**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

 

| ** ** | **(Mark  One)**                                                                                                                                                                         |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                                                                              |
| **ý** | **Quarterly report pursuant to Section 13 or 15(d) of  the Securities Exchange Act of 1934**                                                                                  |
| ** ** | ** **                                                                                                                                                                              |
| ** ** | **For the quarterly  period ended June 30, 2005**                                                                                                                                  |
| ** ** | ** **                                                                                                                                                                              |
| **o**      | **Transition report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934**                                                                                 |
| ** ** | ** **                                                                                                                                                                              |
| ** ** | **For the transition  period from              to            ** |
| ** ** | ** **                                                                                                                                                                              |
| ** ** | **Commission file  number   **0-26886                                                                                                                                    |

 

**MEDICSIGHT,INC.**

**(Exact name of registrant as specified in its charter)**

 
| **Delaware**                                                   |   | **13-4148725**                       |
|---------------------------------------------------------------------|--------|-------------------------------------------|
| **(State or other jurisdiction of  incorporation or organization)** |   | **(I.R.S. Employer  Identification No.)** |

 

**46 Berkeley Square, London,W1J 5AT, UNITED KINGDOM**

**(Address of principal executive offices, including zipcode)**

** **

**011- 44-20-7598-4070**

**(Registrant’s telephone number, including area code)**

** **

** **

**(Former name, former address and former fiscal year, ifchanged since last report)**

 

**Indicateby check whether the registrant: (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days Yes**ý           No o

** **

**Indicateby check whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act): Yes**o    No ý

 

**APPLICABLE ONLY TOISSUERS INVOLVED IN BANKRUPTCYPROCEEDINGS DURING THE PRECEDING FIVE YEARS**

** **

**Indicateby check mark whether the registrant filed all documents and reports requiredto be filed by Section 12, 13 or 15(d) of the Securities Exchange Actof 1934 subsequent to the distribution of securities under a plan confirmed bycourt. Yes**o    No  o

 

**APPLICABLE ONLY TOCORPORATE ISSUERS**

** **

**Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date: As of August 10, 2005: 34,240,381 shares of Common Stock, par value$0.001 per share.**

 

 

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**NOTE REGARDING FORWARD LOOKING STATEMENTS**

** **

This Quarterly Report on Form 10-Q,including “Management’s Discussion and Analysis of Financial Condition andResults of Operations” in Item 2, contains forward-looking statements thatinvolve risks and uncertainties, as well as assumptions that, if they nevermaterialize or prove incorrect, could cause the results of Medicsight, Inc andits consolidated subsidiaries (the “Company”) to differ materially from thoseexpressed or implied by such forward-looking statements. All statements otherthan statements 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 financialitems; any statements of the plans, strategies and objectives of management forfuture operations, including the execution of restructuring plans; anystatement concerning developments, performance or industry rankings relating toproducts or 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 2 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 (£).

 

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**PART 1**

 

**FINANCIALINFORMATION**

 

## **Item 1.**        FinancialStatements

## ** **

Medicsight, Inc. andits subsidiaries are collectively referred to in this Report as the “Company”.  For purposes of the discussion containedherein, all financial information is reported on a consolidated basis. Thefinancial statements for the Company’s fiscal quarter ended June 30, 2005are attached to this Report, commencing at page F-1.

 

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

## ** **

**BACKGROUND**

 

Medicsight, Inc. isa software development business, focusing on the medical imaging market. Itscore technology focuses on the development of automatic detection andanalytical tools for clinicians to improve their ability to diagnose and treatdiseases through early detection.

 

Originally incorporatedas a Utah corporation in 1977. On December 19, 2000, Medicsight, Inc.entered into an Agreement and Plan of Merger with its wholly owned subsidiaryHTTP Technology, Inc., a Delaware corporation, and thereby effected are-incorporation of the Company from Utah to Delaware. All references in thisQuarterly Report to  “the Company”, “we”or “us” are to Medicsight, Inc., the Delaware corporation andsubsidiaries, if the referenced event occurred on or after December 19,2000 or to HTTP Technology, Inc., the Utah corporation and subsidiaries,if the referenced event occurred prior to December 19, 2000. On January 27,2004 the Company increased its authorized share capital from 25,000,000 sharesto 40,000,000 shares.

 

During the six monthsended June 30, 2005 the Company issued approximately 754,000 shares ofrestricted stock raising $2,714,000 (net of commissions paid to Asia IT, arelated party) as part of a private placement.

 

The Company maintains itscorporate offices at 46 Berkeley Square, London, W1J 5AT, United Kingdom,telephone +44-20-7598-4070, facsimile: +44-20-7598-4071, Internet address:http://www.medicsight.com/.

 

**BUSINESS STRATEGY**

 

Developers of enterprisecomputer aided detection (“CAD”) software technology for medical diagnosticapplications applicable across differing business models. There are fiveprincipal operating subsidiaries: Medicsight PLC (“MS-PLC”), Lifesyne UKLimited (“Lifesyne UK”), Medicsight USA, Inc (“MS-US”) (previously Lifesyne US)Medicsight International Limited (“MIL”) and Medicsight Asset ManagementLimited (“MAM”).

 

*MS-PLC.*  The majority-owned subsidiary, MS-PLC, iscurrently developing CAD software that allows clinicians to better interpretmedical images acquired through a radiological device. This in turn helps themdetect earlier some of the world’s most common causes of premature death. At June 30,2005, the Company owned 70,677,300 ordinary shares in MS-PLC, constituting81.8% of the outstanding shares.

 

*LifesyneUK*.  Lifesyne is awholly owned subsidiary of MS-PLC that was established in September 2002.Lifesyne operates a scanning center in Westminster, London in the UnitedKingdom. In addition to providing scanning services, Lifesyne focuses on therapid acquisition of patient CT scan data necessary to train and validate theMedicsight CAD software.

 

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*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, a wholly owned subsidiary of MS-PLC, was established to co-ordinateoperations outside the United States of America and Europe and is based inGeneva, Switzerland. It has established further offices in China and Japan.

 

*MAM*.  MAM is also a wholly owned subsidiary ofMS-PLC that was established in September 2002 for the purpose of acquiringfixed assets on behalf of the operating entities in the group. As Lifesyne’sstrategy changed MAM’s business was limited so all assets were transferred toMS-PLC or Lifesyne at market value on December 31, 2004. MAM has ceasedtrading now that all of its assets have been disposed of.

 

Medicsight is a medicalimaging software company. The Company’s core technology is focused on thedevelopment of CAD software for clinicians to improve their ability to diagnoseand treat diseases. For the last four years the Company has been working ondeveloping algorithms in this area through a team of over 30 scientists andsoftware developers.

 

Medicsight has focused sofar on 3 therapeutic areas – three of the leading causes of premature death,coronary heart disease, lung cancer and colorectal cancer. Between them thesediseases are responsible for over 8.5 million premature deaths globally. There’sincreasing evidence in all three areas that early detection leads to animproved life expectancy and this fact has been a core focus of our productdevelopment. However, our technology is scalable to many other disease areas.Plans are already underway to research this potential.

 

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 to be aleading developer of CAD software in the medical imaging market.  It will be successful in selling high-qualityand innovative products to this market by:

 

•              Continued investment in the scientists thatare developing the software products.

•              Continued investment in creating a global networkof third party distribution partners.

•              Continued investment in the development of anetwork of the worlds leading experts within each relevant disease area.

•              Continued investment in building the worldslargest verified CT scan databases.

 

*CorporateStrategy Objectives*

 

•              Developing the broadest range of detection andanalysis products in CT and MRI technology

•              Working with third parties to develop thenecessary distribution channels

•              Developing a strategic presence in Asia

•              Making selective acquisitions/partnershipsthat broaden

•              Product range/rate of product development

•              Geographic scope

•              The skills base

 

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*What differentiates the Company*

 

We differentiateourselves from the competition by delivering to the market innovative andmarket leading products that are clinically developed and supported by theworld’s leading scientists and physicians. We are able to accomplish this byfocusing on the following:

 

•              Commercial agreements with key distributionpartners that allow the efficient and cost effective delivery of our productsto the market

•              Relationshipswith the leading scientists and physicians in the world

•              Accessto the largest and highest quality of patient and scan databases

 

*How does this evidence itself?*

 

Over the past year wehave signed definitive agreements with Vital Images, the exclusive provider of 3-Dworkstations for Toshiba Medical and TeraRecon to distribute out products.  We believe that these partners will allow ourcompany to sell our products in an efficient and cost effective manner to avast majority of the imaging market.

