, 2004and the balance sheet data as of December 31, 2004, 2003, 2002, 2001 and2000 are derived from the consolidated financial statements of the Companywhich have been audited by Amper, Politziner & Mattia, P.C.,independent registered public accountants (consolidated financial statements asat December 31, 2004, 2003 and 2002 and 2001) and Arthur Andersen,independent auditors (consolidated financial statements as at December 31,2000). The following selected financial data should be read in conjunction withthe Company’s consolidated financial statements and the related notes theretoand “Management’s Discussion and Analysis and Results of Operations”, which areincluded elsewhere herein.
| ** **                                    | ** ** | **2004**                                                                                       | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| ** **                                    | ** ** | **(all figures in $ thousands except per share data)** | ** ** |
| Operating  revenues                           |       | $                                                                                              | 538        |     | $          | 276      |       | $        | 82         |     | $          | 225 |   | $ | 514 |   |
| Net loss                                      |       | (15,030                                                                                        | )          | (10,096  | )          | (98,834  | )          | (44,563  | )          | (7,551   | )          |
| Net loss per  common share ($)                |       | (0.49                                                                                          | )          | (0.45    | )          | (5.12    | )          | (2.40    | )          | (0.62    | )          |
| Total Assets                                  |       | 21,041                                                                                         |       | 17,649   |       | 15,430   |       | 87,920   |       | 30,497   |       |
| Long term  obligations                        |       | 223                                                                                            |       | 306      |       | 42       |       | 19       |       | 6,030    |       |
| Dividends declared per  common share ($) |       | $                                                                                              | 0.00       |     | $          | 0.00     |       | $        | 0.00       |     | $          | 0.00 |   | $ | 0.00 |   |

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

Except for historical information, the materialcontained in this Management’s Discussion and Analysis and Results ofOperations is forward-looking. The Company’s actual results could differmaterially from the results discussed in the forward-looking statements, whichinclude certain risks and uncertainties. These risks and uncertainties includethe rate of market development and acceptance of medical imaging technology,the unpredictability of the Company’s sales cycle, the limited revenues andsignificant operating losses generated to date, and the possibility ofsignificant ongoing capital requirements.

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

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

*Technical Risks.  *TheMedicsightTM system may not deliver the levels of accuracy and reliabilityneeded, or the development of such accuracy and reliability may be delayed. 

*Market Risks.  *The marketfor the MedicsightTM system may be slower to develop or smaller than estimatedor it may be more difficult to build the market than anticipated. The medicalcommunity may resist the MedicsightTM system or be slower to accept it than weexpect. Revenues from the LifesyneTM scanning centers and the licensing of theMedicsightTM system may be delayed or costs may be higher than expected whichmay result in the Company requiring additional funding. 

*Regulatory Risks.  *TheMedicsightTM system is subject to regulatory requirements in both the UnitedStates and Europe. Approvals may not be obtained, may be delayed or incuradditional cost to the MedicsightTM system.

*Competitive Risks.  *Thereare a number of groups and organizations, such as software companies in themedical imaging field, scanner manufacturers, screening companies and otherhealthcare providers, which may develop a competitive offering to theMedicsightTM system. In addition these competitors may have significantlygreater resources than the Company. We cannot make any assurance that they willnot attempt to develop such offerings, that they will not be successful indeveloping such offerings or that any offerings they do develop will not have acompetitive edge over the MedicsightTM system.

*Foreign Exchange Risks.  *Asthe Company’s operating currency is UK sterling (£) and its financialstatements are reported in US Dollars, the Company’s assets and liabilities andits results of operations are affected by movements in the $: £ exchange rate. 

*OtherRisks.  *The Company’s ability to deliver its softwarecould be hindered by risks such as the loss of key personnel or the patents andtrademarks being successfully challenged or credit facilities being reduced orterminated by lenders.

**RESULTS OF OPERATIONS**

**FiscalYear Ended December 31, 2004 vs. Fiscal Year Ended December 31, 2003**

*Revenues.  *For Fiscal 2004the Company’s gross revenues from operations were $538,000. For Fiscal 2003,the Company’s gross revenues from operations were $276,000. The Company’srevenue in Fiscal 2004 and Fiscal 2003 was derived from the Company’s LifesyneTMscanning operations. The increase was due to growth in the number of scansundertaken.

*Research and Development*.   TheCompany’s research and development expenses for Fiscal 2004 were $2,972,000 ascompared to $2,498,000 for Fiscal 2003. The Company’s research and developmentcosts 

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were comprised of staffand consultancy costs expensed on the development of the MedicsightTM system andthe lung, colon and heart products. The Company expenses all research anddevelopment costs. The Company has concluded that capitalizing such expenditurewas inappropriate because of the difficulty in assigning costs accurately tothe various software products and versions being developed in that technicaland development staff are moved from product to product and version to versionon a regular basis.

*Selling, General and Administrative Expenses.  *TheCompany’s selling, general and administrative expenses for Fiscal 2004 were$13,261,000 as compared to $10,279,000 for Fiscal 2003. Professional fees,including consulting services, were $879,000 in Fiscal 2004 as compared to$1,116,000 in Fiscal 2003. The amount of salaries and directors’ andsub-contractors’ compensation was $7,931,000 in Fiscal 2004 and $6,111,000 inFiscal 2003. The amount of the increase is due to increases in staff numbersand sub-contractors (including medical board members and radiologists) as theCompany has expanded. Other charges include service charges and rates forproperty leasing of $522,000 in Fiscal 2004 and $443,000 in Fiscal 2003, andrent of $1,101,000 in Fiscal 2004 and $909,000 in Fiscal 2003. The rentincrease was due to a full year of rent due on the Westminster site. In Fiscal2004 the Company incurred costs of $1,484,000 related to marketing and publicrelations and $487,000 relating to the clinical trials as compared to$1,299,000 and $492,000, respectively, in Fiscal 2003.

For Fiscal 2004, the Company recorded impairment toMAM’s property and equipment of $968,000. This was as a result of the decisionto transfer MAM’s assets to MS-PLC and Lifesyne or sell to independent thirdparties at open market value, as its business opportunities were limited due tothe change in strategy by Lifesyne. No impairment charge was recorded in Fiscal2003.

*Depreciation and Amortization Expense.  *Depreciationcharge in Fiscal 2004 was $779,000 as compared to $631,000 in Fiscal 2003. Theincrease is principally due to the depreciation of the assets acquired for theLifesyneTM centers as they became operational.

*Impairment Loss on Investments.  *ForFiscal 2004, the Company incurred an impairment loss on investments of $70,000relating to the impairment in the carrying value of Eurindia PLC (“Eurindia”).TheCompany based this impairment on information provided by Eurindia’s management.

For Fiscal 2003, the Company incurred an impairmentloss on investments of $95,000 relating to the impairments in the carryingvalue of Eurindia PLC (“Eurindia”) and Strategic Intelligence PLC (“SI-PLC”).Eurindia was impaired by $59,000 based on Eurindia’s management’s assessment ofthe value of its portfolio at $0.72 per share. The Company fully impaired itsinvestment in SI-PLC of $36,000, as the Company was unable to obtain anyinformation or representations from SI-PLC as to the fair value.

*Net Loss and Net Loss per Share.  *Netloss was $15,030,000 for Fiscal 2004 compared to a net loss of $10,096,000 forFiscal 2003. Net loss per share for Fiscal 2004 was $0.49, based on weightedaverage shares outstanding of 30,853,734, compared to a net loss per share of$0.45 for Fiscal 2003, and based on weighted average shares outstanding of22,203,126. The increase in net loss for Fiscal 2004 is principally dueincrease in staff costs, the effects of an appreciation of 11.6% in the $: £exchange rate (see note below) and the limited share of the losses attributableto the minority interest.

*Note*   As the operatingcurrency is UK sterling (£) the Results of Operations are affected bysignificant changes in the $: £ rates used to translate the revenues and costs.For Fiscal 2004 the average rate was $1.83: £1.00 and for Fiscal 2003 the ratewas $1.64: £1.00, an increase of 11.6%.

*Contractual Obligations andCommitments.  *As of December 31, 2004, the Companywas party to capital lease obligations in the amount of $286,000 for a scannerand $44,000 for motor vehicles. The obligations for the scanner lease requirequarterly payments of $24,000, including interest, through March 2008. Theobligations for the vehicle lease require monthly payments of $1,700, includinginterest, through April 2007. The underlying equipment secures bothleases.

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The Company’s corporate offices are at 46 BerkeleySquare, London W1J 5AT, United Kingdom. There is no formal, written lease forthese offices (see ITEM 2 above). Rental costs for 46 Berkeley Square areapproximately $570,000 per annum.

The Company has a property lease for the Lifesynecenter at Westminster. The Company has a draft lease covering Ravenscourt,which is currently unsigned.

Futureminimum obligations under these arrangements are as follows:
| **For the year ending December 31,** | ** ** | ** **       | ** ** | **Property  Leases** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------|------------|------------------|------------|----------------------|------------|-----------|------------|
| ** **                                                    | ** ** | **($’000)** | ** ** | **($’000)**     | ** ** |
| 2005                                                          |       |             | 507        |                 |       |      | 507        |   |   |
| 2006                                                          |       |             | 507        |                 |       |      | 507        |   |   |
| 2007                                                          |       |             | 507        |                 |       |      | 507        |   |   |
| 2008                                                          |       |             | 144        |                 |       |      | 144        |   |   |
| 2009 and thereafter                                           |       |             | 89         |                 |       |      | 89         |   |   |

 

**FiscalYear Ended December 31, 2003 vs. Fiscal Year Ended December 31, 2002**

*Revenues.  *For Fiscal 2003the Company’s gross revenues from operations were $276,000. For Fiscal 2002,the Company’s gross revenues from operations were $82,000. The Company’srevenue in Fiscal 2003 was derived from the Company’s LifesyneTM scanningoperations. The Company’s revenues in Fiscal 2002 were delivered principallyfrom software maintenance. Revenues from software maintenance ceased in Fiscal2002, as the company that provided these services was sold to an independentthird party on October 28, 2002.

During Fiscal 2002 the Company had two customers thatrepresented 98.8% of its revenues. The customers were Commonwealth Secretariat,which accounted for 67.1% of sales, and Texaco Ltd., which accounted for 31.7%of sales.

*Research and Development*.   TheCompany’s research and development expenses for Fiscal 2003 were $2,498,000 ascompared to $1,239,000 for Fiscal 2002. The Company’s research and developmentcosts were comprised of staff and consultancy costs expensed on the developmentof the MedicsightTM system. The Company expenses all research and developmentcosts. The Company has concluded that capitalizing such expenditure wasinappropriate because of the difficulty in assigning costs accurately to thevarious software products and versions being developed in that technical anddevelopment staff are moved from product to product and version to version on aregular basis.

*Selling, General and Administrative Expenses.  *TheCompany’s selling, general and administrative expenses for Fiscal 2003 were $10,279,000as compared to $10,619,000 for Fiscal 2002. Professional fees, includingconsulting services, were $1,116,000 in Fiscal 2003 as compared to $1,565,000in Fiscal 2002. The amount of salaries and directors’ and sub-contractors’compensation was $6,111,000 in Fiscal 2003 and $3,988,000 in Fiscal 2002. Theincrease is due to increases in staff numbers and sub-contractors (includingmedical board members and radiologists) as the Company expands. Other chargesinclude service charges and rates for property leasing of $443,000 in Fiscal2003 and $422,000 in Fiscal 2002, and rent of $909,000 in Fiscal 2003 and$455,000 in Fiscal 2002. The rent increase was due to the opening of theWestminster site. In Fiscal 2003 the Company incurred costs of $1,299,000 relatedto marketing and public relations and $492,000 relating to the clinical trials,whereas no such costs were incurred in Fiscal 2002. Amortization of intangiblesin Fiscal 2003 was $nil as compared to $4,494,000 in Fiscal 2002.

*Depreciation and Amortization Expense.  *EffectiveJanuary 1, 2002, with the adoption of SFAS No. 142, goodwill will nolonger be amortized. Prior to January 1, 2002, goodwill was amortized on astraight-line basis over 5 years.

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During Fiscal 2000, the Company acquired an intangibleasset from Nightingale Technologies Limited consisting of technology valued at$22,470,000. Under SFAS No.142, this is considered an intangible asset with adefinite life of 5 years. Therefore, the value of the asset is amortized on astraight-line basis over this period*.*Theamortization charge for Fiscal 2003 was $nil as compared to $4,494,000 forFiscal 2002. During Fiscal 2003 the Company reviewed the value attributable tothe technology and concluded that, as there had been no further development ofthe technology except for the MedicsightTM applications in Fiscal 2002 or Fiscal2003, the technology should be impaired in full as at December 31, 2002.Therefore, the Company recorded an impairment charge of $13,482,000 in Fiscal2002.

Depreciation charge in Fiscal 2003 was $631,000 ascompared to $165,000 in Fiscal 2002. The increase is principally due to thedepreciation of the assets acquired for the LifesyneTM centers as they becameoperational.

*Impairment of excess of purchase price over netassets acquired.  *For Fiscal 2003 and Fiscal 2002, theCompany had excess of purchase price over net assets acquired of $11,200,000and $11,200,000, respectively. The excess of purchase price over net assetsacquired in Fiscal 2002 of $11,200,000 was due to the Company acquiring anadditional 7,000,000 shares in MS-PLC. As stated above, the Company adoptedSFAS No. 142 on January 1, 2002. Under this standard, goodwill willno longer be amortized over its estimated useful life, but instead will betested for impairment on an annual basis or whenever indicators of impairmentarise. The impairment in Fiscal 2002 relates to the goodwill attributable tothe acquisition of Insights of $68,178,000 (after the fair value adjustmentdescribed in the “Note Regarding Amendment and Restatement” above) in Fiscal2000. As the business of Insights had been transferred to other group companiesin 2001 (MS-PLC) and 2002 (Medicsight Finance Ltd) and Insights sold to anindependent third party on December 6, 2002, the Company has concludedthat the goodwill attributable to the acquisition of Insights should beimpaired in full as at December 31, 2002.

*Impairment Loss on Investments.  *ForFiscal 2003, the Company incurred an impairment loss on investments of $95,000relating to the impairments in the carrying value of Eurindia PLC (“Eurindia”)and Strategic Intelligence PLC (“SI-PLC”). Eurindia was impaired by $59,000based on Eurindia’s management’s assessment of the value of its portfolio at$0.72 per share. The Company fully impaired its investment in SI-PLC ($36,000),as the Company was unable to obtain any information or representations fromSI-PLC as to the fair value.

For Fiscal 2002, the Company incurred an impairmentloss on investments of $175,000 relating to the impairments in the carryingvalue of Eurindia and Top Tier, Inc (“Top Tier”). The management of Eurindiarecently valued its investment portfolio at $0.83 per share. As a result theCompany incurred an impairment of $145,000 on the carrying value of itsinvestment. Based on the financial status of Top Tier, the investment waspermanently impaired, and the Company recorded impairment for the entirecarrying value, $30,000, of this investment.**

*Impairment of Vendor Guarantee*.   Impairmentof a vendor guarantee in the amount of $nil and $6,311,000 for Fiscal 2003 andFiscal 2002, respectively, relates to an impairment of the guarantee providedby Dr. Alexander Nill as to the fair value of certain assets acquired inthe Company’s acquisition of Core Ventures Limited (“Core”) in September 2000.The vendor guarantee represents the fair value of 1,195,000 shares of theCompany’s stock belonging to Dr Alexander Nill (the vendor of Core and then adirector of the Company), the proceeds of the sale of which were to be remittedto the Company. Subsequently, in Fiscal 2003 the Company received proceeds (netof commission) under the guarantee of $3,689,000 from the sale of those1,195,000 shares. In Fiscal 2002, the fair value of the guarantee was restatedto reflect the funds received under the guarantee (see “Note RegardingAmendment and Restatement” above). The fair value was originally stated at$3,227,000, based on the weighted average price of the stock.