 

In each of our coreproduct areas (heart, lung and colon) we have attracted leading medical expertsin radiology, including Drs Henschke and Yankelvitz from Cornell, the leadingworld opinions in lung cancer screening. In addition Dr Pickhardt who conductedthe ground breaking colon study published in New England Medical Journal in December 2003has agreed to participate. Doctors of this caliber are integral to our productstrategy and our data collection strategy.

 

The third area, afterscience and medical expertise, is data which is crucial to the training andtesting of our products The more data available the better opportunity ofsignificantly improving product performance and we have, we believe access tothe world’s largest lung and colon scan databases. However, it’s not justquantity of data that is important. Our databases include patient managementhistories and the observed outcomes that can then be correlated with theoriginal CT scan findings. Thus these databases that include outcome data, willallow us to go beyond basic nodule or polyp detection to diagnostic andtherapeutic prediction. As the databases grow and our access to them increases,it will enable the Company to continue to stay ahead of the field in the areaof data acquisition and analysis and thus improve the reliability of imageprediction which is at the core of the Company’s software products. We believethat this is an important area of differentiation from our competition.

 

# ***Product Portfolio***

# ** **

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

 

The software products arecalled:

 

Medicsight ColonCAD

 

Medicsight Lung CAD

 

MedicsightHeartscreen

 

Medicsight introduced anumber of innovations to the market in 2004:

 

•              The first approved “jointread” detection products

•              The first colonneoplasm detection product

•              Thefirst adjustable filter system to allow radiologists to adjust their diagnosticprediction settings to suite their requirements

 

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Medicsightis the first company to use the term, Computer Assisted ReaderTM or CARTM, a termgaining much industry usage. CAR signifies “joint-read” software that assistsradiologists in detecting and evaluating lesions or nodules found during CTscans of the lung or colon. Unlikecurrent “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, increasesefficiency while decreasing the risks of failing to identify a nodule ofimportance and ultimately aids in the evaluation of nodules.

 

There is increasingevidence in all three areas that early disease (cancer) detection leads to animproved life expectancy and this has been a core focus of our productdevelopment. However, our technology is also applicable to many other diseasesand we are already starting to plan for these developments.

 

In terms of clinicalpractice and therefore market segmentation, the products can be split betweendiagnostic treatment and screening;

 

*Diagnostic;incidental “disease detection” and “disease tracking”*. Theseproducts have been designed to be used in for symptomatic patients but todetect other diseases incidental to those for which the investigation wasoriginally requested. Subsequently, these incidentally identified lesions maybe tracked so that their progress may be monitored by measurement. The primaryapplications in this area are Lung nodule tracking and Heart calcium scoring.However, the Company believes there will be a growing requirement forcolorectal as a consequence of the increased usage of CT colonography.

 

“*Screening” products*; *population screening of asymptomatic patients*.There is much evidence to demonstrate that the early detection of colon, lungand heart diseases leads to an improved life expectancy.  CAD CT will provide a cost effective solutionto identify such diseases sufficiently early to alter the economics (costs perlife year saved) of population screening programs.

 

In October 2004,MS-PLC received approval from the U.S. Food and Drug Administration (“FDA”) forits Colon CAD product, an image analysis software tool that is used with CTcolonography (“virtual colonoscopy”) to assist radiologists to search for andmeasure colorectal polyps. Virtual colonoscopy uses a CT scanner to generateboth two-dimensional and three-dimensional views of inside of the colon in anon-invasive fashion. By contrast, traditional colonoscopy, in which a viewinginstrument is physically inserted into the bowel is an invasive procedure witha well recognized morbidity and complication rate. Colorectal cancers mostoften start when malignant cells form within pre-existing benign polyps thatare part of the inner surface of the large bowel. Detection and removal ofthese preexisting polyps can prevent them from developing into invasive tumors.

 

Medicsight Colon CADworks by using MS-PLC’s CAR technology to deploy a series of filters againstimage data derived from CT colonographies. These filters highlight sphericalareas of the image as small as 5 mm (the size of a small pea), which could bepotential polyps. The radiologist is also able to manually highlight any otherirregularities for closer inspection. Once suspect polyps are found, the software can precisely identify theirboundaries 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 with a repeated CT scan.

 

In July 2004, MS-PLCreceived approval from the FDA and Conformité Europeène(“CE”) certification for its Lung CAD product; an image analysis software tool that assists radiologists to evaluatelesions or nodules found during CT scans of the lung. MS-PLC’sLung CAD is the first “joint-read” software available for CTlung scans.

 

Lung CAD works bydeploying a series of filters against the image data derived from CT scans. Thesoftware has a number of automatic and manual measurement tools to aiddiagnosis, including 3D volume measurement and the ability to review follow upscans and tumor doubling times.

 

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The Company’s heartproduct, Heartscreen received FDA approval in November 2003. Heartscreenis a software application for annotating MSCT scans of the heart used byradiologists to identify coronary artery calcium (“CAC”). The reason we considerthat this software product is superior to others in its category because of itsextensive segmentation capabilities, which enable the radiologist to accuratelyextract the CAC boundary and therefore accurately measure it. This means thatthe radiologist can accurately track CAC increase or regression.

 

# ***Business Development***

# ** **

In the last year,contracts have been signed with both Vital Images (for Colon CAD) and TeraRecon(for Lung CAD and Colon CAD). These agreements are the first of their kind for theCompany and represent a major step forward in the Company’s plans tocommercialize its advanced imaging technology on a worldwide basis. The intentis to incorporate MS-PLC’s software into the companies’ existing productofferings.

 

Vital Images has nowsuccessfully integrated MS-PLC’s Colon CAD software into its CT colon productInnerviewGITM. Its commercial launch is intended to be at the Boston VCconference in Boston during October 2005.

 

In April 2005 theCompany signed a Letter of Intent with a major Japanese distributor tointegrate MS-PLC’s Colon CARTM software product into the workstations of itsJapan distribution partner.

 

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 theRadiological Society of North America 2004 conference. These articles can beviewed on our website: www.medicsight.com.

 

*Expandingdistribution*

 

Medicsight aims to buildon the progress made in 2004 by announcing new distribution partnerships in2005 that 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, in its strategic territories (USA, Europe, China andJapan).

 

Significant businessdevelopment has already taken place that has lead to an announcement regardinga Colon CAD distribution arrangement in Japan and plans to finalize agreementsfor distribution of our Lung CAD software product in Japan in the fourthquarter of 2005.

 

The Company sees Japanand China, in particular, as strategically important and the Company believesthat the significant business development to date should lead to furtherannouncements in these areas this year.

 

*Expandingproduct range and range of technologies*

 

Whilst there is asignificant ongoing investment in internal new product development programmes,the company is always seeking to build on its leading position. The market foradvanced software applications is still embryonic, its ultimate structureremains to be defined; we aim to be one of the leaders and drivers of thesechanges and ultimately one of the consolidators in the sector.

 

Medicsight has stated aspart of its corporate objectives that it will expand its operations viaacquisition to fill gaps in technology or product. During 2005 we aim to putthis general principal into practice. A number of interesting targets have beenidentified already that will enhance our ability to offer innovative,integrated clinical solutions to our partners. We believe that, in this way weare in an excellent position to develop differences between the competition andourselves in this way. MS-PLC is also reviewing other potential distributionchannels including a web-based browser.

 

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*International Advisory Boards*

 

As the Company’s strategyhas evolved, particularly, after the decision to concentrate our efforts onsoftware development and international product distribution, we have acted toalign our medical advisory mechanisms to the new circumstances.  The Company has therefore set up threeInternational Advisory Boards (“IAB”). The IABs have recruited and will continue to recruit individuals withthe relevant expertise to become members and encourage the involvement of theradiologists undertaking beta testing of our products, providing data forsoftware development and participating in our scientific 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, China and Japan.  The IABsare co-chaired by Dr. John Costello (MS-PLC’s medical director), whoreports back to the MS-PLC Board; however, much of the scientific advice andleadership will be provided through a co-chairman, chosen from the IAB members.

 

*Termsof Reference of the International Advisory Board*

 

The IABs will meet twicea year and fulfill the following 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 InternationalAdvisory Board*

 

The objectives of the IABmeetings may be varied from time-to-time, as agreed with MS-PLC, but willinclude 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.

 

*RiskFactors*

 

We cannot assure you thatthe Company will be successful in commercializing the MedicsightTM system, or ifsuch a system is commercialized, that its use will be profitable to theCompany. We face obstacles in commercializing our core technology and ingenerating operating revenues such as, but not limited to, successfuldevelopment, testing of and gaining regulatory approval for the technology.

 

The Company does notbelieve that there is currently any comparable system that is competitive withthe MedicsightTM system. There are computer-aided diagnostic systems thatoperate in the field, but, in our view, such other systems are overly dependenton human resources to carry out the analysis, as none have the automatedcapability of the MedicsightTM system.

 

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The Company has had onlya limited operating history upon which an evaluation of its prospects can bemade. The Company’s prospects must be considered keeping in mind the risks,expenses and difficulties frequently encountered in the establishment of a newbusiness in an ever-changing industry. There can be no assurance that theCompany will be able to achieve profitable operations.

 

The Company hasidentified a number of other specific risk areas that may affect the Company’s operationsand results in the future:

 

*Technical Risks.*  The MedicsightTM system may not deliver thelevels of accuracy and reliability needed, or the development of such accuracyand reliability may be delayed.

 

*Market Risks.*  The market for the MedicsightTM system may beslower to develop or smaller than estimated or it may be more difficult tobuild the market than anticipated. The medical community may resist theMedicsightTM system or be slower to accept it than we expect. Revenues from theLifesyneTM scanning centers and the licensing of the MedicsightTM system may bedelayed or costs may be higher than expected which may result in the Companyrequiring additional funding.

 

*Regulatory Risks.*  The MedicsightTM system is subject toregulatory requirements in both the United States and Europe. Approvals may notbe obtained, may be delayed or incur additional 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 competitorsmay have significantly greater resources than the Company. We cannot make anyassurance that they will not attempt to develop such offerings, that they willnot be successful in developing such offerings or that any offerings they dodevelop will not have a competitive edge over the MedicsightTMsystem.

 

*FinancialRisk.*These consolidated financial statements are presentedon the basis that the Company will continue as a going concern. The goingconcern concept contemplates the realization of assets and satisfaction ofliabilities in the normal course of business over a reasonable length of time.The Company has incurred significant operating losses since inception. As aresult, the Company has generated negative cash flows from operations, and hasan accumulated deficit at June 30, 2005 and there is uncertainty withrespect to the availability and the utilization of its credit facility withAsia IT Capital Investments Limited (a related party) – see Note 3. The Companyis operating in a developing industry based on new technology and its primarysource of funds to date has been through the issuance of securities andborrowed funds. The Company is currently seeking additional funding and isactively developing the technology in order to bring it to market.

 

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

 

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

 

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**RESULTS OF OPERATIONS**

 

*Revenues.* Forthe six months ended June 30, 2005 and June 30, 2004, the Company’sgross revenues from operations were $282,000 and $288,000, respectively. Forthe quarters ended June 30, 2005 and June 30, 2004, the Company’sgross revenues from operations were $131,000 and $136,000, respectively. TheCompany’s revenues are derived from the Company’s LifesyneTM scanningoperations.

 

*Selling, General andAdministrative Expenses.* The Company’s selling, general andadministrative expenses for the six months and quarter ended June 30,2005, were $5,512,000 and $2,892,000 respectively as compared to $6,110,000 and$2,959,000 for the six months and quarter ended June 30, 2004respectively.

 

The primary components ofthe decreased selling, general and administrative expenses for the six monthsended June 30, 2005 were decreases in professional fees, regulatory costs,software license fees and travel costs. This was offset slightly by increasesin staff and public relation costs as the Company initiated its variousmarketing strategies.

 

Significantelements of SG&A costs

 
| ** **                                | ** ** | **($000’s)**      | ** ** |
|-------------------------------------------|------------|------------------------|------------|
| ** **                                | ** ** | **Six months**         | ** ** | **Quarter** | ** ** | **Six months** | ** ** | **Quarter** | ** ** |
| ** **                                | ** ** | **ended**              | ** ** | **Ended** | ** ** | **ended** | ** ** | **ended** | ** ** |
| ** **                                | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** |
|                                      |       |                   |       |   |   |   |   |   |   |
| Salaries and directors’ compensation |       | 2,037                  |       | 975 |   | 1,851 |   | 862 |   |
|                                      |       |                   |       |   |   |   |   |   |   |
| Payroll taxes and other staff costs       |       | 396                    |       | 201 |   | 404 |   | 171 |   |
|                                      |       |                   |       |   |   |   |   |   |   |
| Professional fees                         |       | 555                    |       | 253 |   | 653 |   | 292 |   |
|                                      |       |                   |       |   |   |   |   |   |   |
| Property rent                             |       | 531                    |       | 263 |   | 538 |   | 267 |   |
|                                      |       |                   |       |   |   |   |   |   |   |
| Property service charges                  |       | 315                    |       | 191 |   | 271 |   | 193 |   |

 

*Research and Development Cost.*TheCompany’s research and development cost for the six months and quarter ended June 30,2005, was $ 1,163,000 and $524,000 respectively as compared to $1,520,000 and$851,000 for the six months and quarter ended June 30, 2004 respectively.The Company’s research and development costs are comprised of staff andconsultancy costs expensed on the MedicsightTM system.

 

*Income Tax Benefit Realized.*The receipt of $883,000 relates to a taxcredit paid by the United Kingdom taxation authorities under its R&D taxrelief scheme for small and medium enterprises to MS-PLC. The tax credit caneither be set-off against taxable profits or, if not available, can be paid. Ifit is paid then this is set-off against the net operating loss carry forwards.The basis for the R&D relief is too encourage the development of newtechnologies and is only applicable to the research and development of a newtechnology and not a product.

 

Thereceipt represents the tax credit received for expenditures incurred between November 2001and December 2003. The Company has not accrued for any potential taxcredit for Fiscal 2004 as it has yet to accurately determine the completiondate of the new technology (beyond estimating it occurred in the first half of2004),

 

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orthe value of any tax credit or make the application to the United Kingdom taxauthorities under the relevant legislation. The Company believes it is prudentto recognize this benefit when notified by the taxing authority due to theuncertainty of the timing or amount of any relief. No application will be madefor Fiscal 2005.

 

*Net Loss and Net Loss per Share.*  Net loss was $5,458,000 and $2,364,000respectively for the six months and quarter ended June 30, 2005 ascompared to a net loss of $6,737,000 and $3,203,000 for the six months andquarter ended June 30, 2004.  Netloss per share for the six months and quarter ended June 30, 2005 was$0.16 and $0.07 respectively, based on weighted average shares outstanding of33,465,092 and 33,626,070 respectively, as compared to a net loss per share forthe six months and quarter ended June 30, 2004 was $0.23 and $0.10respectively, based on weighted average shares outstanding of 28,762,025 and31,388,185 respectively.