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*Net Loss and Net Loss per Share.  *Netloss was $10,096,000 for Fiscal 2003 compared to a net loss of $98,913,000 (asrestated) for Fiscal 2002. Net loss per share for Fiscal 2003 was $0.45, basedon weighted average shares outstanding of 22,203,126, compared to a net lossper share of $5.13 (as restated) for Fiscal 2002, and based on weighted averageshares outstanding of 19,294,654. The reduction in net loss for Fiscal 2003 isprincipally due to the impairments recorded in Fiscal 2002 on Goodwill,Intangible Assets and Vendor Guarantee of $87,971,000.

*Note*   Asthe operating currency is UK sterling (£) the Results of Operations areaffected by significant changes in the $: £ rates used to translate therevenues and costs. For Fiscal 2003 the average rate was $1.64: £1.00 and forFiscal 2002 the rate was $1.51: £1.00, an increase of 8.6%.

**LIQUIDITY AND CAPITAL RESOURCES**

*Working Capital Information as at December 31:*
| ** **                                      | ** ** | **2004**          | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------------------|------------|-------------------|------------|----------|------------|----------|------------|
| ** **                                      | ** ** | **($000’s)** | ** ** |
| Cash and Cash  Equivalents                      |       | 5,276             |       | 845      |       | 1,778    |       |
| Current Assets                                  |       | 6,515             |       | 2,144    |       | 2,284    |       |
| Current  Liabilities                            |       | (2,353            | )          | (6,540   | )          | (8,977   | )          |
| Working Capital  Surplus/(Deficit)              |       | 4,162             |       | (4,396   | )          | (6,693   | )          |
| Ratio of Current Assets  to Current Liabilities |       | 2.77              |       | 0.33     |       | 0.26     |       |

 

*Net Change in Cash and Cash Equivalents.  *Duringthe year ended December 31, 2004, the Company’s cash and cash equivalentsincreased by $4,431,000. This increase was primarily the result of cash flowsreceived from shares issued by the Company in excess of the net cash used inoperating and investing activities and repayments of debt. The Company used netcash of $15,115,000 in operations. The Company received net cash of $20,162,000in financing activities and used $434,000 in investing activities.

During the year ended December 31, 2003, the Company’scash and cash equivalents decreased by $933,000 to $845,000. This decrease wasprimarily the result of cash flows received from shares issued by the Company,MS-PLC and under the vendor guarantee offset by a decrease in short term debt,the net cash used for operations and the purchase of fixed assets. The Companyused net cash of $13,149,000 in operations. The Company received net cash of$13,798,000 in financing activities and used $1,293,000 in investingactivities.

*Net Cash Used in Operations.  *InFiscal 2004 the Company used net cash in operations of $15,115,000. Theincrease of $1,966,000 is mainly due to increases in staff and sub-contractors(including medical board members and radiologists). 

In Fiscal 2003 the Company had net cash used inoperations of $13,149,000. This was a significant increase and is based uponincreases in staff, sub-contractors (including medical board members andradiologists) of $2,100,000, increase in rent for the scanning centers of$500,000 as well as costs not previously incurred such as marketing and publicrelations costs of $1,300,000 and costs incurred that relate to the clinicaltrials of $500,000. In addition research and development costs have increasedfrom $1,200,000 in Fiscal 2002 to $2,500,000 in Fiscal 2003.

*Net Cash Used in Investing Activities.  *InFiscal 2004, the Company had a net cash outflow from investing activities of$434,000. The Company used the funds to purchase additional fixed assets, themajority of which was required for the clinical trials and presentation ortesting our software.

In Fiscal 2003, the Company had a net cash outflowfrom investing activities of $1,293,000. The Company used the funds to purchaseadditional fixed assets, the majority of which related to the LifesyneTM centerat Westminster.

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*Net Cash Provided by Financing Activities.  *InFiscal 2004, the Company had a net cash inflow from financing activities of$20,162,000. The funds received in the year ended December 31, 2004,comprised $23,310,000 (net of commission and expenses) raised by a stock issueby the Company. The Company also repaid in full the Asia IT facility($2,880,000) and the overdraft ($196,000).

In Fiscal 2003, the Company had a net cash inflow fromfinancing activities of $13,798,000. The funds received in the year ended December 31,2003, comprised $9,063,000 (net of commissions) raised by a stock issue by theCompany plus $4,222,000 (net of commissions) received from the private offeringof MS-PLC stock. In addition the Company received $3,689,000 from the sale of1,195,000 shares of stock under the Vendor Guarantee. The Company also repaidin full of the Nightingale loan of $3,250,000 and drew down $356,000 on theCompany’s Asia IT line of credit.

*Stockholders’ Equity.  *TheCompany’s stockholders’ equity at December 31, 2004 was $18,465,000,including an accumulated deficit of $(178,498,000), as compared to $10,489,000at December 31, 2003, including an accumulated deficit of $(163,468,000).Additional paid-in capital was $196,652,000 and $173,810,000, at December 31,2004 and December 31, 2003 respectively. The increase in stockholders’equity was a result of an increase in accumulated deficit of $15,030,000 offsetby an increase in additional paid-in capital of $22,842,000. The increase inadditional paid-in capital resulted from issues of stock at a premium by theCompany in Fiscal 2004.

The Company’s stockholders’ equity at December 31,2003 was $10,489,000, including an accumulated deficit of $(163,468,000), ascompared to $5,406,000 at December 31, 2002, including an accumulateddeficit of $(153,372,000). Additional paid-in capital was $173,810,000 and$162,156,000, at December 31, 2003 and December 31, 2002respectively. The increase in stockholders’ equity was a result of an increasein accumulated deficit of $10,096,000 offset by a decrease in the vendorguarantee of $3,689,000 and an increase in additional paid-in capital of$11,654,000. The increase in additional paid-in capital resulted from issues ofstock at a premium by both the Company and MS-PLC in Fiscal 2003.

*Additional Capital.  *TheCompany may require additional capital during its fiscal years ending December 31,2005 and 2006 to implement its business strategies, including cash for paymentof increased operating expenses such as salaries for additional employees. Suchadditional capital may be raised through additional public or private equityofferings, as well as borrowings and other resources. Currently, the Companyhas two available lines of credit.

On December 15, 2000, the Company entered into anunsecured credit facility with Asia IT that provides a $20,000,000 line ofcredit. Such line of credit originally expired on December 31, 2001, buthas been extended until December 31, 2006. Interest on advances under thecredit facility accrues at 2% above US LIBOR. The Company can draw down on thiscredit facility for its financing requirements, upon approval by the Company’sBoard of Directors and subject to approval by Asia IT (such approval not to beunreasonably withheld). The Company is restricted from borrowing funds,directly or indirectly, other than through the credit facility with Asia IT,without the consent of Asia IT. The availability of the credit facility reducesupon the Company’s sale of any of its investment assets. The amounts drawn andinterest charged under this facility are repayable on demand or at the maturityof the facility.

On November 20, 2001, Asia IT entered into a£10,000,000 ($18,000,000) credit facility with MS-PLC. Such facility matures onDecember 31, 2006 and is secured by a lien on all assets of Medicsight. Intereston outstanding amounts accrues at 2% above GBP LIBOR. Pursuant to such creditfacility, MS-PLC had covenanted to undertake a public offering of its commonshares in an amount not less than £25,000,000 ($45,000,000) not later than March 2002.MS-PLC did not complete such an offering but the facility nevertheless remainsin place. The loan is convertible into ordinary shares in MS-PLC onannouncement of an Offer to Subscribe, Placing or other public offering of itsordinary shares, at the same price per share as the offering price. 

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At December 31, 2004, the Company had not drawndown any funds under the $20,000,000 facility with Asia IT, and MS-PLC had notdrawn down any funds under its £10,000,000 ($18,000,000) facility with Asia IT.

During Fiscal 2004 the Company raised $23,310,000, netof commissions and expenses of $2,424,000, in a private placement of restrictedstock at $3.00 per share. Since January 1, 2005 the Company has issued afurther 504,000 shares of stock at $4.00 per share raising a further $1,814,000(net of commissions). These private placements were underwritten by Asia IT.

During Fiscal 2003 the Company issued a $10,000,000private placement of 3,333,333 shares underwritten by Asia IT, which generatedfunds of $9,063,000 after deducting Asia IT’s commission of $937,000 (partlypaid by issuing 211,000 shares of Company stock valued at $3.00 per share). Inaddition Asia IT underwrote a £2,725,000 ($4,670,000) private placement ofMS-PLC shares, which generated funds of £2,453,000 ($4,222,000) after deductingAsia IT’s commission of £272,000 ($448,000).

At December 31, 2004, the Company owned70,677,300 common shares in MS-PLC, constituting 81.51% of the outstandingshares. At December 31, 2003 the Company owned 68,677,300 shares in MS-PLC.The increase is due to MS-PLC issuing 2,000,000 shares to the Company on June 30,2004 to settle debt of $3,240,000 due from MS-PLC to the Company.

To the extent thatadditional capital is raised through the sale of equity or equity-relatedsecurities of the Company or its subsidiaries, the issuance of such securitiescould result in dilution to the Company’s stockholders. No assurance can begiven, however, that the Company will have access to the capital markets in thefuture, or that financing will be available on acceptable terms to satisfy theCompany’s cash requirements to implement its business strategies. If we areunable to access the capital markets or obtain acceptable financing, ourresults of operations and financial conditions could be materially andadversely affected. We may be required to raise substantial additional fundsthrough other means. The products derived from our proprietary software,including the MedicsightTM system, are expected to account for substantially allof our revenues from operations in the foreseeable future. Our technology hasnot yet been fully commercialized, and we have not begun to receive anyrevenues from our commercial operations associated with the software products. Wecannot assure our stockholders that our technology and products will becommercialized successfully, or that if so commercialized, that revenues willbe sufficient to fund our operations. Management believes it has sufficientcash and available facilities to fund operations for the coming year. Ifadequate funds are not available to us, we may be required to curtailoperations significantly or to obtain funds through entering into arrangementswith collaborative partners or others that may require us to relinquish rightsto certain of our technologies or products that we would not otherwiserelinquish.

**Contractual Obligations**

As of December 31,2004, the Company has the following contractual obligations:
| ** **                                          | ** ** | **Payments Due By Period** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------|------------|
| **Contractual Obligations **($000’s) | ** ** | ** **                                | ** ** | **Total** | ** ** | **Less than  1 year** | ** ** | ** 1-3 years ** | ** ** | **3-5 years** | ** ** | **More than  5 years** | ** ** |
| Operating Lease  Obligations                        |       | $                                         | 1,754      |   |   | $ | 507 |   |   |   | $ | 1,014 |   |   |   | $ | 166 |   |   |   | $ | 67 |   |   |
| Capital Lease  Obligations                          |       | 330                                       |       |   | 107 |   |   |   | 183 |   |   |   | 40 |   |   |   | — |   |   |
| Total                                               |       | $                                         | 2,084      |   |   | $ | 614 |   |   |   | $ | 1,197 |   |   |   | $ | 206 |   |   |   | $ | 67 |   |   |
|                                                     |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Critical AccountingPolicies.**

In December 2001 and January 2002, theSecurities and Exchange Commission requested that all registrants list theirthree to five most “critical accounting policies” in the Management’sDiscussion and Analyses of Financial Condition and Results of Operations. TheSecurities and Exchange Commission 

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indicated a “criticalaccounting policy” is one which is both important to the portrayal of thecompany’s financial condition and results and requires management’s mostdifficult, subjective or complex judgments, often as a result of the need tomake estimates about the effect of matters that are inherently uncertain. Webelieve that the following accounting policies fit the definition of criticalaccounting policies.

*Revenue Recognition.  *Weexpect to earn our revenue primarily from software licenses and relatedservices. Our revenue is recognized in accordance with Statement ofPosition 97-2 (SOP 97-2), as amended by Statement ofPosition 98-9. Currently the Company’s revenues derive from its scanningservices operated by LifesyneTM. Scan revenue is recognized when the service isdelivered.

The recognition of revenues from software licenses andrelated services will require more difficult and complex judgments. The termsof the license contract, long-term (over 12 months), short-term, cancelable,non-cancelable or per scan, for example will affect the recognition of revenuesfrom services, such as up-front fees on installation, activation and up-frontlicense fees, on-going license fees, termination fees and maintenance fees.Where fees are received prior to any service being delivered, the fees aredeferred until the related service has been delivered successfully and therevenue can then be recognized. If there are fees that relate to any “milestone”,these are deferred until the “milestone” has passed, and then the revenue canthen be recognized.

The Company believes that the accounting estimatesrelated to the recognition of revenue and establishment of reserves foruncollectable amounts in the results of operations is a “critical accountingestimate” because: (1) it requires management to make assumptions aboutfuture collections, and (2) the impact of changes in actual performanceversus these estimates on the accounts receivable balance reported on ourconsolidated balance sheets and the results reported in our consolidatedstatements of operations could be material. Further the Company has no historyof uncollectable amounts and therefore must initially look to the estimates forthe industry or particular companies that the management feels operate in asimilar environment in addition to any current market indicators about generaleconomic conditions that might impact the collectibility of accounts.

*Research and Development.  *Costsincurred in connection with the development of software products that areintended for sale are accounted for in accordance with Statement of FinancialAccounting Standards No. 86, “Accounting for the Costs of ComputerSoftware to be Sold, Leased, or Otherwise Marketed”. Costs incurred prior totechnological feasibility being established for the product are expensed asincurred. Technological feasibility is established upon completion of a detailprogram design or, in its absence, completion of a working model. Thereafter,all software production costs are capitalized and subsequently reported at thelower of unamortized cost or net realizable value. Capitalized costs areamortized based on current and future revenue for each product with an annual minimumequal to the straight-line amortization over the remaining estimated economiclife of the product. Amortization commences when the product is available forgeneral release to customers.

The Company decided that capitalizing such expenditurewas inappropriate because of the difficulty in assigning costs accurately tothe various software products and versions being developed as technical anddevelopment staff are moved from product to product and version to version on aregular basis. Therefore, the Company has decided to expense all research anddevelopment costs. The Company’s research and development costs are comprisedof staff and consultancy costs expensed on the MedicsightTM system.

*Impairment of Long-lived Assets andLong-lived Assets To Be Disposed of*.   The Companyevaluates the carrying value of long-lived assets for impairment wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. The Company’s assessment for impairment of anasset involves estimating the undiscounted cash flows expected to result fromuse of the asset and its eventual disposition. An impairment loss recognized ismeasured as the amount by which the carrying amount of the asset exceeds thefair value of the asset.

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Calculating the estimated fair value of the assetinvolves significant judgments and a variety of assumptions. Judgments that theCompany makes concerning the intangible acquired include assessing time andcost involved for development, time to market, risks of regulatory failure orobsolescence, (due to market, environmental or technological advances forexample). For calculating fair value based on discounted cash flows, weforecast future operating results and future cash flows, which includelong-term forecasts of revenue growth, gross margins and capital expenditures.

*Impairment of Excess of PurchasePrice Over Net Assets Acquired.  *The Company adoptedSFAS No. 142 on January 1, 2002. Under this standard, goodwill is nolonger be amortized over its estimated useful life, but is tested forimpairment on an annual basis and whenever indicators of impairment arise. Underthe provisions of SFAS No. 142, any impairment loss identified uponadoption of this standard is recognized as a cumulative effect of a change inaccounting principle. Any impairment loss incurred subsequent to the initialadoption of SFAS No 142 is recorded as a charge to current period earnings.

In connection with the adoption of SFAS No. 142,we performed our initial impairment analysis of goodwill and indefinite-livedintangible assets as of January 1, 2002. The implementation involved thedetermination of the fair value of each reporting unit, where a reporting unitis defined as an operating segment or one level below. We continue to performan impairment analysis at least annually.

We determined the fairvalue of each significant reporting unit based on discounted forecasts offuture cash flows. Judgments and assumptions are required in the preparation ofthe estimated future cash flows, including long-term forecasts of revenuegrowth, gross margins and capital expenditures.