 

The decrease in netlosses for the six months and quarter to June 30, 2005 as compared to thesix months and quarter to June 30, 2004 are due to decreases in selling,general and administrative expenses, research and development costs and thereceipt of the R&D tax credit under a United Kingdom taxation scheme.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

*Working Capital Information as atJune 30:*

 
| ** **                                     | ** ** | **($000’s)**       | ** ** |
|------------------------------------------------|------------|-------------------------|------------|
| ** **                                     | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|                                           |       |                    |       |   |   |
| Cash and Cash Equivalents                      |       | 3,351                   |       | 5,276 |   |
|                                           |       |                    |       |   |   |
| Current Assets                                 |       | 4,064                   |       | 6,515 |   |
|                                           |       |                    |       |   |   |
| Current Liabilities                            |       | (2,361                  | )          | (2,353 | ) |
|                                           |       |                    |       |   |   |
| Working Capital Surplus                        |       | 1,703                   |       | 4,162 |   |
|                                           |       |                    |       |   |   |
| Ratio of Current Assets to Current Liabilities |       | 1.72                    |       | 2.77 |   |

 

*Net Decrease in Cash and CashEquivalents.* During the six months ended June 30, 2005,the Company’s cash and cash equivalents decreased by $1,925,000. This decreasewas primarily the result of cash flows received from shares issued by theCompany being exceeded by the net cash used in operating activities. TheCompany used net cash of $4,613,000 in operations. The Company received netcash of $2,381,000 in financing activities and received $219,000 from investingactivities.

 

*Net Cash Used in Operations.*The use of cash in operations of $4,613,000 in the six months ended June 30, 2005, was attributableto the Company’s relatively minimal revenues at the same time that the Companyincurred significant operating and software research and development costs. Theeffect of these costs was reduced by the tax credit of $883,000 received byMS-PLC. These significant costs included professional fees, salaries anddirector compensation, marketing, regulatory costs and property service chargesand rent. The Company used cash in operations in the six months ended June 30,2004 of  $7,744,000.

 

11

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*Net Cash provided by InvestingActivities.* In the six months ended June 30, 2005, theCompany had a net cash inflow from investing activities of $219,000. On May 25,2005 Medicsight’s indirect subsidiary MAM completed the sale of the CTLightspeed 16 scanner located at the redundant test center at RavenscourtHospital in West London for $300,000, net of applicable sales tax, to GEMedical Systems. Additionally, the Company purchased $81,000 in fixed assets inthe same period. In the six months ended June 30, 2004 the Company had anet cash outflow from investing activities of $121,000. The Company used thefunds to purchase additional fixed assets.

 

*Net Cash Provided by FinancingActivities.* In the six months ended June 30, 2005, theCompany had a net cash inflow from financing activities of $2,381,000. Thefunds received in the six months ended June 30, 2005, consisted of$2,714,000 from the Company’s private offerings less $333,000 used to settlethe lease outstanding on the CT Lightspeed 16 scanner sold by MAM. For the sixmonths ended June 30, 2004, the Company had a net cash inflow fromfinancing activities of $18,218,000. The funds received consisted of$20,931,000 received from the private offering of the Company’s stock, whichwere partly used to reduce the bank overdraft ($196,000) and to repay the shortterm debt – related party by $2,470,000.

 

*Stockholders’ Equity.*The Company’s stockholders’ equity at June 30, 2005 was $15,573,000,including an accumulated deficit of $(183,956,000), as compared to $18,465,000at December 31, 2004, including an accumulated deficit of $(178,498,000).Additional paid-in capital was $199,365,000 and $196,652,000, at June 30,2005 and December 31, 2004 respectively. The increase in stockholders’equity was a result of an increase in additional paid-in capital of $2,714,000resulting from the placement of the Company’s stock offset by an increase inaccumulated deficit of $5,458,000.

 

*Additional Capital.*The Company will 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 an unsecured credit facility with Asia IT thatprovides a $20,000,000 line of credit. Such line of credit originally expiredon December 31, 2001, but has been extended until December 31, 2006.Interest on advances under the credit facility accrues at 2% above US LIBOR.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. The amounts drawn and interest charged under thisfacility are repayable on demand or at the maturity of the facility.

 

On November 20,2001, Asia IT entered into a £10,000,000 ($18,000,000) credit facility withMS-PLC.  Such facility matures on December 31,2006 and is secured by a lien on all assets of MS-PLC.  Interest on outstanding amounts accrues at 2%above GBP LIBOR. 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.

 

At June 30, 2005,the Company had not drawn down any funds under the $20,000,000 facility withAsia IT, and MS-PLC had not drawn down any funds under its £10,000,000($18,000,000) facility with Asia IT.

 

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 requiredto raise substantial additional funds through other means.   The products derived from our proprietarysoftware, including the MedicsightTM system, are expected to account for

 

12

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substantially all of ourrevenues from operations in the foreseeable future.  Our technology has not yet been fullycommercialized and we have not begun to receive any significant revenues fromcommercial operations.  We cannot assureour stockholders that our technology and products will be commercializedsuccessfully, or that if so commercialized, that revenues will be sufficient tofund our operations.  If adequate fundsare not available to us, we may be required to curtail operations significantlyor to obtain funds through entering into arrangements with collaborativepartners or others that may require us to relinquish rights to certain of ourtechnologies or products that we would not otherwise relinquish.

 

*Critical Accounting Policies*

 

The Securities and ExchangeCommission requested that all registrants list their most critical accountingpolicies in the Management’s Discussion and Analyses of Financial Condition andResults of Operations. The Securities and Exchange Commission 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.

 

*RevenueRecognition.*We expect to earn our revenue primarily fromsoftware licenses and related services. Our revenue is recognized in accordancewith Statement of Position 97-2 (SOP 97-2), as amended by Statementof Position 98-9. Currently the Company’s revenues derive from itsscanning services operated by LifesyneTM. Scan revenue is recognizedwhen the service is delivered.

 

The recognition ofrevenues from software licenses and related services will require moredifficult and complex judgments. The terms of the license contract, long-term(over 12 months), short-term, cancelable, non-cancelable or per scan for examplewill affect the recognition of revenues from services such as up-front fees(for example installation, activation and up-front license fees), on-goinglicense fees, upgrade fees, termination fees and maintenance fees. Where feesare received prior to any service being delivered the fees are deferred untilthe related service has been delivered successfully and the revenue can then berecognized. Again if there are fees that relate to any “milestone” agreementsthese are deferred until the “milestone” has passed and then the revenue can berecognized.

 

The Company believes thatthe accounting estimates related to the recognition of revenue andestablishment of reserves for uncollectable amounts in the results ofoperations is a “critical accounting estimate” because: (1) it requiresmanagement to make assumptions about future collections, and (2) theimpact of changes in actual performance versus these estimates on the accountsreceivable balance reported on our consolidated balance sheets and the resultsreported in our consolidated statements of operations could be material.Further the Company has no history of uncollectable amounts and therefore mustinitially look to the estimates for the industry or particular companies thatthe management feels operate in a similar environment in addition to anycurrent market indicators about general economic conditions that might impactthe collectability of accounts.

 

*Researchand Development.***Costs incurredin connection with the development of software products that are intended forsale are accounted for in accordance with Statement of Financial AccountingStandards No. 86, “Accounting for the Costs of Computer Software to beSold, Leased, or Otherwise Marketed”. Costs incurred prior to technologicalfeasibility being established for the product are expensed as incurred.Technological feasibility is established upon completion of a detail programdesign or, in its absence, completion of a working model. Thereafter, allsoftware 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 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 decided thatcapitalizing such expenditure was inappropriate because of the difficulty inassigning costs accurately to the various software products and versions beingdeveloped as technical and development staff are moved from product to productand version to version on a regular basis. Therefore

 

13

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the Company has decidedto expense all research and development costs. The Company’s research anddevelopment costs are comprised of staff and consultancy costs expensed on theMedicsightTM system.

 

*Impairmentof Long-lived Assets and Long-lived Assets To Be Disposed of*.The Company evaluates the carrying value of long-lived assets for impairmentwhenever events or changes in circumstances indicate that the carrying amountof an asset may not be recoverable. The Company’s assessment for impairment ofan asset involves estimating the undiscounted cash flows expected to resultfrom use of the asset and its eventual disposition. An impairment lossrecognized is measured as the amount by which the carrying amount of the assetexceeds the fair value of the asset.

 

Calculating the estimatedfair value of the asset involves significant judgments and a variety ofassumptions. Judgments that the Company makes concerning the intangibleacquired include assessing time and cost involved for development, time tomarket, risks of regulatory failure or obsolescence (due to market,environmental or technological advances for example). For calculating fairvalue based on discounted cash flows, we forecast future operating results andfuture cash flows, which includes long-term forecasts of revenue growth, grossmargins and capital expenditures.

 

*Impairmentof Excess of Purchase Price Over Net Assets Acquired.***The Company adopted SFAS No. 142 on January 1,2002.  Under this standard, goodwill willno longer be amortized over its estimated useful life, but will be tested forimpairment on an annual basis and whenever indicators of impairment arise.  Under the provisions of SFAS No. 142,any impairment loss identified upon adoption of this standard is recognized asa cumulative effect of a change in accounting principle. Any impairment lossincurred subsequent to the initial adoption of SFAS No 142 is recorded as acharge to current period earnings.

 

Under this standard,goodwill is tested for impairment on an annual basis or wherever indicators ofimpairment arise.

 

*RecentAccounting Pronouncements*

 

In May 2005, theFinancial Accounting Standards Board (“FASB”) issued Statement 154, *“Accounting Changes and Error Corrections, areplacement of APB Opinion No. 20 and FASB Statement No. 3.” *Thestandard requires retrospective application to prior periods’ financialstatements of a voluntary change in accounting principle unless it is deemedimpracticable. The standard states that a change in method of depreciation,amortization or depletion for long-lived, non-financial assets be accounted foras a change in accounting estimate that is affected by a change in accountingprinciple.  The standard is effective for accounting changes andcorrections of errors made occurring in fiscal years beginning after December 15,2005.  The adoption of Statement of Financial Accounting Standards (“SFAS”)No. 154 is not expected to have a material impact on the Company’sfinancial position or results of operations.

 

 In December 2004,the FASB issued Statement 153, *“Exchanges of Non-monetary Assets, anamendment of APB Opinion No.29.”* The standard is based on theprinciple that exchanges of non-monetary assets should be measured based on thefair value of the assets exchanged and eliminates the exception under APBOpinion No. 29 for an exchange of similar productive assets and replacesit with an exception for exchanges of non-monetary assets that do not havecommercial substance. The standard is effective for non-monetary exchangesoccurring in fiscal periods beginning after June 15, 2005. The adoption ofSFAS No. 153 is not expected to have a material impact on the Company’sfinancial position or results of operations.

 

 In December 2004,the FASB issued Statement 123 (revised 2004), *“Share-Based Payment.”* Thestandard eliminates the disclosure-only election under the prior SFAS 123and requires the recognition of compensation expense for stock options andother forms of equity compensation based on the fair value of the instrumentson the date of grant. The standard is effective for fiscal years beginningafter June 15, 2005.

 

In November 2004,the FASB issued Statement 151, *“Inventory Costs.”* The standardclarifies that abnormal amounts of idle facility expense, freight, handlingcosts, and wasted materials should be

 

14

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recognized ascurrent-period charges and requires the allocation of fixed productionoverheads to inventory based on the normal capacity of the productionfacilities. The standard is effective for inventory costs incurred duringfiscal years beginning after June 15, 2005. The adoption of SFAS No. 151is not expected to have a material impact on the Company’s financial positionor results of operations.

 

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

## ** **

**Interest Rate Risk**

 

The Company’s exposure tomarket risk associated with changes in interest rates relates to its debtobligations. The Company has the following debt facilities, which are allrepayable on demand:

 
| **Debt Holder**                 | ** ** | **Facility** | ** ** | **Draw Down** | ** ** | **Interest rate** | ** ** | **At June 30** | ** ** |
|---------------------------------|------------|--------------|------------|---------------|------------|-------------------|------------|---------------------|------------|
|                            |       |         |       |          |       |              |       |                |       |
| Asia IT Capital Investments Ltd |       | $            | 20,000,000 |          | $          | nil               |       | US Libor + 2        | %          | 5.88 | % |
|                            |       |         |       |          |       |              |       |                |       |
| Asia IT Capital Investments Ltd |       | $            | 18,000,000 |          | $          | nil               |       | GBP Libor + 2       | %          | 6.53 | % |

 

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 Exchange Risk**

 

The Company holds limitedcash balances in British Pounds so any adverse movements in the exchange ratesare considered immaterial.

 

As the Company’soperating currency is UK sterling (£) and its financial statements are reportedin US Dollars, the Company’s assets and liabilities and its results ofoperations are affected by movements in the $: £ exchange rate.

 

15

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**Item 4.**        **Controls and Procedures**

 

*Evaluationof Disclosure Controls and Procedures*

 

As required by Rule 13a-15(b) underthe Exchange Act, our management carried out an evaluation of the effectivenessof the design and operation of the Company’s “disclosure controls and procedures” as of June 30, 2005. Thisevaluation was carried out under the supervision and with the participation ofour management, including our Chief Executive Officer and Chief FinancialOfficer. As defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act, disclosure controls and procedures are controls and otherprocedures of the Company that are designed to ensure that information requiredto be disclosed by the Company in the reports it files or submits under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in the Securities and Exchange Commission’s rules andforms. Disclosure controls and procedures include, without limitation, controlsand procedures designed to ensure that information required to be disclosed bythe Company in the reports it files or submits under the Exchange Act isaccumulated and communicated to the Company’s management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure.

 

Based upon thatevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures were effective as of June 30,2005.  It should be noted that the designof any system of controls is based in part upon certain assumptions about thelikelihood of future events, and there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions,regardless of how remote.

 

*Changesin Internal Control over Financial Reporting*

 

As required by Rule 13a-15(d) underthe Exchange Act, our management, including our Chief Executive Officer andChief Financial Officer, also conducted an evaluation of our internal controlover financial reporting to determine whether any change occurred during thequarter ended June 30, 2005, that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting. Based on that evaluation during the quarter ended June 30, 2005there has been no change in our internal control over financial reporting thathas materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

The Company is currentlyundergoing a comprehensive effort in preparation for compliance with Section 404of the Sarbanes-Oxley Act of 2002. This will involve the documentation, testingand review of our internal controls under the direction of senior management.

 

16

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# **PART II**

 

## **Item 1.**        LegalProceedings

## ** **

### There are currently nopending legal proceedings.

###  

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

## ** **

### Between January 1,2005 and June 30, 2005 the Company issued 754,000 shares of common stockat $4.00 per share to a number of institutional investors and privateindividuals as part of a private placement raising approximately $2,714,000 netof commissions payable to Asia IT, a related party. The shares of common stockwere issued without registration in reliance upon the exemption provided by Section 4(2) ofthe Securities Act of 1933.

###  

## **Item 3.**        DefaultsUpon Senior Securities

## ** **

### None.

###  

## **Item 4.**        Submissionof Matters to a Vote of Security Holders

## ** **

### None.

###  

## **Item 5.**        OtherInformation

## ** **

### None.

 

17

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## **Item 6.**        Exhibitsand Reports on Form 8-K

## ** **

### (a)           Exhibits

###  

### 31.1         Certificationpursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief ExecutiveOfficer - filed herewith).

###  

### 31.2        Certificationpursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief FinancialOfficer - filed herewith).

###  

### 32.1        Certificationpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief ExecutiveOfficer - filed herewith).