**Recent Accounting Pronouncements.**

In January 2003, the FASB issued Interpretation No. 46,“Consolidation of Variable Interest Entities” (FIN No. 46), whichaddresses consolidation by business enterprises of variable interest entities (“VIEs”).FIN No.46 is applicable immediately for VIEs created after January 31,2003 and are effective for reporting periods ending after December 15,2003, for VIEs created prior to February 1, 2003. In December 2003,the FASB published a revision to FIN 46 (“FIN 46R”) to clarify some of theprovisions of the interpretation and to defer the effective date ofimplementation for certain entities. Under the guidance of FIN 46R, publiccompanies that have interests in VIE’s that are commonly referred to as specialpurpose entities are required to apply the provisions of FIN 46R for periodsending after December 15*,*2003. Apublic company that does not have any interests in special purpose entities butdoes have a variable interest in a VIE created before February 1, 2003,must apply the provisions of FIN 46R by the end of the first interim or annualreporting period ending after March 14, 2004. The adoption of FIN No. 46did not have an effect on the consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123(R),“Share-Based Payment,” which is a revision of SFAS No. 123, “Accountingfor Stock-Based Compensation.” SFAS 123(R) requires that the compensationcost relating to share-based payment transactions be recognized in financialstatements. The compensation cost will be measured based on the fair value ofthe equity or liability instruments issued. The Statement is effective as ofthe beginning of the first interim or annual period beginning after June 15,2005. We will adopt SFAS No. 123(R) on October 1, 2005 using themodified prospective method. We have disclosed the pro forma impact of adoptingSFAS No. 123(R) on net income and earnings per share for the yearended December 31, 2004 and 2003 in Note 1, which includes all share-basedpayment transactions to date. We do not yet know the impact that any futureshare-based payment transactions will have on our financial position or resultsof operations.

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**ITEM 7A**           QUANTATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

**Interest Rate Risk**

TheCompany’s exposure to market risk associated with changes in interest ratesrelates to its debt obligations. The Company has the following debt facilitiesall repayable on demand:
| **Debt Holder**             | ** ** | ** ** | ** ** | **Facility** | ** ** | **Draw Down** | ** ** | **Interest rate** | ** ** | **At December 31** | ** ** |
|----------------------------------|------------|------------|------------|--------------|------------|--------------------|------------|------------------------|------------|------------------------------|------------|
| Asia IT Capital  Investments Ltd |       | $          | 20,000,000 |         |       | $                  | nil        |                   |       | US Libor + 2%                |       |   | 5.10 | % |   |
| Asia IT Capital  Investments Ltd |       | $          | 18,000,000 |         |       | $                  | nil        |                   |       | GBP Libor + 2%               |       |   | 6.93 | % |   |

 

A hypothetical 100 basispoint increase in interest rates would increase interest cost by approximately$nil per annum assuming no further draw downs or repayments are made.

**Foreign ExchangeRisk**

The Company holds limited cash balances in BritishPounds so any adverse movements in the exchange rates are consideredimmaterial.

As the Company’s operatingcurrency is UK sterling (£) and its financial statements are reported in USDollars, the Company’s assets and liabilities and its results of operations areaffected by movements in the $: £ exchange rate.

**ITEM 8.**                FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

The information requiredby this Item is included on pages F-1 to F-19 of this Annual Report.

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

None.

**ITEM 9A.**        CONTROLS AND PROCEDURES.

The Company maintainsdisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in the Company’s Exchange Act reports is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms, and that such information is accumulated and communicatedto the Company’s management, including its Chief Executive Officer and ChiefFinancial Officer and persons performing similar functions, as appropriate, toallow timely decisions regarding required disclosure. In designing andevaluating the disclosure controls and procedures, management recognizes thatany controls and procedures, no matter how well designed and operated, canprovide only reasonable assurance of achieving the desired control objectives,and management is required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures. The Company carries out avariety of ongoing procedures, under the supervision and with the participationof the Company’s management, including the Chief Executive Officer and theChief Financial Officer, to evaluate the effectiveness of the design andoperation of the Company’s disclosure controls and procedures. Based on theforegoing, the Company’s management, with the participation of the ChiefExecutive Officer and Chief Financial Officer evaluated the effectiveness ofthe Company’s disclosure controls and procedures as of December 31, 2004and concluded that they were effective at the reasonable assurance level as of December 31,2004. There have been no significant changes in the Company’s disclosurecontrols and procedures over financial reporting during the Company’s mostrecent fiscal quarter that has materially affected, or is reasonably likely tomaterially affect such controls.

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**ITEM 9B.**       OTHER INFORMATION.

None.

**ITEM 10.**         DIRECTORS AND EXECUTIVEOFFICERS OF THE REGISTRANT.

Thefollowing table sets forth the current officers and directors of Medicsight,Inc:
| **Name**              | ** ** | ** ** | ** ** | **Age**                                            | ** ** | **Position** |
|-----------------------|------------|------------|------------|----------------------------------------------------|------------|--------------|
| Stephen Forsyth       |       | 54         |       | Chairman and Director                              |
| Tim Paterson-Brown    |       | 44         |       | Chief Executive Officer  and Director              |
| Paul Gothard          |       | 37         |       | Chief Financial Officer  and Director              |
| James Whale           |       | 30         |       | Director                                           |
| Neal Wyman            |       | 52         |       | Independent Director and  Audit Committee Chairman |
| Professor Nadey Hakim |       | 47         |       | Independent Director and  Audit Committee Member   |
| Peter Venton OBE      |       | 63         |       | Independent Director and  Audit Committee Member   |
| Sir Christopher Paine |       | 70         |       | Independent Director                               |
| Dr Allan Miller       |       | 69         |       | Independent Director                               |

 

Directors are elected in accordance with the Company’sby-laws to serve until the next annual stockholders meeting and until theirsuccessors are elected in their stead. The Company does not currently paycompensation to directors for services in that capacity. Officers are electedby the Board of Directors and hold office until their successors are chosen andqualified, until their death or until they resign or have been removed fromoffice. All corporate officers serve at the discretion of the Board ofDirectors. There are no family relationships between any director or executiveofficer and any other director or executive officer of the Company.

*Stephen Forsyth***joined the Company in December 2003 as Chairmanand Chief Executive Officer. He stood down as CEO in September 2004.Previously he was Chairman and Chief Executive of Leisure Investments PLC, apublicly quoted company registered in England and Wales between 1976 and 1989.He subsequently assisted the Phoenix Trust Company Limited between 1990 and1999 with its various operations and investments. In January 1999, heestablished The International Cotton Company, in which he has been theprincipal financier of a number of new technology orientated companies fromtheir inception, including Accsys Chemicals PLC, Titan Wood Limited andMedicsight PLC. The Company changed its name to International CapitalCorporation PLC in 2003. Stephen remains the Chairman of this investmentholding company. Stephen is a founding Trustee of the Medicsight Foundation(renamed “The Foundation for the Early Detection of Disease”), a United Kingdomregistered charity, which is concerned with the relief of human suffering andpoverty and the promotion of health and education.

*Tim Paterson-Brown* joined theCompany in December 2003 as Director and was appointed Chief ExecutiveOfficer in September 2004. Tim qualified as a Chartered Surveyor withStrutt and Parker in 1984 following degrees at London University and MagdaleneCollege, Cambridge. In 1987 Tim joined Leisure Investments PLC. He subsequentlyworked closely with Stephen Forsyth for the Phoenix Trust Company Limitedbetween 1990 and 1999 assisting with its various operations and investments. In1999, he joined The International Cotton Company as a Director. TheInternational Cotton Company has been the principal financier of a number ofnew technology orientated companies from their inception, including AccsysChemicals PLC, Titan Wood Limited and Medicsight PLC. The Company changed itsname to International Capital Corporation PLC in 2003. Tim is also a foundingTrustee of the Medicsight Foundation (renamed “The Foundation for the EarlyDetection of Disease”), a United Kingdom registered charity, which is concernedwith the relief of human suffering and poverty and the promotion of health andeducation.

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*Paul Gothard*has served as ChiefFinancial Officer and a Director of the Company since November 15, 2002. Heobtained a BA (Hons) degree in 1989 and subsequently became a Member of theInstitute of Chartered Accountants in 1993. He initially joined the Company inJuly 2001 as Group Financial Controller. His responsibilities have includedcorporate structuring and fundraising as well as corporate management andgovernance. Prior to joining the Company Paul was the Group FinancialController of IP Powerhouse Ltd, a company involved in constructing and leasingof space in data centers across Europe. From May 1994 to October 1998, Paulserved as the Finance Director of Merriman White solicitors.

*James Whale*began his career atIBM in 1994 and went on to gain a distinction from the prestigious IBM salesschool. After a successful year selling e-Business solutions to Europeancustomers, James left to become Head of Sales of a software development companycalled Radical Technology where he generated new business in accounts rangingfrom BT to the UK Cabinet Office. James was a key member of the management teamthat successfully floated the company onto the OFEX market twelve months later.James joined Medicsight PLC at its inception responsible for internationalbusiness development. James spent a short assignment in Nashville where hehelped to establish the US office. On returning to the UK, James joined the USlisted parent company Medicsight, Inc. as Vice President for InternationalBusiness Development. James was promoted to the Main Board of Medicsight, Inc.in May 2004.

*Neal Wyman* trainedas a Chartered Accountant with Coopers and Lybrand before moving to KPMG wherehe worked in the Far East. He moved into the recruitment industry in Londonspecializing in financial services, gaining experience with a diverse range ofclients. He entered executive search in 1981, initially specializing in thefinancial services industry before broadening into general appointments andprofessional services. He now focuses on general management, finance andnon-executive appointments in both private and quoted companies, withparticular focus on venture capital. He is a graduate of the London School ofEconomics. Neal was appointed an independent director of the Company on November 23,2004 and subsequently was appointed as Chairman of the Audit Committee on November 26,2004.

*Professor Nadey Hakim*is aGeneral and Transplant Surgeon. He is the Surgical Director of the TransplantUnit at St Mary’s Hospital London and has a particular interest and expertisein kidney and pancreas transplantation. He obtained his MD from ParisUniversity and received his surgical training at Guy’s Hospital in London. Healso holds a PhD in small bowel transplantation from University College London.Professor Hakim completed a Gastrointestinal Fellowship at the Mayo Clinic anda Multi-organ Transplant Fellowship at the University of Minnesota. To date hehas published over one hundred articles and has written/edited 10 textbooks inthe field of surgery and transplantation.

Professor Hakim successfully started the firstPancreas Transplant Program in the Southeast of England. He represented Britainin the International team, which performed the first arm transplant and thefirst double arm transplant in the world. Professor Hakim was recently electedPresident of the International College of Surgeons based in Chicago. Prior tohis election he served as First Vice President and European FederationSecretary.

*Peter Venton, OBE*has over 30 years’ experience in the computing and telecommunications industryand holds several patents in the sector. He is a former Chief Executive ofPlessey Radar and of GEC-Marconi Prime Contracts. He has established severalinternational joint-venture companies, led the acquisition of Ferranti NavalSystems and VSEL and established the multi-disciplinary team that won a £4.5billion prime naval contract. Peter currently serves as the Technical AuditChairman for the Defence Evaluation & Research Agency and joined theBoard of MS- PLC as an independent director in November 2001. Peter wasappointed an independent director of the Company on November 23, 2004 andsubsequently was appointed as member of the Audit Committee on November 26,2004.

*Sir Christopher Paine*wasthe President of the British Medical Association until 2001. He was MedicalDirector of the Advisory Committee on Distinction Awards for the NationalHealth Service until the end 

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of 1999 and has been Presidentof the Royal College of Radiologists and The Royal Society of Medicine. SirChristopher is a Medical Oncologist by specialty, having qualified in 1961. Hisdistinguished medical career has been based in Oxfordshire having been aconsultant clinical oncologist from 1970 at the Churchill Hospital in Oxford,and he also served as director of clinical studies at the medical school. Hewas district general manager of the Oxford Health Authority from 1984-88. Inaddition, he has served on the Animal Welfare Council and Imperial CancerResearch Fund. Sir Christopher was appointed an independent director of theCompany on November 23, 2004 and subsequently was appointed as member ofthe Audit Committee on November 26, 2004. Sir Christopher has been anindependent director of MS-PLC since February 1, 2002.

*Dr Allan Miller*qualified inmedicine at St Bartholomew’s Hospital Medical School, London in 1961. In 1965Dr Miller was admitted to the Royal College of Physicians. After spending 8years in general practice he was appointed as a medical adviser tointernational pharmaceutical company, Hoffman La Roche. Dr Miller oversaw theclinical research program for both Isotretinoin and Etretinate and itssuccessor Acitretin. Each of these products was registered worldwide andgranted marketing authorization. At Hoffman La Roche Dr Miller held thepositions of Head of Clinical Cardiovascular Research Worldwide, Head ofDermatological Research Worldwide and Head of all Clinical Research UK. Duringhis time with Hoffman La Roche, over 9 separate products were successfullyregistered.

In 1984, Dr Miller joined a U.S. privately ownedpharmaceutical group, Purdue Pharma, Mundipharma in Europe and Napp Pharma asMedical Director. Dr Miller established the clinical programs for controlledrelease tablets, which led to the establishment of the controlled releasemorphine products. This new palliative process pioneered by Dr Miller’s teamsome 20 years ago has now used throughout the world.

Dr Miller spent 14 years as Medical Director for NappPharmaceuticals Ltd and 4 years as European Medical Research Director of thePurdue Pharma, Mundipharma, Napp group based in Cambridge, England.

Dr Miller is also a Memberof the British Medical Association and a Fellow of the Royal Society ofMedicine.

**SignificantEmployees**

Significant employees of MS-PLC are:

*Dr John Costello*has been a Consultant Physician in general and respiratory medicine at King’sCollege Hospital since 1977 and senior lecturer in Medicine at Guy’s Kings andSt Thomas’s School of Medicine. Between 1982 and 1998 he was Director of theacademic department of respiratory medicine. He specializes in bronchial asthmaand its treatment, including collaboration with basic scientists ininvestigation of mechanisms.

He studied at University College, Dublin and has sinceheld appointments at a number of hospitals including Mater Hospital, Dublin,the Royal Postgraduate Medical School, Hammersmith Hospital, the Royal BromptonHospital, London, University of Edinburgh and as Assistant Professor ofMedicine at the University of California, San Francisco.

He has been Founder President of the RespiratoryMedicine Section at the Royal Society of Medicine and as a member ofCouncil at the British Thoracic Society. He has published extensively in thepeer-reviewed literature on lung disease, and in particular asthma, and hasedited and written several books and chapters on the subject.

Since the early 1990’s he has occupied seniormanagement roles in the Trust, including first Medical Director and as ClinicalDirector of Medicine since 1996. During his period as Medical Director atKings, 

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it acquired Trust statusand built the platform for its current 3 star status. He occupied a uniqueposition across the Academic/Medical School and Clinical/Trust interface.

In February 2002 he was appointed as Director ofMedical Science at MS-PLC, responsible for developing innovative technology forradiological population pre-emptive scanning for early detection of cancer andcoronary heart disease. In this role he sees great potential for earlydiagnosis of diseases, which are currently an enormous burden on healthcareproviders, thus preventing their long-term effects and generating a fundamentalchange in national attitudes to healthcare and disease prevention.

*Dr Jamshid Dehmeshki*was appointed Chief Technology Officer in July 2001. He was awarded hisPhD while based at the Computer Science Department of Nottingham University,United Kingdom and also holds an MSc in Applied Mathematics and Computer Science.The main subject of his PhD was a stochastic model-based approach to imageprocessing and he has written over 40 journal papers and conferenceproceedings. This involved recognition, classification and segmentation oftextured images into different regions based on their statisticalcharacteristics.