###  

32.2        Certificationpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief FinancialOfficer - filed herewith).

 

(b)          Reportson Form 8-K

** **

None

 

18

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**MEDICSIGHT, INC. AND SUBSIDIARIESINDEX TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED)AS OF AND FOR THE THREE AND SIX MONTH PERIODS ENDEDJUNE 30, 2005**

 
| Condensed Consolidated  Balance Sheets as of June 30, 2005 (Unaudited) and December 31,  2004                                                               |   | F-2          |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|
|                                                                                                                                                                  |   |         |
| Condensed Consolidated  Statements of Operations for the Three Months Ended June 30, 2005  (Unaudited) and the Three Months Ended June 30, 2004 (Unaudited) |   | F-3          |
|                                                                                                                                                                  |   |         |
| Condensed Consolidated Statements of  Operations for the Six Months Ended June 30, 2005 (Unaudited) and the  Six Months Ended June 30, 2004 (Unaudited)     |   | F-4          |
|                                                                                                                                                                  |   |         |
| Condensed Consolidated  Statement of Cash Flows for the Six Months Ended June 30, 2005  (Unaudited) and the Six Months Ended June 30, 2004 (Unaudited)      |   | F-5          |
|                                                                                                                                                                  |   |         |
| Notes to Condensed  Consolidated Financial Statements                                                                                                                 |   | F-6  to F-10 |

 

F-1

----

 

**MEDICSIGHT, INC. AND SUBSIDIARIES**

** **

**CONDENSED CONSOLIDATED BALANCESHEETS**

**(In $thousands)**

 
| ** **                                                                                                                           | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                           | ** ** | **(unaudited)**         | ** ** | ** **                  | ** ** |
| ASSETS                                                                                                                               |       |                    |       |                        |       |
| CURRENT ASSETS:                                                                                                                      |       |                    |       |                        |       |
| Cash and cash equivalents                                                                                                            |       | $                       | 3,351      |                        | $          | 5,276 |   |
| Accounts receivable                                                                                                                  |       | 27                      |       | 26                          |       |
| Other receivables                                                                                                                    |       | 119                     |       | 28                          |       |
| Prepaid expenses                                                                                                                     |       | 469                     |       | 498                         |       |
| Sales tax receivable                                                                                                                 |       | 98                      |       | 687                         |       |
| Total current assets                                                                                                                 |       | 4,064                   |       | 6,515                       |       |
|                                                                                                                                 |       |                    |       |                        |       |
| PROPERTY AND EQUIPMENT, at  cost, net of accumulated depreciation of $3,471 and $3,227, respectively                                 |       | 1,479                   |       | 2,066                       |       |
|                                                                                                                                 |       |                    |       |                        |       |
| INVESTMENTS, at cost                                                                                                                 |       | 359                     |       | 359                         |       |
|                                                                                                                                 |       |                    |       |                        |       |
| SECURITY DEPOSITS                                                                                                                    |       | 846                     |       | 901                         |       |
|                                                                                                                                 |       |                    |       |                        |       |
| EXCESS OF PURCHASE PRICE OVER  NET ASSETS ACQUIRED                                                                                   |       | 11,200                  |       | 11,200                      |       |
|                                                                                                                                 |       |                    |       |                        |       |
| Total assets                                                                                                                         |       | $                       | 17,948     |                        | $          | 21,041 |   |
|                                                                                                                                 |       |                    |       |                        |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                           |       |                    |       |                        |       |
| CURRENT LIABILITIES:                                                                                                                 |       |                    |       |                        |       |
| Accounts payable                                                                                                                     |       | $                       | 1,955      |                        | $          | 1,193 |   |
| Accrued expenses                                                                                                                     |       | 387                     |       | 1,053                       |       |
| Current portion of obligations  under capital leases                                                                                 |       | 19                      |       | 107                         |       |
| Total current liabilities                                                                                                            |       | 2,361                   |       | 2,353                       |       |
| CAPITAL LEASE                                                                                                                        |       | 14                      |       | 223                         |       |
| Total liabilities                                                                                                                    |       | $                       | 2,375      |                        | $          | 2,576 |   |
|                                                                                                                                 |       |                    |       |                        |       |
| STOCKHOLDERS’ EQUITY:                                                                                                           |       |                    |       |                        |       |
| Common stock, $0.001 par  value, 40,000,000 shares authorized, 33,821,125 and 33,067,125 shares issued  and outstanding,respectively |       | 34                      |       | 33                          |       |
| Additional paid-in capital                                                                                                           |       | 199,365                 |       | 196,652                     |       |
| Cumulative foreign currency  translation adjustment                                                                                  |       | 130                     |       | 278                         |       |
| Accumulated deficit                                                                                                                  |       | (183,956                | )          | (178,498                    | )          |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                      |       | 15,573                  |       | 18,465                      |       |
|                                                                                                                                 |       |                    |       |                        |       |
| Total liabilities and  stockholders’ equity                                                                                     |       | $                       | 17,948     |                        | $          | 21,041 |   |

 

The accompanying notes are an integral part of these condensedstatements.

 

F-2

----

 

**MEDICSIGHT, INC. AND SUBSIDIARIES**

** **

**CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS(In $ thousands, except per share amounts)**

 
| ** **                                                     | ** ** | **Three  Months**      | ** ** | **Three  Months**      | ** ** |
|----------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                     | ** ** | **Ended**              | ** ** | **Ended**              | ** ** |
| ** **                                                     | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** |
|                                                           |       | **(unaudited)**        |       | **(unaudited)**        |       |
|                                                           |       |                   |       |                   |       |
| REVENUES                                                       |       | $                      | 131        |                   | $          | 136 |   |
|                                                           |       |                   |       |                   |       |
| EXPENSES:                                                      |       |                   |       |                   |       |
| Selling, general and  administrative charges                   |       | 2,892                  |       | 2,959                  |       |
| Research and development cost                                  |       | 524                    |       | 851                    |       |
|                                                           |       |                   |       |                   |       |
|                                                           |       | 3,416                  |       | 3,810                  |       |
|                                                           |       |                   |       |                   |       |
| Operating loss                                                 |       | (3,285                 | )          | (3,674                 | )          |
|                                                           |       |                   |       |                   |       |
| OTHER INCOME                                                   |       |                   |       |                   |       |
| Interest and other income                                      |       | 38                     |       | —                 |       |
|                                                           |       |                   |       |                   |       |
| Loss before minority interest  and income tax benefit realized |       | (3,247                 | )          | (3,674                 | )          |
|                                                           |       |                   |       |                   |       |
| Minority interest                                              |       | —                 |       | 471                    |       |
|                                                           |       |                   |       |                   |       |
| Loss before income tax benefit  realized                       |       | (3,247                 | )          | (3,203                 | )          |
|                                                           |       |                   |       |                   |       |
| Income tax benefit realized                                    |       | 883                    |       | —                 |       |
|                                                           |       |                   |       |                   |       |
| Net loss                                                       |       | $                      | (2,364     | )                      | $          | (3,203 | ) |
|                                                           |       |                   |       |                   |       |
|                                                           |       |                   |       |                   |       |
| PER SHARE DATA:                                                |       |                   |       |                   |       |
| Basic and diluted loss per  share                              |       | $                      | (0.07      | )                      | $          | (0.10 | ) |
|                                                           |       |                   |       |                   |       |
| Weighted average number of  common shares outstanding          |       | 33,626,070             |       | 31,388,185             |       |

** **

**Theaccompanying notes are an integral part of these**condensedstatements.

 

F-3

----

 

**MEDICSIGHT, INC. AND SUBSIDIARIES**

** **

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS(in $ thousands, except per share amounts)**

 
| ** **                                                     | ** ** | **Six  Months**        | ** ** | **Six  Months**        | ** ** |
|----------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                     | ** ** | **Ended**              | ** ** | **Ended**              | ** ** |
| ** **                                                     | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** |
|                                                           |       | **(unaudited)**        |       | **(unaudited)**        |       |
|                                                           |       |                   |       |                   |       |
| REVENUES                                                       |       | $                      | 282        |                   | $          | 288 |   |
|                                                           |       |                   |       |                   |       |
| EXPENSES:                                                      |       |                   |       |                   |       |
| Selling, general and  administrative charges                   |       | 5,512                  |       | 6,110                  |       |
| Research and development cost                                  |       | 1,163                  |       | 1,520                  |       |
|                                                           |       |                   |       |                   |       |
|                                                           |       | 6,675                  |       | 7,630                  |       |
|                                                           |       |                   |       |                   |       |
| Operating loss                                                 |       | (6,393                 | )          | (7,342                 | )          |
|                                                           |       |                   |       |                   |       |
| OTHER INCOME                                                   |       |                   |       |                   |       |
| Interest and other income                                      |       | 52                     |       | —                 |       |
|                                                           |       |                   |       |                   |       |
| Loss before minority interest  and income tax benefit realized |       | (6,341                 | )          | (7,342                 | )          |
|                                                           |       |                   |       |                   |       |
| Minority interest                                              |       | —                 |       | 605                    |       |
|                                                           |       |                   |       |                   |       |
| Loss before income tax benefit  realized                       |       | (6,341                 | )          | (6,737                 | )          |
|                                                           |       |                   |       |                   |       |
| Income tax benefit realized                                    |       | 883                    |       | —                 |       |
|                                                           |       |                   |       |                   |       |
| Net loss                                                       |       | $                      | (5,458     | )                      | $          | (6,737 | ) |
|                                                           |       |                   |       |                   |       |
|                                                           |       |                   |       |                   |       |
| PER SHARE DATA:                                                |       |                   |       |                   |       |
| Basic and diluted loss per  share                              |       | $                      | (0.16      | )                      | $          | (0.23 | ) |
|                                                           |       |                   |       |                   |       |
| Weighted average number of  common shares outstanding          |       | 33,465,092             |       | 28,762,025             |       |

** **

**Theaccompanying notes are an integral part of these**condensedstatements.

 

F-4

----

 

**MEDICSIGHT, INC. AND SUBSIDIARIES**

** **

**CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOW(In $ thousands)**

 
| ** **                                                                  | ** ** | **Six  months  Ended** | ** ** | **Six  months  Ended** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                  | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** |
|                                                                        |       | **(unaudited)**        |       | **(unaudited)**        |       |
|                                                                        |       | ** **             |       | ** **             |       |
| CASH FLOWS FROM OPERATING  ACTIVITIES:                                      |       |                   |       |                   |       |
| Net loss                                                                    |       | $                      | (5,458     | )                      | $          | (6,737 | ) |
| Adjustments to reconcile net  loss to net cash used in operating activities |       |                   |       |                   |       |
| Depreciation                                                                |       | 244                    |       | 376                    |       |
| Minority interest in net loss  of subsidiary                                |       | —                 |       | (605                   | )          |
| Loss on disposal of fixed assets                                            |       | 69                     |       | —                 |       |
| (Increase)/decrease in assets                                               |       |                   |       |                   |       |
| Accounts receivable                                                         |       | (1                     | )          | 11                     |       |
| Prepaid expenses and other  current assets                                  |       | 29                     |       | (67                    | )          |
| Sales tax receivable                                                        |       | 474                    |       | (21                    | )          |
| Increase/(decrease) in liabilities                                          |       |                   |       |                   |       |
| Accounts payable                                                            |       | 721                    |       | (352                   | )          |
| Accrued expenses                                                            |       | (691                   | )          | (349                   | )          |
| Net cash used in operating  activities                                      |       | (4,613                 | )          | (7,744                 | )          |
|                                                                        |       |                   |       |                   |       |
| CASH FLOWS FROM INVESTING  ACTIVITIES:                                      |       |                   |       |                   |       |
| Sale of fixed assets                                                        |       | 300                    |       | —                 |       |
| Purchase of fixed assets                                                    |       | (81                    | )          | (121                   | )          |
| Net cash used in investing activities                                       |       | 219                    |       | (121                   | )          |
|                                                                        |       |                   |       |                   |       |
| CASH FLOWS FROM FINANCING  ACTIVITIES:                                      |       |                   |       |                   |       |
| Principal payments under  capital lease obligations                         |       | (333                   | )          | (47                    | )          |
| Decrease of bank overdraft                                                  |       | —                 |       | (196                   | )          |
| Proceeds from sale of common  stock                                         |       | 2,714                  |       | 20,931                 |       |
| Decrease in short term debt –  related party                           |       | —                 |       | (2,470                 | )          |
| Net cash provided by financing  activities                                  |       | 2,381                  |       | 18,218                 |       |
|                                                                        |       |                   |       |                   |       |
| Effects of exchange rates on  cash and cash equivalent                      |       | 88                     |       | 36                     |       |
|                                                                        |       |                   |       |                   |       |
| NET CHANGE IN CASH &  CASH EQUIVALENTS                             |       | (1,925                 | )          | 10,389                 |       |
|                                                                        |       |                   |       |                   |       |
| CASH & CASH  EQUIVALENTS, BEGINNING OF PERIOD                      |       | 5,276                  |       | 845                    |       |
|                                                                        |       |                   |       |                   |       |
| CASH & CASH  EQUIVALENTS, END OF PERIOD                            |       | $                      | 3,351      |                   | $          | 11,234 |   |
|                                                                        |       |                   |       |                   |       |
| SUPPLEMENTAL DISCLOSURES OF CASH PAID                                       |       |                   |       |                   |       |
| Interest                                                                    |       | 3                      |       | 35                     |       |
| Income tax benefit realized                                                 |       | (883                   | )          | —                 |       |

 

**The accompanyingnotes are an integral part of these**condensedstatements.

 

F-5

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**MEDICSIGHT, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONDENSED CONSOLIDATEDFINANCIALSTATEMENTS**

 

*(1)*          Formationand Business of the Company

* *

Medicsight, Inc.(formerly HTTP Technology, Inc.) and its subsidiaries are collectivelyreferred to in this Report as the “Company”. Our business objective is to conceive, develop and commercialize theMedicsightTM system (our state-of-the-art digital disease detectionsoftware system comprising Colon CAD, Lung CAD and Heartscreen) through ourmajority-owned subsidiary, Medicsight PLC (“MS-PLC”).

 

We were originallyincorporated as a Utah corporation in 1977. On December 19, 2000, we entered into anAgreement and Plan of Merger with our wholly owned subsidiary HTTP Technology, Inc.,a Delaware corporation, and thereby effected a re-incorporation of the companyfrom Utah to Delaware. All references in this Annual Report to  “the Company”, “we” or “us” refer to Medicsight, Inc.,the Delaware corporation and subsidiaries, if the event occurred on or after December 19,2000 or to HTTP Technology, Inc., the Utah corporation and subsidiaries,if the event occurred prior to December 19, 2000.

 

*(2)*          Basisof Presentation and liquidity

* *

The accompanyingunaudited consolidated financial statements of the Company have been preparedpursuant to the rules of the Securities and Exchange Commission (the “SEC”).Certain information and footnote disclosures normally included in financialstatements prepared in accordance with generally accepted accounting principlesin the United States have been condensed or omitted pursuant to such rules andregulations. These unaudited consolidated financial statements should be readin conjunction with the audited consolidated financial statements and notesthereto included in the Company’s Annual Report on Form 10-K for theFiscal years ended December 31, 2004. In the opinion of management, theaccompanying unaudited consolidated financial statements reflect alladjustments, which are of a normal recurring nature, necessary for a fairpresentation of the results for the periods presented. All significantinter-company transactions have been eliminated in consolidation.

 

The results of operationspresented for the six months ended June 30, 2005, are not necessarilyindicative of the results to be expected for any other interim period or anyfuture fiscal year.

 

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 June 30, 2005 andthere is uncertainty with respect to the availability and the utilization ofits credit facility with Asia IT Capital Investments Limited (a related party)– see Note 3. The Company is operating in a developing industry based on newtechnology 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 condensed consolidated financial statements donot include any adjustments that might result from the outcome of this goingconcern uncertainty.

 

F-6

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*(3)*          Linesof Credit

* *

On December 15,2000, the Company entered into an unsecured credit facility with Asia IT, whichprovides a $20,000,000 line of credit. Such line of credit originally expiredon December 31, 2001, but has been extended until December 31, 2006.Interest on advances under the credit facility accrues at 2% above US LIBOR.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 would be reduced upon the Company’s sale ofany of its investment assets. The amounts drawn and interest charged under thisfacility are repayable on demand or at the maturity of the facility.