Jamshid went on to work as a research fellow in theCentre for Industrial and Medical Information (CIMI) for two years where he wasresponsible for developing the ‘image processing’ algorithms for various medicaland industrial applications such as MRI, CT scan, textile, mineral, and remotesensing images. From March 1999 to July 2001, as a senior researchfellow, he worked in the NMR Research Unit at the Institute of Neurology,National Hospital for Neurology and Neurosurgery, University College London.Jamshid’s work included research into various medical imaging and dataprocessing methods in NMR.

As a result of his ten years’ research in imageprocessing, he has published around 40 ‘first author’ articles in leadingmedical and scientific journals and conferences. He is an honorary lecturer inmedical physics at the Institute of Neurology (National Hospital for Neurologyand Neurosurgery) at University College London.

*Dr. Susan Wood Ph.D.*was appointed Chief Operating Officer of MS-PLC in November 2004. Susanhas 10 years of commercial and technical experience in diagnostic imaging. Mostrecently she spent 7 years at R2 Technology where she was the Vice President ofCT Products. At R2 she championed the market and product development of the first computer-aided detection (CAD)application in CT for lung nodule detection using multi-detector CT (FDA PMAReceived 7/04). She also worked for three years at medical imagingsoftware developer ISG Technologies (now Cedara Software), where she served asdirector of marketing for platform products and multi-modality workstations.

Susan received her Ph.D. from the Johns HopkinsMedical Institutions. Her Ph.D. work combined quantifying three-dimensionallung structure with changes in lung function using high-resolution CT imaging. Susanalso holds a Master of Science degree in Biomedical Engineering from DukeUniversity.

Susan has co-authored over25 peer-reviewed papers and abstracts in three-dimensional imaging of the thoraxand CAD.

**Section 16(a) BeneficialOwnership Reporting Compliance**

Under the securities lawsof the United States, the Company’s directors, its executive officers, and anypersons holding more than ten percent of the Company’s common stock are requiredto report their initial ownership of the Company’s common stock and anysubsequent changes in that ownership to the Securities and Exchange Commission(the “Commission”). Specific due dates for these reports have been establishedand the Company is required to disclose any failure to file by these dates. TheCompany can report that there were no delinquent filings to report in Fiscal2004.

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**Audit CommitteeFinancial Expert**

The Company’s Board ofDirectors has determined that Mr. Neal Wyman, an independent director, isthe audit committee financial expert, as defined in Regulation S-K promulgatedunder the Securities and Exchange Act of 1934, serving on its audit committee.A copy of the Company’s Audit Committee charter is filed herewith (Exhibit 99.1).

**Code of Ethics**

The Company adopted a Code of Ethics that applies tothe Company’s principal executive officer, principal financial officer andprincipal accounting officer or controller, or persons performing similarfunctions on or after November 25, 2004. The Company’s Code of Ethics wasapproved by the Audit Committee on November 26, 2004. A copy of theCompany’s Code of Ethics is filed herewith (Exhibit 14).

Copies of the Company’sCode of Ethics can be obtained, without charge by writing to the Company Secretaryat Medicsight, Inc, 46 Berkeley Square, London W1J 5AT. In addition the Codecan be downloaded at *http://www.medicsight.com/downloads/code_of_ethics.pdf*

**ITEM 11.**         EXECUTIVE COMPENSATION.

The following tablesummarizes fiscal year 2004, 2003 and 2002 compensation for services in allcapacities of the Company’s executive officers.

**SummaryCompensation Table**
|                                            | ** ** | **Annual Compensation** | ** ** | **Long-Term Compensation** | ** ** | ** **      | ** ** |
|--------------------------------------------|------------|-------------------------|------------|---------------------------------|------------|-----------------|------------|
| ** **                                 | ** ** | ** **              | ** ** | **Awards**                      | ** ** | **Payouts**     | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Name and Principal  Position** | ** ** | ** **              | ** ** | **Year**                        | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **Securities  Underlying  Options(#)** | ** ** | **Restricted  Stock  Awards(#)** | ** ** | **LTIP  Payouts  ($)** | ** ** | **All Other  Compensation** | ** ** |
| Stephen Forsyth,                           |       | 2004                    |       | —                          |       |            | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Chairman and CEO(1)                        |       | 2003                    |       | —                          |       |            | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Tim Paterson-Brown, CEO(2)                 |       | 2004                    |       | 26,600                          |       |            | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Paul Gothard, CFO                          |       | 2004                    |       | 157,380                         |       |            | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                            |       | 2003                    |       | 115,115                         |       |            | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                            |       | 2002                    |       | 102,619                         |       |            | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Simon Zuanic, CEO(1)                       |       | 2003                    |       | 131,560                         |       |            | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 100,315 |   |   |
| Stefan Allesch-Taylor,                     |       | 2003                    |       | 116,222                         |       |            | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Chairman and CEO(1)                        |       | 2002                    |       | 113,183                         |       |            | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                       |       | 2001                    |       | 120,056                         |       |            | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                            |            |                         |            |                                 |            |                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)          Stefan Allesch-Taylorresigned as the Company’s Chief Executive Officer effective January 13,2003 and resigned as Chairman effective December 8, 2003. Simon Zuanic wasappointed Chief Executive Officer January 13, 2003 and resigned effective December 8,2003 to work in other operations within the International Capital CorporationPLC group. Stephen Forsyth was appointed the Company’s Chairman and ChiefExecutive Officer effective December 8, 2003. Stephen Forsyth resigned asChief Executive Officer on September 21, 2004.

(2)          Tim Paterson-Brown was appointed Chief Executive Officer on September 21,2004.

28

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**ITEM 12.**         SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following tablesets forth certain information regarding beneficial ownership of the Company’scommon stock as of March 29, 2005:

·       eachperson known by the Company to be the beneficial owner of more than 5% of theoutstanding common stock;

·       eachperson serving as a director or executive officer of the Company; and

·       allexecutive officers and directors of the Company as a group.

Beneficial ownership is determined in accordance withthe rules of the Commission. In general, a person who has voting powerand/or investment power with respect to securities is treated as a beneficialowner of those securities. For purposes of this table, shares subject tooutstanding warrants and options exercisable within 60 days of the date of thisAnnual Report are considered as beneficially owned by the person holding suchsecurities. To our knowledge, except as set forth in this table, we believethat the persons named in this table have sole voting and investment power withrespect to the shares shown. Except as otherwise indicated, the address of eachof the directors, executive officers and 5% shareholders in this table is asfollows: Medicsight, Inc., 46 Berkeley Square, London, W1J 5AT, UnitedKingdom.

29

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Percentagebeneficially owned is based upon 33,571,127 shares of Common Stock issued andoutstanding as of March 29, 2005.
| **Name and address of Beneficial Owner**                                  | ** ** | ** ** | ** ** | **Number of Shares  Beneficially Owned** | ** ** | **Percentage of Common  Equity Beneficially Owned** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|------------|------------|---------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| **5% Beneficial Owners**                                                                           |       |       |       |                                                    |       |                                                                    |       |   |   |
| STG Holdings PLC(1)  46 Berkeley Square  London, United Kingdom  W1J 5AT                           |       |       | 10,673,642 |                                                    |       |                                                                    | 31.8       | % |   |
| VHC Partners LLP  24 High Street  London SW19 5DX                                                  |       |       | 3,569,100  |                                                    |       |                                                                    | 10.6       | % |   |
| General Mediterranean Holding SA  Center Financier  29 Avenue de la Poste Neuve  L-2227 Luxembourg |       |       | 3,350,000  |                                                    |       |                                                                    | 10.0       | % |   |
| **Directors  and Officers(2)**                                                                     |       |       |       |                                                    |       |                                                                    |       |   |   |
| Stephen Forsyth                                                                                    |       |       | —     |                                                    |       |                                                                    | *          |   |   |
| Tim Paterson-Brown                                                                                 |       |       | —     |                                                    |       |                                                                    | *          |   |   |
| Paul Gothard                                                                                       |       |       | —     |                                                    |       |                                                                    | *          |   |   |
| James Whale                                                                                        |       |       | —     |                                                    |       |                                                                    | *          |   |   |
| Neal Wyman                                                                                         |       |       | —     |                                                    |       |                                                                    | *          |   |   |
| Professor Nadey Hakim                                                                              |       |       | —     |                                                    |       |                                                                    | *          |   |   |
| Peter Venton                                                                                       |       |       | 16,666     |                                                    |       |                                                                    | *          |   |   |
| Sir Christopher Paine                                                                              |       |       | —     |                                                    |       |                                                                    | *          |   |   |
| Dr Allan Miller                                                                                    |       |       | —     |                                                    |       |                                                                    | *          |   |   |
| Total Officers  and Directors as a Group (5 persons)                                               |       |       | —     |                                                    |       |                                                                    | *          |   |   |

----

(1)          International CapitalCorporation PLC, 15 rue de la Confederation, Geneva 1204, Switzerland, acompany registered in Gibraltar, which owns 95.8% of the outstanding sharecapital of STG Holdings PLC. Additionally Stephen Forsyth is the Director ofSTG Holdings PLC.

(2)          Addresses for thesedirectors and officers are care of the Company at 46 Berkeley Square,London W1J 5AT, United Kingdom.

*                    Lessthan 1%.

**ITEM 13.**         CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS.

*Asia IT Capital Investments Ltd (arelated party)—*On December 29, 2000, the Companyacquired all of the issued and outstanding shares of HTTP Insights Limited (“Insights”).Asia IT Capital Investments Limited was a shareholder in Insights as well asthe Company at the time of the acquisition, and has provided a credit facilityfor up to $20,000,000. The credit facility expired on December 31, 2001,but has been extended to December 31, 2006. All advances under the creditfacility accrue interest at 2% above US LIBOR. The Company is restricted fromborrowing funds, directly or indirectly, other than through the creditfacility, without the consent of Asia IT.

30

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On November 20, 2001, Asia IT entered into a £10,000,000 ($18,000,000) creditfacility with MS-PLC. Such facility ceases on December 31, 2006 andis secured by a lien on all of the assets of MS-PLC. Interest on outstandingamounts accrues at 2% above GBP LIBOR. Pursuant to such credit facility, MS-PLChad covenanted to undertake a public offering of its ordinary shares in anamount not less than £25,000,000not later than March 2002. MS-PLC did not complete such an offeringand the facility nevertheless remains in place. The loan is convertible intoordinary shares in MS-PLC on announcement of an Offer to Subscribe, Placing orother public offering of its ordinary shares, at the same price per share asthe offering price. Due to the private offering being undertaken by MS-PLC, theloan is currently convertible.

In addition, a director of Asia IT is a brother of TimPaterson-Brown who was appointed to the Board on December 8, 2003 and tothe Board of MS-PLC on September 5, 2003. In addition to the loanfacilities made available by Asia IT to the Company and MS-PLC, Asia ITreceived commissions on shares issued under private placements in both Fiscal2004 and Fiscal 2003.

During Fiscal 2004 the Company raised $23,310,000, netof commissions and expenses, in a private placement of restricted stock at$3.00 per share. Asia IT received commissions of $2,410,000, which was partlysettled by issuing 420,000 shares of Company stock valued at $3.00 per share.

During Fiscal 2003 Asia IT underwrote a $10,000,000private placement for the Company, which generated funds of $9,063,000 afterdeducting Asia IT’s commission of $937,000 (partly settled by issuing 211,000shares of Company stock valued at $3.00 per share). For MS-PLC Asia ITunderwrote a £2,725,000 ($4,670,000) private placement, which generated fundsof £2,453,000 ($4,222,000) after deducting Asia IT’s commission of £272,000($448,000).

*Corporateoffices—*The Company’s corporate offices at 46 Berkeley Squareare leased to International Cellulose Company Limited (ICCL), a companyregistered in England and Wales. STG Holdings PLC, the majority stockholder ofMedicsight, acquired 100% of the issued share capital of InternationalCellulose Company Limited in November 2001. Up until June 30, 2003rent on 46 Berkeley Square was managed by Berkeley Square Ventures Limited(BSV), a property management company incorporated in England and Wales.Subsequent to June 30, 2003 rent was paid direct to ICCL. The rent payableis based on the amount of space each company occupies. There are no formalleases between the tenants and ICCL.

31

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**PART IV**

**ITEM14.**         PRINCIPALACCOUNTANT FEES AND SERVICES.
| *Audit Fees.*         | Fees billed by our principal accountant amounted to  $82,000 in Fiscal 2004 and $240,000 in Fiscal 2003.                       |
|-----------------------|--------------------------------------------------------------------------------------------------------------------------------|
| *Audit Related Fees.* | Fees billed by our principal accountant amounted to  $nil in Fiscal 2004 and $nil in Fiscal 2003.                              |
| *Tax Fees.*           | Fees billed by our principal accountant amounted to  $nil in Fiscal 2004 and $58,000 in Fiscal 2003.                           |
| *All Other Fees.*     | Fees billed by our principal accountant amounted to  $nil in Fiscal 2004 and $9,000 in Fiscal 2003 concerning various matters. |

 

The Company’s auditcommittee was established subsequent to the approval of audit and non-auditfees and so was unable to pre-approve such fees and to take a view as towhether non-audit fees are compatible with the auditor’s independence.

As of November 25,2004 the audit committee is directly responsible for the appointment,compensation, retention and oversight of the work of any independent auditorengaged (including resolution of disagreements between management and theauditor regarding financial reporting) for the purpose of preparing or issuingan audit report or performing other audit, review or attest services for theCompany. Each such firm shall report directly to the committee. The committeeshall also be responsible for overseeing the accounting and financial reportingprocesses of the Company and the audits of the financial statements of theCompany.

32

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**ITEM 15.**         EXHIBITS, FINANCIALSTATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

**Financial Statements**

The financial statementsof the Company for the fiscal years covered by this Annual Report are locatedon pages F-1 to F-19 of this Annual Report.

**Exhibits**
| Exhibit No. | ** ** | ** **                                                                                                                                    | ** ** | **Description** |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| 2.1              |       | Articles of Merger of Medicsight, Inc., a Utah  corporation(1)                                                                           |
| 2.2              |       | Certificate of Merger of Medicsight, Inc., a  Delaware corporation(1)                                                                    |
| 2.3              |       | Offering Document to acquire shares of Radical  Technology PLC.(2)                                                                            |
| 3.1              |       | Certificate of Incorporation of  Medicsight, Inc. and amendments thereto(1)                                                              |
| 3.2              |       | By-Laws of Medicsight, Inc.(1)                                                                                                           |
| 4.1              |       | Loan Note issued by HTTP Insights, Ltd. to  Nightingale Technologies Ltd.(5)                                                                  |
| 10.1             |       | Share Sale Agreement between Nightingale Technologies  Limited and Medicsight, Inc.(3)                                                   |
| 10.2             |       | Letter Agreement between Asia IT Capital  Investments, Ltd. and Medicsight, Inc.(4)                                                      |
| 10.2             |       | Letter Agreement between Asia IT Capital  Investments, Ltd. and Medicsight PLC(5)                                                             |
| 14.0             |       | Code of Ethics (filed herewith at page E-1)                                                                                              |
| 21.1             |       | Subsidiaries (filed herewith at page E-7).                                                                                               |
| 31.1             |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 of Chief Executive Officer (filed herewith at  page E-8).  |
| 31.2             |       | Certification pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 of Chief Financial Officer (filed herewith at page E-9).   |
| 32.1             |       | Certification pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 of Chief Executive Officer (filed herewith at  page E-10). |
| 32.2             |       | Certification pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 of Chief Financial Officer (filed herewith at  page E-11). |
| 99.1             |       | Audit Committee Charter (filed herewith at  page E-12)                                                                                   |

----

(1)          Incorporated herein byreference to the Company’s Current Report on Form 8-K filed on January 30,2004.

(2)          Incorporated herein byreference to the Company’s Current Report on Form 8-K filed on May 23,2000.

(3)          Incorporated herein byreference to the Company’s Current Report on Form 8-K filed March 7,2001.

(4)          Incorporated herein byreference to the Company’s Registration Statement on Form SB-2,filed December 26, 2001.

(5)          Incorporatedherein by reference to the Company’s Annual Report on Form 10-KSB,filed April 19, 2002.

**Reports on Form 8-K**

None.

33

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**SIGNATURES**

Inaccordance with Section 13 or 15(d) of the Exchange Act, theregistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.
|                     | MEDICSIGHT, INC. |
|---------------------|-----------------------|
| March 30, 2005 |                  |
|                | By:                   | /s/ TIM PATERSON-BROWN |
| * *            |                  | *Chief Executive Officer**(Principal Executive Officer)* |
| March 30, 2005 |                  |   |
|                | By:                   | /s/ PAUL A GOTHARD |
| * *            |                  | *Chief Financial Officer  (Principal Financial Officer)* |

 

Inaccordance with the Exchange Act, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedates indicated.
|                            | **Signature** | ** ** | ** ** | ** **           | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|----------------------------|---------------|------------|------------|----------------------|-----------|------------|------------|------------|----------|------------|
| /s/  STEPHEN FORSYTH       |          | Director   |       | March 30,  2005 |
| Stephen Forsyth            |          |       |       |                 |
| /s/  TIM PATERSON-BROWN    |          | Director   |       | March 30,  2005 |
| Tim  Paterson-Brown        |          |       |       |                 |
| /s/  PAUL A GOTHARD        |          | Director   |       | March 30,  2005 |
| Paul Gothard               |          |       |       |                 |
| /s/  JAMES WHALE           |          | Director   |       | March 30,  2005 |
| James Whale                |          |       |       |                 |
| /s/  NEAL WYMAN            |          | Director   |       | March 30,  2005 |
| Neal Wyman                 |          |       |       |                 |
| /s/  NADEY HAKIM           |          | Director   |       | March 30,  2005 |
| Nadey Hakim                |          |       |       |                 |
| /s/  PETER VENTON          |          | Director   |       | March 30,  2005 |
| Peter Venton               |          |       |       |                 |
| /s/  SIR CHRISTOPHER PAINE |          | Director   |       | March 30,  2005 |
| Sir Christopher  Paine     |          |       |       |                 |
| /s/  ALLAN MILLER          |          | Director   |       | March 30,  2005 |
| Allan Miller               |          |       |       |                 |

 

 

34

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**MEDICSIGHT, INC.AND SUBSIDIARIES(FORMERLY HTTP TECHNOLOGY, INC.)CONSOLIDATED FINANCIAL STATEMENTSTOGETHER WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS REPORT**

 

----

 

**MEDICSIGHT, INC.AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTS**
| Report of Independent  Registered Public Accounting Firm                                                                                                                                |   | F-2         |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|--------|
| Consolidated  Balance Sheets as of December 31, 2004 and December 31, 2003                                                                                                    |   | F-3         |   |
| Consolidated  Statements of Operations for the years ended December 31, 2004,  December 31, 2003 and December 31, 2002                                                   |   | F-4         |   |
| Consolidated  Statements of Changes in Stockholders’ Equity and Comprehensive Loss for the  years ended December 31, 2004, December 31, 2003 and  December 31, 2002 |   | F-5         |   |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2004,  December 31, 2003 and December 31, 2002                                                   |   | F-6         |   |
| Notes  to the Consolidated Financial Statements                                                                                                                                         |   | F-7 to F-19 |   |

                                                                                                

F-1

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

To the Stockholders and Board of Directors ofMedicsight, Inc.:

We have audited the accompanying consolidated balancesheets of Medicsight, Inc. (a Delaware Corporation), formerly HTTPTechnology, Inc. and Subsidiaries as of December 31, 2004 and 2003,and the related consolidated statements of operations, stockholders’ equity andcomprehensive loss, and cash flows for each of the years in the three yearperiod ended December 31, 2004. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

We conducted our audits in accordance with the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audits to obtain reasonable assurance aboutwhether the consolidated financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements. An audit also includes assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of Medicsight, Inc. and Subsidiaries as of December 31, 2004and 2003 and the results of their operations and their cash flows for the yearsin the three year period ended December 31, 2004 in conformity with U.S.generally accepted accounting principles.

Theaccompanying consolidated financial statements have been prepared assuming thatthe Company will continue as a going concern. As discussed in Note 1 to theconsolidated financial statements the Company has generated negative cash flowsand has an accumulated deficit at December 31, 2004 and the uncertaintywith respect to the availability and the utilization of its credit facilityraises substantial doubt about the Company’s ability to continue as a goingconcern. Management’s plans in regard to these matters are also discussed inNote 1. The financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.
| /s/ Amper, Politziner & Mattia P.C. |   |
|----------------------------------------------|--------|
| March 10, 2005                          |   |
| Edison, New Jersey                           |   |

 

F-2

----

**MEDICSIGHT, INC. ANDSUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEET**DECEMBER 31, 2004 AND DECEMBER 31, 2003($ thousands)
| ** **                                                                                                              | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| *ASSETS*                                                                                                                |       |     |       |     |       |
| CURRENT ASSETS:                                                                                                         |       |     |       |     |       |
| Cash and cash  equivalents                                                                                              |       | $        | 5,276      |     | $          | 845 |   |
| Accounts  receivable                                                                                                    |       | 26       |       | 33       |       |
| Other receivables                                                                                                       |       | 28       |       | 123      |       |
| Prepaid expenses                                                                                                        |       | 498      |       | 539      |       |
| VAT Receivable                                                                                                          |       | 687      |       | 604      |       |
| Total current assets                                                                                                    |       | 6,515    |       | 2,144    |       |
| PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation  of $3,227 and $1,480                                  |       | 2,066    |       | 3,033    |       |
| INVESTMENTS, at cost                                                                                                    |       | 359      |       | 429      |       |
| SECURITY DEPOSITS                                                                                                       |       | 901      |       | 843      |       |
| EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED                                                                       |       | 11,200   |       | 11,200   |       |
| Total assets                                                                                                            |       | $        | 21,041     |     | $          | 17,649 |   |
| *LIABILITIES AND STOCKHOLDERS’ EQUITY*                                                                             |       |     |       |     |       |
| CURRENT  LIABILITIES:                                                                                                   |       |     |       |     |       |
| Accounts payable                                                                                                        |       | $        | 1,193      |     | $          | 2,342 |   |
| Accrued expenses                                                                                                        |       | 526      |       | 700      |       |
| Accrued  professional expenses                                                                                          |       | 527      |       | 326      |       |
| Bank overdraft                                                                                                          |       | —   |       | 196      |       |
| Line of  credit—related party                                                                                      |       | —   |       | 2,880    |       |
| Current portion  of obligations under capital leases                                                                    |       | 107      |       | 96       |       |
| Total current liabilities                                                                                               |       | 2,353    |       | 6,540    |       |
| Obligations under capital leases, net of current  portion                                                               |       | 223      |       | 306      |       |
| Total liabilities                                                                                                       |       | 2,576    |       | 6,846    |       |
| Commitments and  contingencies                                                                                          |       |     |       |     |       |
| STOCKHOLDERS’ EQUITY:                                                                                              |       |     |       |     |       |
| Common stock,  $0.001 par value, 40,000,000 shares authorized, 33,067,125 and 24,488,858 shares  issued and outstanding |       | 33       |       | 24       |       |
| Additional  paid-in capital                                                                                             |       | 196,652  |       | 173,810  |       |
| Currency  translation adjustment                                                                                        |       | 278      |       | 123      |       |
| Accumulated  deficit                                                                                                    |       | (178,498 | )          | (163,468 | )          |
| TOTAL  STOCKHOLDERS’ EQUITY                                                                                        |       | 18,465   |       | 10,489   |       |
| Minority interest                                                                                                       |       | —   |       | 314      |       |
| Total  Stockholders’ equity and minority interest                                                                  |       | 18,465   |       | 10,803   |       |
| Total liabilities and stockholders’ equity                                                                         |       | $        | 21,041     |     | $          | 17,649 |   |

 

The accompanying notes are an integral part of these statements.

F-3

----

**MEDICSIGHT, INC.AND SUBSIDIARIESCONSOLIDATED STATEMENTS OFOPERATIONSFOR THE YEARS ENDED DECEMBER 31, 2004, DECEMBER 31, 2003, AND DECEMBER 31, 2002($ thousands except per share data)**
| ** **                                           | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| REVENUES                                             |       | $          | 538        |       | $          | 276        |       | $ | 82 |   |
| EXPENSES:                                            |       |       |       |       |       |       |       |
| Selling, general  and administrative                 |       | 13,261     |       | 10,279     |       | 10,619     |       |
| Research and  development cost                       |       | 2,972      |       | 2,498      |       | 1,239      |       |
| Impairment of  intangibles                           |       | —     |       | —     |       | 13,482     |       |
| Impairment of  investments                           |       | 70         |       | 95         |       | 175        |       |
| Impairment of  vendor guarantee                      |       | —     |       | —     |       | 6,311      |       |
| Impairment of  goodwill                              |       | —     |       | —     |       | 68,178     |       |
|                                                 |       | 16,303     |       | 12,872     |       | 100,004    |       |
| Operating loss                                       |       | (15,765    | )          | (12,596    | )          | (99,922    | )          |
| OTHER  INCOME/(EXPENSE)                              |       |       |       |       |       |       |       |
| Interest and  other income                           |       | 130        |       | 12         |       | 3          |       |
| Net foreign  exchange losses                         |       | —     |       | (2         | )          | (164       | )          |
|                                                 |       | 130        |       | 10         |       | (161       | )          |
| Net loss before minority interest                    |       | (15,635    | )          | (12,586    | )          | (100,073   | )          |
| MINORITY INTEREST                                    |       | 605        |       | 2,490      |       | 1,170      |       |
| Net loss                                             |       | $          | (15,030    | )          | $          | (10,096    | )          | $ | (98,913 | ) |
| PER SHARE DATA:                                      |       |       |       |       |       |       |       |
| Basic and diluted  loss per share                    |       | (0.49      | )          | (0.45      | )          | (5.13      | )          |
| Weighted average number of common shares outstanding |       | 30,853,734 |       | 22,203,126 |       | 19,294,654 |       |

 

The accompanying notes are an integral part of these statements.

F-4

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**MEDICSIGHT, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSSFOR THE YEARS ENDED DECEMBER 31, 2002 TO DECEMBER 31, 2004(in thousands)**
| ** **                                                          | ** ** | ** **            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | ** **             | ** ** | **Retained**           | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|-------------------|------------|------------------------|------------|------------------------|------------|------------|------------|
| ** **                                                          | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | **Earnings**           | ** ** | **Total**  | ** ** |
| ** **                                                          | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Vendor**     | ** ** | **Comprehensive** | ** ** | **(Accumulated**       | ** ** | **Stockholders’** | ** ** |
| ** **                                                          | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Guarantee**     | ** ** | **Income (Loss)** | ** ** | **Deficit)**           | ** ** | **Equity** | ** ** |
| BALANCE, JANUARY 1, 2002                                            |       | 19,290                |       |        | $          | 19             |       |              | $          | 145,596                |       | $                      | (10,000    | )          |       | $ | (44 | ) |   |   | $ | (54,459 | ) |   |   | $ | 81,112 |   |   |
| Additional paid-in  capital received on stock issued by MS-PLC, net |       | —                |       |        | —     |           |       | 5,362             |       | —                 |       |                   | —     |       |       |   | — |   |   |   | 5,362 |   |   |
| Shares issued by the  Company to acquire additional stock in MS-PLC |       | 1,865                 |       |        | 2          |           |       | 11,198            |       | —                 |       |                   | —     |       |       |   | — |   |   |   | 11,200 |   |   |
| Impairment of vendor  guarantee                                     |       | —                |       |        | —     |           |       | —            |       | 6,311                  |       |                   | —     |       |       |   | — |   |   |   | 6,311 |   |   |
| COMPREHENSIVE LOSS                                                  |       |                  |       |        |       |           |       |              |       |                   |       |                   |       |       |       |   |   |   |   |   |   |   |   |
| Net loss for the year                                               |       | —                |       |        | —     |           |       | —            |       | —                 |       |                   | —     |       |       |   | (98,913 | ) |   |   | (98,913 | ) |   |
| Translation adjustment                                              |       | —                |       |        | —     |           |       | —            |       | —                 |       |                   | 334        |       |       |   |   |   |   |   | 334 |   |   |
| Total comprehensive loss                                            |       | —                |       |        | —     |           |       | —            |       | —                 |       |                   | 334        |       |       |   | (98,913 | ) |   |   | (98,579 | ) |   |
| BALANCE, DECEMBER 31,  2002                                         |       | 21,155                |       |        | 21         |           |       | 162,156           |       | (3,689                 | )          |                   | 290        |       |       |   | (153,372 | ) |   |   | 5,406 |   |   |
| Shares issued (net of  commission)                                  |       | 3,333                 |       |        | 3          |           |       | 9,060             |       | —                 |       |                   | —     |       |       |   | — |   |   |   | 9,063 |   |   |
| Additional paid-in  capital received on stock issued by MS-PLC, net |       | —                |       |        | —     |           |       | 2,594             |       | —                 |       |                   | —     |       |       |   | — |   |   |   | 2,594 |   |   |
| Cash rec’d re guarantee                                        |       | —                |       |        | —     |           |       | —            |       | 3,689                  |       |                   | —     |       |       |   | — |   |   |   | 3,689 |   |   |
| COMPREHENSIVE LOSS                                                  |       |                  |       |        |       |           |       |              |       |                   |       |                   |       |       |       |   |   |   |   |   |   |   |   |
| Net loss for the year                                               |       | —                |       |        | —     |           |       | —            |       | —                 |       |                   | —     |       |       |   | (10,096 | ) |   |   | (10,096 | ) |   |
| Translation adjustment                                              |       | —                |       |        | —     |           |       | —            |       | —                 |       |                   | (167       | )          |       |   |   |   |   |   | (167 | ) |   |
| Total comprehensive loss                                            |       | —                |       |        | —     |           |       | —            |       | —                 |       |                   | (167       | )          |       |   | (10,096 | ) |   |   | (10,263 | ) |   |
| BALANCE, DECEMBER 31,  2003                                         |       | 24,488                |       |        | 24         |           |       | 173,810           |       | —                 |       |                   | 123        |       |       |   | (163,468 | ) |   |   | 10,489 |   |   |
| Shares issued (net of  commission)                                  |       | 8,578                 |       |        | 9          |           |       | 23,301            |       | —                 |       |                   | —     |       |       |   | — |   |   |   | 23,310 |   |   |
| Increase in Minority  Interest                                      |       | —                |       |        | —     |           |       | (459              | )          | —                 |       |                   | —     |       |       |   | — |   |   |   | (459 | ) |   |
| COMPREHENSIVE LOSS                                                  |       |                  |       |        |       |           |       |              |       |                   |       |                   |       |       |       |   |   |   |   |   |   |   |   |
| Net loss for the year                                               |       | —                |       |        | —     |           |       | —            |       | —                 |       |                   | —     |       |       |   | (15,030 | ) |   |   | (15,030 | ) |   |
| Translation adjustment                                              |       | —                |       |        | —     |           |       | —            |       | —                 |       |                   | 155        |       |       |   |   |   |   |   | 155 |   |   |
| Total comprehensive loss                                            |       | —                |       |        | —     |           |       | —            |       | —                 |       |                   | 155        |       |       |   | (15,030 | ) |   |   | (14,875 | ) |   |
| BALANCE, DECEMBER 31, 2004                                          |       | 33,066                |       |        | $          | 33             |       |              | $          | 196,652                |       | $                      | —     |       |       | $ | 278 |   |   |   | $ | (178,498 | ) |   |   | $ | 18,465 |   |   |

 

The accompanying notes arean integral part of these statements.

F-5

 

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**MEDICSIGHT, INC.AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARSENDEDDECEMBER 31, 2004, DECEMBER 31, 2003, AND DECEMBER 31, 2002**

**($ thousands)**
| ** **                                                                  | ** ** | **Year ended**         | ** ** | **Year ended**         | ** ** | **Year ended**         | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                  | ** ** | **December 31,  2004** | ** ** | **December 31,  2003** | ** ** | **December 31,  2002** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                       |       |                        |       |                        |       |                        |       |   |   |   |   |   |   |
| Net loss                                                                    |       |                        | $          | (15,030                     | )          |                        |       | $ | (10,096 | ) |   |   | $ | (98,913 | ) |   |
| Adjustments to reconcile net loss to net cash used in  operating activities |       |                        |       |                        |       |                        |       |   |   |   |   |   |   |
| Depreciation and  amortization of intangibles                               |       |                        | 779        |                        |       |                        | 631        |   |   |   | 4,735 |   |   |
| Impairment of  intangibles                                                  |       |                        | —     |                        |       |                        | —     |   |   |   | 13,482 |   |   |
| Impairment of  goodwill                                                     |       |                        | —     |                        |       |                        | —     |   |   |   | 68,178 |   |   |
| Net foreign  exchange losses                                                |       |                        | —     |                        |       |                        | —     |   |   |   | 164 |   |   |
| Interest from  prior years forgiven                                         |       |                        | —     |                        |       |                        | —     |   |   |   | 399 |   |   |
| Impairment of  investment                                                   |       |                        | 70         |                        |       |                        | 95         |   |   |   | 175 |   |   |
| Impairment of  vendor guarantee                                             |       |                        | —     |                        |       |                        | —     |   |   |   | 6,311 |   |   |
| Impairment of  property and equipment                                       |       |                        | 968        |                        |       |                        | —     |   |   |   | — |   |   |
| Increase in  minority’s interest in MS-PLC                             |       |                        | (459       | )                           |       |                        | —     |   |   |   | — |   |   |
| Minority interest  in net losses of subsidiary                              |       |                        | (605       | )                           |       |                        | (2,490     | ) |   |   | (1,170 | ) |   |
| (Increase)/decrease in  assets                                              |       |                        |       |                        |       |                        |       |   |   |   |   |   |   |
| Accounts  receivable                                                        |       |                        | 7          |                        |       |                        | (32        | ) |   |   | 93 |   |   |
| Other receivables                                                           |       |                        | 95         |                        |       |                        | (122       | ) |   |   | 181 |   |   |
| Prepaid expenses                                                            |       |                        | 41         |                        |       |                        | (317       | ) |   |   | (104 | ) |   |
| VAT receivable                                                              |       |                        | (83        | )                           |       |                        | (322       | ) |   |   | (221 | ) |   |
| Security deposits                                                           |       |                        | —     |                        |       |                        | (743       | ) |   |   | 44 |   |   |
| Increase/(decrease) in  liabilities                                         |       |                        |       |                        |       |                        |       |   |   |   |   |   |   |
| Accounts payable                                                            |       |                        | (1,000     | )                           |       |                        | 42         |   |   |   | 1,038 |   |   |
| Accrued expenses                                                            |       |                        | (99        | )                           |       |                        | 70         |   |   |   | (103 | ) |   |
| Accrued  professional expenses                                              |       |                        | 201        |                        |       |                        | 135        |   |   |   | (18 | ) |   |
| Net cash used in  operating activities                                      |       |                        | (15,115    | )                           |       |                        | (13,149    | ) |   |   | (5,729 | ) |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                       |       |                        |       |                        |       |                        |       |   |   |   |   |   |   |
| Purchase of  property and equipment                                         |       |                        | (434       | )                           |       |                        | (1,293     | ) |   |   | (464 | ) |   |
| Proceeds from sale  of investments                                          |       |                        | —     |                        |       |                        | —     |   |   |   | 2 |   |   |
| Net cash (used  in)/provided by investing activities                        |       |                        | (434       | )                           |       |                        | (1,293     | ) |   |   | (462 | ) |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                       |       |                        |       |                        |       |                        |       |   |   |   |   |   |   |
| Principal payments  under capital lease obligations                         |       |                        | (72        | )                           |       |                        | (478       | ) |   |   | — |   |   |
| (Decrease)/increase  in bank overdraft                                      |       |                        | (196       | )                           |       |                        | 196        |   |   |   | — |   |   |
| (Decrease)/increase  in line of credit—related party                   |       |                        | (2,880     | )                           |       |                        | 356        |   |   |   | 1,006 |   |   |
| Repayments of  short-term debt                                              |       |                        | —     |                        |       |                        | (3,250     | ) |   |   | — |   |   |
| Proceeds from sale  of common stock, net of commissions                     |       |                        | 23,310     |                        |       |                        | 9,063      |   |   |   | — |   |   |
| Proceeds from  MS-PLC sale of common stock                                  |       |                        | —     |                        |       |                        | 4,222      |   |   |   | 6,773 |   |   |
| Proceeds from vendor  guarantee                                             |       |                        | —     |                        |       |                        | 3,689      |   |   |   | — |   |   |
| Net cash provided  by/(used in) financing activities                        |       |                        | 20,162     |                        |       |                        | 13,798     |   |   |   | 7,779 |   |   |
| Effects of  exchange rates on cash and cash equivalents                     |       |                        | (182       | )                           |       |                        | (289       | ) |   |   | (13 | ) |   |
| NET CHANGE IN  CASH & CASH EQUIVALENTS                             |       |                        | 4,431      |                        |       |                        | (933       | ) |   |   | 1,575 |   |   |
| CASH &  CASH EQUIVALENTS, BEGINNING OF YEAR                        |       |                        | 845        |                        |       |                        | 1,778      |   |   |   | 203 |   |   |
| CASH &  CASH EQUIVALENTS, END OF YEAR                              |       |                        | $          | 5,276                       |       |                        |       | $ | 845 |   |   |   | $ | 1,778 |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH PAID                                       |       |                        |       |                        |       |                        |       |   |   |   |   |   |   |
| Interest                                                                    |       |                        | 41         |                        |       |                        | 66         |   |   |   | 77 |   |   |
| NON CASH FINANCING ACTIVITIES                                               |       |                        |       |                        |       |                        |       |   |   |   |   |   |   |
| Capital lease  obligations for equipment                                    |       |                        | —     |                        |       |                        | 841        |   |   |   | 74 |   |   |

 

The accompanying notes are an integral part of these statements.

F-6

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**MEDICSIGHT, INC.AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

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

Medicsight, Inc. (along with its subsidiaries,the “Company”) is the successor consolidated entity formed by the reverse acquisitionon December 22, 1999 by Fairfax Equity Limited (“Fairfax”) (now MedicsightFinance Ltd) of Internet Holdings, Inc. a publicly-held company originallyincorporated in Utah in 1977, under the name, Trolley Enterprises, Inc.Fairfax, which was treated as the accounting acquirer in the transaction, wasincorporated in the United Kingdom on October 18, 1999. Prior to itsreverse acquisition by Fairfax, control of the former Internet Holdings, Inc.,as well as the corporate name, had changed many times. All prior operations hadpreviously been discontinued and all related claims and counterclaims weresettled, the last of which settlements occurred in November 1999.

The Company is a developer of sophisticated softwaretechnology in the medical sector. The Company’s business objective is todeliver the MedicsightTM system.

In April 2000, the Company acquired RadicalTechnology PLC (now known as HTTP Software PLC), which provided the Companywith a business dedicated to systems integration and software development. In December 2000,the Company acquired Nightingale Technologies Limited (now known as HTTPInsights Ltd.), the principal technology of which is a Stochastic PerceptionEngine, formerly known as the Data Classification Engine.

The Company’s Stochastic Perception Engine iscomprised of four principal modules: cluster analysis, statistical modeling,classification and prediction. This technology offers unsurpassed processingspeed, accuracy and comprehensiveness of results when compared to existing dataclassification or neural network based technologies.

Initially we believed that our Stochastic PerceptionEngine had significant potential uses in a wide variety of fields, includingmedical image analysis, the design of pharmaceuticals, environmental mapping,handwriting recognition, robotics and surveillance. Following a review of theTechnology in Fiscal 2003 the Company has concluded that the non-medicalapplications are of limited use as there has been no development of the coretechnology in these fields in Fiscal 2002 and Fiscal 2003.

The Company is focused on developing its medicalimaging technology, known as the MedicsightTM system, which is ourstate-of-the-art digital disease detection software system currently comprisingMedicColonTM, MedicHeartTM, MedicLungTM, Colon CARTM and Lung CARTM.

These consolidatedfinancial statements are presented on the basis that the Company will continueas a going concern. The going concern concept contemplates the realization ofassets and satisfaction of liabilities in the normal course of business over areasonable length of time. The Company has incurred significant operatinglosses since inception. As a result, the Company has generated negative cashflows from operations, and has an accumulated deficit at December 31, 2004and there is uncertainty with respect to the availability and the utilizationof its credit facility with Asia IT Capital Investments Limited (a relatedparty)—see Note 9. The Company is operating in a developing industry based onnew technology and its primary source of funds to date has been through theissuance of securities and borrowed funds. The Company is currently seekingadditional funding and is actively developing the technology in order to bringit to market. While the Company is optimistic and believes appropriate actionsare being taken, there can be no assurance, however, that management’s effortswill be successful or that the products the Company develops and markets willbe accepted by consumers. The consolidated financial statements do not includeany adjustments that might result from the outcome of this going concernuncertainty.

F-7

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**2.**   *Summary of significantaccounting policies:*

*Principles of consolidation—*Theconsolidated financial statements include the accounts of Medicsight, Inc.and its subsidiaries in which it has a controlling interest. Subsidiariesacquired are consolidated from the date of acquisition. All inter-companyaccounts and transactions have been eliminated in consolidation.

*Cash and cash equivalents*—TheCompany considers investments with original maturities of three months or lessto be cash equivalents.

*Accounts receivable—*Accountsreceivable are customer obligations due under normal trade terms and are statedat cost less any allowance for doubtful accounts. The Company records anallowance for doubtful accounts based on specifically identified amounts thatthe Company believes to be uncollectible. The balance for the years ended December 31,2004 and December 31, 2003 for provision of doubtful accounts was  $nil and $nil respectively.

*Investments—*Investments consistof equity ownership in various corporations. The Company records theseinvestments at historical cost, subject to any provision for impairment.

For Fiscal 2004, the Company incurred an impairmentloss on investments of $70,000 relating to the impairment in the carrying valueof Eurindia PLC (“Eurindia”), based upon the management of Eurindia valuing theinvestment portfolio at $0.61 per share.

For Fiscal 2003, the Company incurred an impairmentloss on investments of $59,000 relating to the impairment in the carrying valueof Eurindia PLC (“Eurindia”), based upon the management of Eurindia valuing theinvestment portfolio at $0.72 per share. Additionally the Company fullyimpaired its investment in Strategic Intelligence PLC ($36,000), as the Companywas unable to obtain any information on or representations from its investmentas to the fair value.

*Property and equipment—*Propertyand equipment are stated at cost. Depreciation is calculated on the variousasset classes over their estimated useful lives, which range from two to fiveyears. Leasehold improvements are depreciated over the term of the lease.

*Excess of purchase price over net assets acquired—*Excessof purchase price over net assets acquired (“goodwill”) represents the excessof acquisition purchase price over the fair value of the net assets acquired.To the extent possible, a portion of the excess purchase price is assigned toidentifiable intangible assets. Effective January 1, 2002 with theadoption of SFAS No. 142, goodwill is no longer to be amortized. Prior to January 1,2002, goodwill was amortized on a straight-line basis over 5 years.

For Fiscal 2004 and Fiscal 2003, the Company hadexcess of purchase price over net assets acquired of $11,200,000.

During Fiscal 2002 the Company acquired an additional7,000,000 shares in MS-PLC by way of a share swap. The consideration for theMS-PLC stock was 1,866,666 shares in the Company’s stock valued at $6.00 pershare based upon the weighted average share price of the Company’s stock, whichamounted to $11,200,000.

*Impairment of excess of purchase price over netassets acquired—*TheCompany adopted SFAS No. 142 on January 1, 2002. Under this standard,goodwill will be tested for impairment on an annual basis or wheneverindicators of impairment arise.

*Impairment of long-lived assets and long-livedassets to be disposed of—*The Company evaluates the carryingvalue of long-lived assets for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. The Company’s assessment for impairment of an asset involvesestimating the undiscounted cash flows expected to result from use of the assetand its 

F-8

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eventual disposition. Animpairment loss recognized is measured as the amount by which the carryingamount of the asset exceeds the fair value of the asset.

*Foreign currency translation—*Theaccounts of the Company’s foreign subsidiaries are maintained using the localcurrency as the functional currency. For these subsidiaries, assets andliabilities are translated into U.S. dollars at year-end exchange rates, andincome and expense accounts are translated at average monthly exchange rates.Net gains and losses from foreign currency translation are excluded fromoperating results and are accumulated as a separate component of stockholders’equity.

Gains and losses on foreign currency transactions arereflected in current operating results.

*Revenue recognition—*Revenue isrecognized as services are performed, in accordance with the terms of thecontractual arrangement, where persuasive evidence of an arrangement exists,the fee is fixed and determinable and collection is reasonably assured.

The Company’s principal revenues in both Fiscal 2004and Fiscal 2003 relate to the Company-operated LifesyneTM scanning centers inthe United Kingdom at Westminster and Ravenscourt in London. The Company’sprincipal revenues in Fiscal 2002 were derived from software maintenance andsupport services, now discontinued.

*Research and development—*Costsincurred in connection with the development of software products that areintended for sale are accounted for in accordance with Statement of FinancialAccounting Standards No. 86, “Accounting for the Costs of ComputerSoftware to be Sold, Leased, or Otherwise Marketed”. Costs incurred prior totechnological feasibility being established for the product are expensed asincurred. Technological feasibility is established upon completion of a detailprogram design or, in its absence, completion of a working model. Thereafter,all software production costs can be capitalized and subsequently reported atthe lower of un-amortized cost or net realizable value. Capitalized costs areamortized based on current and future revenue for each product with an annualminimum equal to the straight-line amortization over the remaining estimatedeconomic life of the product. Amortization commences when the product isavailable for general release to customers.

The Company concluded that capitalizing suchexpenditure on completion of a working model was inappropriate because of thedifficulty in assigning costs accurately to the various software products andversions being developed as technical and development staff are moved fromproduct to product and version to version on a regular basis. Therefore theCompany has decided to expense all research and development costs. The Company’sresearch and development costs are comprised of staff and consultancy costsexpensed on the MedicsightTM system.

The Company’s expenditure on research and developmentcomprise of staff and consultants employed in the development of the MedicsightTMsystem. During the twelve months ended December 31, 2004 ,December 31, 2003 and December 31, 2002 the Company expended$2,972,000, $2,498,000 and $1,239,000 respectively for research and developmentexpenses for the MedicsightTM system and its products. We cannot predict theamount of additional expenditures that will be necessary prior to achievingcommercialization of our products.

*Income taxes—*Deferred taxes arecomputed based on the tax liability or benefit in future years of the reversalof temporary differences in the recognition of income or deduction of expensesbetween financial and tax reporting purposes. The net difference, if any,between the provision for taxes and taxes currently payable is reflected in thebalance sheet as deferred taxes. Deferred tax assets and/or liabilities, if any,are classified as current and non-current based on the classification of therelated asset or liability for financial reporting purposes, or based on theexpected reversal date for deferred taxes that are not related to an asset orliability. Valuation allowances are recorded to reduce deferred tax assets tothat amount which is more likely than not to be realized.

F-9

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*Loss per share—*Basic loss pershare is calculated by dividing net income or loss attributable to the ordinaryshareholders by the weighted average number of common shares outstanding duringthe period. Diluted loss per share is calculated by dividing the net income orloss attributable to the ordinary shareholders by the sum of the weightedaverage number of common shares outstanding and the diluted potential ordinaryshares.

*Comprehensive loss—*Comprehensiveloss reflects the change in equity of a business enterprise during a periodfrom transactions and other events and circumstances from non-owner sources.Comprehensive loss is comprised of net (loss) and foreign currency translationadjustments.

*Fair value of financial instruments—*Statementof Financial Accounting Standards 107, requires all entities to disclose thefair value of certain financial instruments in their financial statements. Accordingly,the Company reports that the carrying amount of cash and cash equivalents,accounts receivable, monetary prepayments, accounts payable and accruedliabilities, advances and short term debt approximates fair value due to theshort maturity of these instruments.

*Segment reporting—*The Companyfollows the provisions of Statement of Financial Accounting Standards No. 131,“Disclosure About Segments of an Enterprise and Related Information”. Theapproach designates the internal organization that is used by management formaking operating decisions and assessing performance as the source of theCompany’s reportable segments. SFAS No. 131 also requires disclosuresabout products and services, geographic areas and major customers.

*Common stock—*The holder of eachshare of common stock outstanding is entitled to one vote per share.

*Stock options—*The Company haselected to follow Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees,” (“APB25”) and related interpretations in accounting for its employee stock options. Underthis method, compensation cost is measured as the amount by which the marketprice of the underlying stock exceeds the exercise price of the stock option atthe date at which both the number of options granted and the exercise price areknown.

In accordance with SFAS148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” theeffect on net income and earnings per share if the Company had applied the fairvalue recognition provisions of SFAS 123, “Accounting for Stock-BasedCompensation,” to stock-based employee compensation is as follows:
| ** **                                                                                                                                                                                        | ** ** | **December 31, 2004**                                   | ** ** | **December 31, 2003** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                        | ** ** | **($ thousands, except per share data)** | ** ** |
| Net loss—as reported                                                                                                                                                                         |       |                                                              | $          | (15,030                         | )          |   |   | $ | (10,096 | ) |   |
| Add:                                                                                                                                                                                              |       |                                                              |       |                            |       |   |   |   |   |
| Stock-based employee  compensation expense included in reported net income, net of related tax  effects                                                                                           |       |                                                              | 0          |                            |       |   | 0 |   |   |
| Deduct:                                                                                                                                                                                           |       |                                                              |       |                            |       |   |   |   |   |
| Adjustment to total  stock-based employee compensation expense determined under the intrinsic  value method for expense determined under the fair value based method, net of  related tax effects |       |                                                              | (292       | )                               |       |   | (65 | ) |   |
| Pro forma net income                                                                                                                                                                              |       |                                                              | $          | (15,322                         | )          |   |   | $ | (10,161 | ) |   |
| Earnings per share:                                                                                                                                                                               |       |                                                              |       |                            |       |   |   |   |   |
| Basic, as reported                                                                                                                                                                                |       |                                                              | $          | (0.49                           | )          |   |   | $ | (0.45 | ) |   |
| Basic, pro forma                                                                                                                                                                                  |       |                                                              | $          | (0.50                           | )          |   |   | $ | (0.46 | ) |   |
| Diluted, as reported                                                                                                                                                                              |       |                                                              | $          | (0.49                           | )          |   |   | $ | (0.45 | ) |   |
| Diluted, pro forma                                                                                                                                                                                |       |                                                              | $          | (0.50                           | )          |   |   | $ | (0.46 | ) |   |

 

F-10

----

Pro forma information regarding net income andearnings per share is required by Statement 123, and has been determined as ifthe Company had accounted for its employee stock options under the fair valuemethod of that Statement. The fair value for these options was estimated at$.65 on the date of grant using the Black-Scholes option-pricing model.

The Black-Scholes option valuation model was developedfor use in estimating the fair value of traded options, which have no vestingrestrictions and are not transferable.

Thefollowing weighted-average assumptions were used for the years ended December 31:
| ** **              | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
| Risk-free interest rate |       | 3.5      | %          | 3.5      | %          |
| Expected volatility     |       | 81       | %          | 81       | %          |
| Dividend yield          |       | 0        | %          | 0        | %          |
| Expected life           |       | 1 year   |       | 2 years  |       |

 

*Use of estimates—*The preparationof financial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements as well as revenues and expenses during the reporting period. Actualresults could vary from those estimates.

*Recent accountingpronouncements—*

In January 2003, the FASB issued Interpretation No. 46,“Consolidation of Variable Interest Entities” (FIN No. 46), whichaddresses consolidation by business enterprises of variable interest entities (“VIEs”). FIN No.46 is applicable immediately forVIEs created after January 31, 2003 and are effective for reportingperiods ending after December 15, 2003, for VIEs created prior to February 1,2003. In December 2003, the FASB published a revision to FIN 46 (“FIN 46R”)to clarify some of the provisions of the interpretation and to defer theeffective date of implementation for certain entities. Under the guidance ofFIN 46R, public companies that have interests in VIE’s that are commonlyreferred to as special purpose entities are required to apply the provisions ofFIN 46R for periods ending after December 15*,*2003.A public company that does not have any interests in special purpose entitiesbut does have a variable interest in a VIE created before February 1,2003, must apply the provisions of FIN 46R by the end of the first interim orannual reporting period ending after March 14, 2004. The adoption of FIN No. 46did not have an effect on the consolidated financial statements.

In December 2004,the FASB issued SFAS No. 123(R), “Share-Based Payment,” which is arevision of SFAS No. 123, “Accounting for Stock-Based Compensation.”  SFAS 123(R) requires that thecompensation cost relating to share-based payment transactions be recognized infinancial statements. The compensation cost will be measured based on the fairvalue of the equity or liability instruments issued. The Statement is effectiveas of the beginning of the first interim or annual period beginning after June 15,2005. We will adopt SFAS No. 123(R) on October 1, 2005 using themodified prospective method. We have disclosed the pro forma impact of adoptingSFAS No. 123(R) on net income and earnings per share for the yearended December 31, 2004 and 2003 in Note 1, which includes all share-basedpayment transactions to date. We do not yet know the impact that any futureshare-based payment transactions will have on our financial position or resultsof operations.

**3.**   *Note regarding the Resultsof Operations for the year ended December 31, 2002*

During Fiscal 2003, the Company determined that thefair value of common stock issued in a previously recorded acquisition wasincorrect. In addition, the Company identified certain errors in its 

F-11

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previously issuedfinancial statements related to impairment of intangibles, goodwill, and thevendor guarantee.

As aresult, in 2003, the Company had restated its previously issued financialstatements for the years ended December 31, 2002. A summary of thesignificant effects of the restatements is set forth below.
| ** **                                                      | ** ** | **December 31, 2002** | ** ** |
|-----------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                      | ** ** | **As Previously**          | ** ** | **As** | ** ** |
| ** **                                                      | ** ** | **Reported**                    | ** ** | **Restated** | ** ** |
| Consolidated statements  of operations data for the year ended: |       | ** **                      | **$(000)** | ** ** | ** ** | **$(000)** | ** ** |
| Impairment of intangibles                                       |       |                            | $          | — |   |   | $ | 13,482 |   |
| Impairment of vendor guarantee                                  |       |                            | 6,773      |   |   | 6,311 |   |
| Impairment of goodwill                                          |       |                            | —     |   |   | 68,178 |   |
| Net loss                                                        |       |                            | (17,715    | ) |   | (98,913 | ) |
| Net loss per  share—basic and diluted                      |       |                            | $          | (0.92 | ) |   | $ | (5.13 | ) |

 

***Intangible Assets***

The intangible assetrelates to the technology (the Stochastic Perception Engine) acquired fromInsights for $22,470,000 in 2000. During 2003, the Company reviewed the valueattributable to this technology and concluded that, as there had been nofurther development of the technology except for the MedicsightTM applicationsand with the sale of Insight in December 2002, the technology should havebeen fully impaired at December 31, 2002. Therefore, the Company recordedan impairment charge of $13,482,000 at December 31, 2002.

***Goodwill***

During Fiscal 2003 theCompany evaluated the remaining goodwill of $68,178,000 from the acquisition ofInsights. As the business of Insights had been transferred to other groupcompanies in 2001 (MS-PLC) and 2002 (Medicsight Finance Ltd) and Insights sold toan independent third party during December 2002, the Company hasdetermined that the goodwill attributable to this acquisition should have beenfully impaired at December 31, 2002. Therefore, the Company recorded animpairment charge of $68,178,000 for the year ended December 31, 2002.

***Vendor Guarantee***

TheVendor Guarantee arose from the acquisition of Core Ventures Limited (“Core”)and relates to an oral agreement between the Company and Dr Alexander Nill (thevendor of Core and a director of the Company), that the proceeds of the sale ofDr Nill’s 1,195,000 shares in the Company would be remitted to the Companyunder the terms of the Vendor Guarantee. These shares were sold in 2003 and theCompany received $3,689,000 net of commissions. At December 31, 2001 and December 31,2002, the fair value attributed to the Vendor Guarantee was based on theweighted average share price. The Company has reviewed the fair value at December 31,2002 and concluded that it would more be appropriate and better understood ifthe fair value at December 31, 2002 reflected the funds actually receivedin 2003 rather than show an impairment in Fiscal 2002 of $6,773,000, asreported, and then having to show a reduction in the impairment in Fiscal 2003of $462,000. Therefore, the impairment in Fiscal 2002 was revised from$6,773,000 to $6,311,000.

**4.   *Investments***

The Companyaccounts for its investments in non-marketable securities under the cost methodof accounting as it owns less than a 20% interest in each of the companies anddoes not have significant influence over the entities. The Company reviews eachinvestment continually to assess for other-than-

F-12

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temporarydecreases in value in its investments. The Company reviews all availablefinancial and non-financial data, in assessing the extent of any impairment.

At December 31, 2004, the Company held thefollowing investment:

—A 6% holding in EurindiaPLC, a company that seeks to invest in small Indian IT services. During Fiscal2004 the Company recorded an impairment of $70,000 reducing the carrying valueto approximately $359,000.

At December 31, 2003, the Company held thefollowing investments:

—A 6% holding in EurindiaPLC, a company that seeks to invest in small Indian IT services. During Fiscal2003 the Company recorded an impairment of $59,000 reducing the carrying valueto approximately $429,000.

The 1%holding in Strategic Intelligence PLC, valued at approximately $36,000 wasfully impaired in Fiscal 2003 as the Company was unable to obtain anyinformation on or representations from its investment as to the fair value. On April 19,2000 the Company purchased the holding in Strategic Intelligence PLC for cashof     261,000. As of December 31,2000, the Company viewed that the investment was permanently impaired by$225,000 based upon a valuation undertaken by a third party, and that amountwas fully impaired.

**5.   *Property and equipment***

Propertyand equipment consist of the following as of December 31:
| ** **                      | ** ** | **2004**         | ** ** | **2003**         | ** ** |
|---------------------------------|------------|------------------|------------|------------------|------------|
|                            |       | **($’000)** | ** ** | **($’000)** |       |
| Computer hardware  and software |       | 1,071            |       | 755              |       |
| Furniture and  fixtures         |       | 4,150            |       | 3,691            |       |
| Motor Vehicles                  |       | 72               |       | 67               |       |
|                            |       | 5,293            |       | 4,513            |       |
| Less: Accumulated  depreciation |       | (3,227           | )          | (1,480           | )          |
|                            |       | 2,066            |       | 3,033            |       |

 

During the fourth quarterof Fiscal 2004 the Company recorded impairment to property and equipment of$968,000. This was as a result of a decision to transfer MAM’s assets to MS-PLCand Lifesyne or sell to independent third parties at open market value, as itsbusiness opportunities were limited due to the change in strategy of Lifesyneconcerning the number of centers it was going to operate. No impairment chargewas recorded in Fiscal 2003.

**6.   *Line of Credit—relatedparty***

On December 15, 2000, the Company entered into anunsecured credit facility with ASIA IT Capital Investments Limited (“Asia IT”),a related party—see Note 15, which provides a $20,000,000 line of credit. Suchline of credit originally expired on December 31, 2001, but has beenextended until December 31, 2006. Interest on advances under the creditfacility accrues at 2% above US LIBOR. At December 31, 2004 US LIBOR was3.1%. The Company can draw down on this credit facility for its financingrequirements, upon approval by the Company’s Board of Directors and subject toapproval by Asia IT (such approval not to be unreasonably withheld). TheCompany is restricted from borrowing funds, directly or indirectly, other thanthrough the credit facility with Asia IT, without the consent of Asia IT. Theavailability of the credit facility reduces upon the Company’s sale of any ofits investment assets.

F-13

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On November 20, 2001, Asia IT entered into a £10,000,000 ($18,000,000) creditfacility with MS-PLC. Such facility ceases on December 31, 2006 andis secured by a lien on all of the assets of MS-PLC. Interest on outstandingamounts accrues at 2% above GBP LIBOR. Pursuant to such credit facility, MS-PLChad covenanted to undertake a public offering of its ordinary shares in anamount not less than £25,000,000not later than March 2002. MS-PLC did not complete such an offeringand the facility nevertheless remains in place. The loan is convertible intoordinary shares in MS-PLC on announcement of an Offer to Subscribe, Placing orother public offering of its ordinary shares, at the same price per share asthe offering price. Due to the private offering being undertaken by MS-PLC, theloan is currently convertible.

At year endedDecember 31, 2004 and 2003 the Company had drawn down $nil and $2,880,000respectively under the $20,000,000 facility with Asia IT, and MS-PLC had nodrawings under its £10,000,000($18,000,000) facility with Asia IT.

**7.   *Short-term Debt***

The Company acquiredInsights in December 2000. At the time of such acquisition, Insights hadoutstanding $6,006,000 of long-term debt. The Company repaid the loan in fullin the year ended December 31, 2003 and the Company has no furtherliabilities under this agreement.

**8.   *Capital leases***

The assets under capitalleases, which are included in property and equipment, are as follows:
| ** **                      | ** ** | **2004**         | ** ** | **2003**         | ** ** |
|---------------------------------|------------|------------------|------------|------------------|------------|
| ** **                      | ** ** | **($’000)** | ** ** | **($’000)** | ** ** |
| Furniture and fixtures          |       |             | 857        |             |       |   | 776 |   |   |
| Motor Vehicles                  |       |             | 72         |             |       |   | 67 |   |   |
|                            |       |             | 929        |             |       |   | 843 |   |   |
| Less: Accumulated  depreciation |       |             | (556       | )                |       |   | (190 | ) |   |
|                            |       |             | 373        |             |       |   | 653 |   |   |

 

The following is aschedule by year of future minimum lease payments under capital leases,together with the present value of the net minimum lease payments, as of December 31,2004:
| **Fiscal Year**                         | ** ** | ** ** | ** ** | **($’000)** | ** ** |
|----------------------------------------------|------------|------------|------------|------------------|------------|
| 2005                                         | ** ** |       | 116        | ** **       |       |
| 2006                                         | ** ** |       | 102        | ** **       |       |
| 2007                                         | ** ** |       | 88         | ** **       |       |
| 2008                                         | ** ** |       | 41         | ** **       |       |
| 2009                                         | ** ** |       | —     | ** **       |       |
| Thereafter                                   | * *   | * *   | —     | ** **       |       |
| Total minimum lease  payments                | ** ** |       | 347        | ** **       |       |
| Less amount  representing interest           | * *   | * *   | 17         | ** **       |       |
| Present value of net  minimum lease payments | ** ** |       | 330        | ** **       |       |
| Less current  maturities                     | * *   | * *   | 107        | ** **       |       |
| Long-term  maturities                        | ** ** |       | 223        | ** **       |       |

 

F-14

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**9.   *Stockholders’ equity***

On December 31, 2003, the Company entered into afurther agreement with Asia IT, a related party—see Note 15, to underwrite aprivate placement to raise $10,562,000 through the sale of shares of CommonStock at a price of $3.00 per share pursuant to an exemption from registrationunder Regulation S promulgated under the Securities Act of 1933. The placementwas completed in February 2004. In consideration for such underwriting,Asia IT received commission at the rate of 10% of funds raised from thirdparties. Asia IT received $1,056,000 in commission, which included receiving170,000 shares of Common Stock valued at $3.00 per share.

Subsequently the Company issued a further 5,057,600restricted shares of Common Stock at a price of $3.00 per share pursuant to anexemption from registration under Regulation S promulgated under the SecuritiesAct of 1933. Asia IT received $1,354,000 in commission, which includedreceiving 250,000 shares of Common Stock valued at $3.00 per share.

During the year ended December 31, 2004, underagreements with Asia IT, the Company issued approximately 8,579,000 shares ofrestricted stock raising $23,310,000, net of commissions and expenses.

The Company has issued a further 504,000 shares ofstock at $4.00 per share raising a further $2,016,000 (before commissions) fromJanuary 1, 2005 to March 10, 2005.

During Fiscal 2003 the Company issued a $10m privateplacement of 3,333,333 shares underwritten by Asia IT, which generated funds of$9,063,000 after deducting Asia IT’s commission of $937,000 (partly paid byissuing 211,000 shares of Company stock valued at $3.00 per share). In additionfor MS-PLC Asia IT underwrote a £2,725,000 ($4,670,000) private placement,which generated funds of £2,453,000 ($4,222,000) after deducting Asia IT’scommission of £272,000 ($448,000).

On January 27, 2004, the Company amended itsCertificate of Incorporation to increase the number of shares the Company isauthorized to issue from 25,000,000 shares to 40,000,000 shares. This amendmentwas approved by a majority of the stockholders of the Company.

On July 31, 2003, an amendment to our Certificateof Incorporation, reducing the number of shares the Company is authorized toissue from 100,000,000 shares to 25,000,000 shares was approved by a majorityof the shareholders of the Company.

At December 31, 2004,the Company owned 70,677,300 ordinary shares in MS-PLC, constituting 81.8% ofthe outstanding shares. At December 31, 2003 the Company owned 68,677,300shares in MS-PLC. The increase is due to MS-PLC issuing 2,000,000 sharesto the Company on June 30, 2004 to settle debt of $3,240,000 due by MS-PLCto the Company. This transaction resulted in an increase to the minorityinterest in MS-PLC of $459,000.

**10.   *Stock option plan***

On March 20, 2003, the Company’s majority-ownedsubsidiary, MS-PLC, approved the Medicsight PLC Share Option Plan. The Planprovided for the issuance of up to 4,000,000 shares of MS-PLC common stock. On April 30,2003, 2,828,600 options to purchase shares were issued by the Plan.

The term of the stock options granted expire 10 yearsafter the grant date and unless otherwise determined by the board of directors,vest based upon MS-PLC achieving certain milestones. The exercise price of theoptions and the market price of MS-PLC’s common stock at the date of grant was£1.00 ($1.65). Under provisions of APB 25, no compensation expense has beenrecorded.

F-15

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Thefollowing table summarizes the MS-PLC Stock Option and activity:
| ** **                          | ** ** | **Stock Options Outstanding** | ** ** |
|-------------------------------------|------------|-----------------------------------------|------------|
| ** **                          | ** ** | **Shares**                              | ** ** | **Exercise  Price Per  Share** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| Balance  January 1, 2003       |       | —                                  |       |   | — |   |   |   | — |   |   |
| Granted                             |       | 2,828,600                               |       |   | $ | 1.65 |   |   |   | $ | 1.65 |   |   |
| Forfeited                           |       | (452,900                                | )          |   |   |   |   |   |   |   |   |
| Exercised                           |       | —                                  |       |   | — |   |   |   | — |   |   |
| Outstanding  December 31, 2003 |       | 2,375,700                               |       |   | $ | 1.65 |   |   |   | $ | 1.65 |   |   |
| Granted                             |       | —                                  |       |   | — |   |   |   | — |   |   |
| Forfeited                           |       | (400,450                                | )          |   |   |   |   |   |   |   |   |
| Exercised                           |       | —                                  |       |   | — |   |   |   | — |   |   |
| Outstanding  December 31, 2004 |       | 1,975,250                               |       |   | $ | 1.65 |   |   |   | $ | 1.65 |   |   |
| Options  exercisable at:            |       |                                    |       |   |   |   |   |   |   |   |   |
| December 31,  2004             |       | 1,094,250                               |       |   | $ | 1.65 |   |   |   | $ | 1.65 |   |   |

 

Followingis a summary of the status of stock options outstanding at December 31,2004:
| ** **          | ** ** | **Outstanding Options** | ** ** | **Exercisable Options** | ** **    |
|---------------------|------------|------------------------------|------------|------------------------------|---------------|
| ** **          | ** ** | ** **                   | ** ** | **Weighted**                 | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **          | ** ** | ** **                   | ** ** | **Average**                  | ** **    | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **          | ** ** | ** **                   | ** ** | **Remaining**                | ** **    | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **          | ** ** | ** **                   | ** ** | **Contractual**              | ** **    | **Exercise** | ** ** | ** ** | ** ** | **Exercise** | ** ** |
| **Exercise  Price** | ** ** | ** **                   | ** ** | **Number**                   | ** **    | **Life** | ** ** | **Price** | ** ** | **Number** | ** ** | **Price** | ** ** |
| $1.65               |       | 1,975,250                    |       |                         | 0.5 year |   |   |   | $ | 1.65 |   |   | 1,094,250 |   |   | $ | 1.65 |   |   |
|                     |            |                              |            |                              |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**11.   *Income Taxes***

The income tax provisionis summarized as follows for the years ended December 31, 2004 and December 31,2003:
| ** **                            | ** ** | **Year Ended  December 31, 2004** | ** ** | **Year Ended  December 31, 2003** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                            | ** ** | ** **                                       | ** ** | **(in thousands)**                          | ** ** |
| Current                               |       |                                             |       |                                             |       |   |   |   |   |
| Federal                               |       |                                             | $          | 0                                                |       |   |   | $ | 0 |   |   |
| State and local             |       |                                             | 0          |                                             |       |   | 0 |   |   |
| Foreign                               |       |                                             | 0          |                                             |       |   | 0 |   |   |
| Deferred                              |       |                                             | 0          |                                             |       |   | 0 |   |   |
| Total income tax  provision (benefit) |       |                                             | 0          |                                             |       |   | 0 |   |   |
|                                       |            |                                                  |            |                                                  |            |  |  |  |  |  |  |

 

Significant components ofdeferred tax assets were as follows as of December 31, 2004:
| **Deferred Tax Assets**        | ** ** | **2004**         | ** ** | **2003**         | ** ** |
|------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                               | ** ** | **($’000)** | ** ** | **($’000)** | ** ** |
| Tax loss  carry-forward                  |       | 14,230           |       | 9,107            |       |
| Property and  plant depreciation methods |       | 35               |       | 35               |       |
| Total                                    |       | 14,265           |       | 9,142            |       |
| Valuation  Allowance                     |       | (14,265          | )          | (9,142           | )          |
| Net deferred tax asset                   |       | —           |       | —           |       |

 

F-16

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The Company has net operating loss carry-forwards forUnited States tax purpose to offset future taxable income of  $3,984,000 expiring in years 2005 through2017. As it is not more likely than not that the resulting deferred taxbenefits will be realized, a valuation allowance has been recognized for suchdeferred tax assets. The utilization of net operating loss carry forwards maybe significantly limited under the Internal Revenue Code as a result ofownership changes due to the Company’s stock and other equity offerings.

Under United Kingdom taxation, MS-PLC has $42,555,000of net operating loss carry-forwards to offset future taxable income. As it isnot more likely than not that the resulting deferred tax benefits will berealized, a valuation allowance has been recognized for such deferred taxassets.

Theprovision for income tax differs from the amount computed by applying thestatutory federal income tax rate to income before the provision for incometaxes. The sources and tax effects of the differences are as follows:
| ** **                                   | ** ** | **Year Ended  December 31, 2004** | ** ** | **Year Ended  December 31, 2003** | ** ** |
|----------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Income taxes at  the federal statutory rates |       |                                             | (35        | )%                                               |       |   | (35 | )% |   |
| Change in  valuation allowance               |       |                                             | 1          |                                             |       |   | 1 |   |   |
| Foreign  operations                          |       |                                             | 34         |                                             |       |   | 34 |   |   |
| Effective rate of income  tax                |       |                                             | 0          | %                                                |       |   | 0 | % |   |

 

The Company has netcapital losses to be carried forward of $129,229,000 to offset against any future capital gains.

**12.   *Operating leases***

The Company has enteredinto a property lease for the Lifesyne center at Westminster. The Company hasnegotiated a lease covering Ravenscourt, which is currently unsigned. Futureminimum obligations under these arrangements are as follows:
| **For the year ending  December 31,** | ** ** | ** **       | ** ** | **Property  Leases** | ** ** |
|-----------------------------------------------------------|------------|------------------|------------|----------------------|------------|
| ** **                                                | ** ** | **($’000)** | ** ** |
| 2005                                                      |       |             | 507        |                 |       |
| 2006                                                      |       |             | 507        |                 |       |
| 2007                                                      |       |             | 507        |                 |       |
| 2008                                                      |       |             | 144        |                 |       |
| 2009 and thereafter                                       |       |             | 89         |                 |       |

 

As discussed in Note 15the Company does not have a formal lease on its offices at 46 Berkeley Square.Total rent expense was $1,101,000, $909,000 and $455,000 for years ended December 31,2004, 2003 and 2002, respectively.

**13.   *Segmental reporting***

For Fiscal 2004 and Fiscal2003 the Company’s reportable segment is the provision of medical scanningservices derived from the Lifesyne operation. All revenues were generatedwithin the United Kingdom. In Fiscal 2002 the Company’s revenue was principallyderived from software maintenance.

**14.   *Concentrations***

The Company maintains itscash and cash equivalents at major financial institutions in the United Kingdom.Cash held in foreign institutions amounted to $5,194,000 and $842,000 at December 31,2004 

F-17

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and2003, respectively. The Company periodically evaluates the relative creditstanding of financial institutions considered in its cash investment strategy.

**15.   *Related Party Transactions***

On December 29, 2000, the Company acquired all ofthe issued and outstanding shares of HTTP Insights Limited (“Insights”). ASIAIT Capital Investments Limited was a shareholder in Insights as well as theCompany at the time of the acquisition, and has provided a credit facility forup to $20,000,000. The credit facility expired on December 31, 2001, buthas been extended to December 31, 2006. All advances under the creditfacility accrue interest at 2% above US LIBOR. The Company is restricted fromborrowing funds, directly or indirectly, other than through the creditfacility, without the consent of Asia IT.

On November 20, 2001, Asia IT entered into a £10,000,000 ($18,000,000) creditfacility with MS-PLC. Such facility ceases on December 31, 2006 andis secured by a lien on all of the assets of MS-PLC. Interest on outstandingamounts accrues at 2% above GBP LIBOR. Pursuant to such credit facility, MS-PLChad covenanted to undertake a public offering of its ordinary shares in anamount not less than £25,000,000not later than March 2002. MS-PLC did not complete such an offeringand the facility nevertheless remains in place. The loan is convertible intoordinary shares in MS-PLC on announcement of an Offer to Subscribe, Placing orother public offering of its ordinary shares, at the same price per share as theoffering price. Due to the private offering being undertaken by MS-PLC, theloan is currently convertible. In addition ASIA IT Capital Investments Limitedacquired approximately 7,080,000 MS-PLC shares from the 15 million sharesissued to Nightingale Technologies as part of the Insights. On December 23,2002, the Company entered into a share swap with General Nominees and Asia ITNominees whereby the Company issued 1,866,666 shares to General Nominees(1,674,894 shares) and Asia IT Nominees (191,772 shares) in return for7,000,000 MS-PLC shares held by General Nominees (6,280,852 shares) and Asia ITNominees (719,148 shares) respectively.

In addition, a director of Asia IT is a brother of TimPaterson-Brown who was appointed to the Board on December 8, 2003 and tothe Board of MS-PLC on September 5, 2003. In addition to the loanfacilities made available by Asia IT to the Company and MS-PLC, Asia ITreceived commissions on shares issued under private placements in both Fiscal2004 and Fiscal 2003.

During Fiscal 2004 the Company raised $23,310,000, netof commissions and expenses, in a private placement of restricted stock at$3.00 per share. Asia IT received commissions of $2,410,000, which was partlysettled by issuing 420,000 shares of Company stock valued at $3.00 per share.

During Fiscal 2003 Asia IT underwrote a $10,000,000private placement for the Company, which generated funds of $9,063,000 afterdeducting Asia IT’s commission of $937,000 (partly settled by issuing 211,000shares of Company stock valued at $3.00 per share). For MS-PLC Asia ITunderwrote a £2,725,000 ($4,670,000) private placement, which generated fundsof £2,453,000 ($4,222,000) after deducting Asia IT’s commission of £272,000($448,000).

The Company’s corporateoffices at 46 Berkeley Square are leased to International Cellulose CompanyLimited (ICCL), a company registered in England and Wales. STG Holdings PLC,the majority stockholder of Medicsight, acquired 100% of the issued sharecapital of International Cellulose Company Limited in November 2001. Upuntil June 30, 2003 rent on 46 Berkeley Square was managed by BerkeleySquare Ventures Limited (BSV), a property management company incorporated inEngland and Wales. Subsequent to June 30, 2003 rent was paid direct toICCL. The rent payable is based on the amount of space each company occupies.There are no formal leases between the tenants and ICCL. The Company paid rentof $1,101,000 in Fiscal 2004, $909,000 in Fiscal 2003 and $399,000 in Fiscal 2002.

F-18

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**16.   *Legal Proceedings***

The Company is involvedwith various legal actions and claims arising in the ordinary course ofbusiness. Management believes that the outcome of any such litigation andclaims will not have a material effect on the Company’s financial position orresults of operations.

**17.   *Subsequent events***

On February 18, 2005the Company completed a sale of 504,000 shares of its common stock at $4.00 pershare as part of a private placement pursuant to an exemption from registrationunder Regulation S promulgated under the Securities Act of 1933. This raised$1,814,400 (net of commissions and expenses), which has been used to fundongoing operations and the acquisition of property and equipment.

**18.   *Quarterly Financial Data (un-audited)***

The tables below summarizethe Company’s un-audited quarterly operating results for Fiscal 2004 and 2003.

**THREE MONTHS ENDED**

**(thousands exceptper share data)**
| ** **        | ** ** | **March 31, 2004** | ** ** | **June 30, 2004** | ** ** | **September 30, 2004** | ** ** | **December 31, 2004** | ** ** |
|-------------------|------------|------------------------------|------------|-----------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| Revenues          |       |                         | $          | 152                         |       |                             |       | $                               | 136        |   |   |   | $ | 111 |   |   |   | $ | 139 |   |   |
| Net loss          |       |                         | $          | (3,531                      | )          |                             |       | $                               | (3,203     | ) |   |   | $ | (3,495 | ) |   |   | $ | (4,801 | ) |   |
| Basic and diluted |       |                         |       |                        |       |                             |       |                            |       |   |   |   |   |   |   |   |   |
| loss per share    |       |                         | $          | (0.13                       | )          |                             |       | $                               | (0.10      | ) |   |   | $ | (0.10 | ) |   |   | $ | (0.16 | ) |   |

 

**THREE MONTHS ENDED**

**(thousands exceptper share data)**
| ** **        | ** ** | **March 31, 2003** | ** ** | **June 30, 2003** | ** ** | **September 30, 2003** | ** ** | **December 31, 2003** | ** ** |
|-------------------|------------|------------------------------|------------|-----------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| Revenues          |       |                         | $          | 9                           |       |                             |       | $                               | 44         |   |   |   | $ | 88 |   |   |   | $ | 135 |   |   |
| Net loss          |       |                         | $          | (2,678                      | )          |                             |       | $                               | (2,446     | ) |   |   | $ | (2,015 | ) |   |   | $ | (2,957 | ) |   |
| Basic and diluted |       |                         |       |                        |       |                             |       |                            |       |   |   |   |   |   |   |   |   |
| loss per share    |       |                         | $          | (0.13                       | )          |                             |       | $                               | (0.12      | ) |   |   | $ | (0.08 | ) |   |   | $ | (0.12 | ) |   |

 

 

F-19

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