 

On November 20,2001, MS-PLC entered into a £10,000,000 ($18,000,000) credit facility with AsiaIT.  Such facility matures on December 31,2006 and is secured by a lien on all assets of MS-PLC.  Interest on outstanding amounts accrues at 2%above GBP LIBOR.  The loan is convertibleinto ordinary shares in MS-PLC on announcement of an Offer to Subscribe,Placing or other public offering of its ordinary shares, at the same price pershare as the offering price.

 

At June 30, 2005,the Company had not drawn down any funds under the $20,000,000 facility withAsia IT, and MS-PLC had not drawn down any funds under its £10,000,000($18,000,000) facility with Asia IT.

 

*(4)*          Stockholders’Equity

* *

During the six monthsended June 30, 2005 the Company issued approximately 754,000 shares ofrestricted stock raising $2,714,000 (net of commissions paid to Asia IT, arelated party) as part of a private placement.

 

*(5)*          Accountingfor Stock Based Compensation

* *

On March 20, 2003,the Board of Directors of MS-PLC approved a stock option plan for its employeesand reserved 4,000,000 shares of its common stock for issuance upon exercise ofoptions granted under this plan. On April 19, 2003, the RemunerationCommittee of MS-PLC also approved the stock option plan and implemented it on April 30,2003 by issuing options over 2,828,600 shares to employees of MS-PLC. At June 30,2005, 100% of the options issued were exercisable under the plan.

 

The Company has electedto adopt the disclosure only provisions of Statement of Financial AccountingStandards No. 123, “Accounting for Stock-Based Compensation” as amended bySFAS No. 148, “Accounting for Stock-Based Compensation - Transition andDisclosure - an amendment of FASB Statement No. 123”, and measures thecost for MS-PLC’s employee stock compensation plan by using the accountingmethods prescribed by APB Opinion No. 25, “Accounting for Stock Issued toEmployees”, which allows that no compensation cost be recognized unless theexercise price of the options granted is lower than the fair market value ofthe Company’s stock at date of grant. Accordingly, no stock-based employeecompensation cost is reflected in net loss, as all options granted had anexercise price equal to the market value of the underlying common stock on thedate of grant. SFAS No. 123, as amended by SFAS No. 148, requiresdisclosure of pro forma income and pro forma income per share as if the fairvalue based method had been applied in measuring compensation expense.

 

F-7

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| ** **                                     | ** ** | **Six  months**                      | ** ** | **Six  months**                      | ** ** | **Three  months**                    | ** ** | **Three  months**                    | ** ** |
|------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
| ** **                                     | ** ** | **Ended**                            | ** ** | **Ended**                            | ** ** | **Ended**                            | ** ** | **Ended**                            | ** ** |
| ** **                                     | ** ** | **June 30,  2005  (unaudited)** | ** ** | **June 30,  2004  (unaudited)** | ** ** | **June 30,  2005  (unaudited)** | ** ** | **June 30,  2004  (unaudited)** | ** ** |
| ** **                                     | ** ** | **$’000**                       | ** ** | **$’000**                       | ** ** | **$’000**                       | ** ** | **$’000**                       | ** ** |
|                                           |       |                                 |       |                                 |       |                                 |       |                                 |       |
| Net loss as reported:                          |       | (5,458                               | )          | (6,737                               | )          | (2,364                               | )          | (3,203                               | )          |
|                                           |       |                                 |       |                                 |       |                                 |       |                                 |       |
| Fair value method of stock  based compensation |       | (270                                 | )          | (44                                  | )          | (250                                 | )          | (22                                  | )          |
|                                           |       |                                 |       |                                 |       |                                 |       |                                 |       |
| Proforma net loss                              |       | (5,728                               | )          | (6,781                               | )          | (2,614                               | )          | (3,225                               | )          |
|                                           |       |                                 |       |                                 |       |                                 |       |                                 |       |
| Reported earnings per common  share            |       |                                 |       |                                 |       |                                 |       |                                 |       |
| Basic and diluted                              |       | (0.16                                | )          | (0.23                                | )          | (0.07                                | )          | (0.10                                | )          |
| Proforma earnings per common  share            |       |                                 |       |                                 |       |                                 |       |                                 |       |
| Basic and diluted                              |       | (0.17                                | )          | (0.23                                | )          | (0.08                                | )          | (0.10                                | )          |

 

The fair values ofoptions granted were determined under the intrinsic value method for expensedetermined under the fair value based method, net of related tax effects.

 

*(6)*          Goodwilland Other Intangible Assets

* *

The Company adopted SFAS No. 142effective January 1, 2002. Under this standard, goodwill will no longer beamortized over its estimated useful life, but will be tested for impairment onan annual basis and whenever indicators of impairment arise.

 

Prior to January 1,2002, goodwill was amortized on a straight-line basis over 5 years.

 

*(7)*          SecurityDeposits

* *

As MS-PLC occupiesapproximately 95% of 46 Berkeley Square it acquired the security deposit on theoffices for cash from International Cellulose Company Ltd in February 2003.The value of the security deposit is £470,000 ($846,000) and isinterest-bearing.

 

*(8)*          LeaseCommitments

* *

The Company has enteredinto property leases for the Westminster and Ravenscourt centers. The reductionin the operating lease obligations is as a result of the agreement to surrenderthe unused section of the leased area of Lifesyne’s premises atWestminster has resulted in a significantly reduced cost. Future minimumobligations under these lease arrangements are as follows:

 

| **For the 12 months ending  June 30,** | ** ** | ** **       | **Property  Leases** | ** ** |
|---------------------------------------------|------------|------------------|----------------------|------------|
| ** **                                  | ** ** | **($’000)** | ** **           |
| 2006                                        |       | 294              |                 |
| 2007                                        |       | 203              |                 |
| 2008                                        |       | 203              |                 |

 

F-8

----

 

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, asignificant stockholder of the Company, acquired 100% of the issued sharecapital of ICCL in November 2001. There is no formal lease agreementbetween ICCL and the Company for its offices at 46 Berkeley Square but theCompany is charged by ICCL on the basis of space occupied. The approximatecharge is $140,000 per quarter.

 

*(9)*          IncomeTax Benefit Realized

* *

Thereceipt of $883,000 relates to a tax credit paid by the United Kingdom taxationauthorities under its R&D tax relief scheme for small and mediumenterprises to MS-PLC. The tax credit can either be set-off against taxableprofits or, if not available, can be paid. If it is paid then this is set-offagainst the net operating loss carry forwards. The basis for the R&D reliefis too encourage the development of new technologies and is only applicable tothe research and development of a new technology and not a product.

 

Thereceipt represents the tax credit received for expenditures incurred between November 2001and December 2003. The Company has not accrued for any potential taxcredit for Fiscal 2004 as it has yet to accurately determine the completiondate of the new technology (beyond estimating it occurred in the first half of2004), or the value of any tax credit or make the application to the UnitedKingdom tax authorities under the relevant legislation. The Company believes itis prudent to recognize this benefit when notified by the taxing authority dueto the uncertainty of the timing or amount of any relief. No application willbe made for Fiscal 2005.

 

*(10)*        ComprehensiveIncome

* *

As of June 30, 2005 and the six months andquarter then ended, comprehensive income is comprised of a net loss fromoperations and the net effect of foreign currency translation adjustments. Thiscomprised a net loss of $5,458,000 and $2,364,000 and foreign currency translationadjustments of $148,000 and ($156,000), resulting in comprehensive loss of  $5,606,000 and $2,208,000, respectively.

 

*(11)**        Recent Accounting Pronouncements*

 

In May 2005, theFinancial Accounting Standards Board (“FASB”) issued Statement 154, “*Accounting Changes and Error Corrections, areplacement of APB Opinion No. 20 and FASB Statement No. 3.” *Thestandard requires retrospective application to prior periods’ financialstatements of a voluntary change in accounting principle unless it is deemedimpracticable. The standard states that a change in method of depreciation,amortization or depletion for long-lived, non-financial assets be accounted foras a change in accounting estimate that is affected by a change in accountingprinciple.  The standard is effective for accounting changes andcorrections of errors made occurring in fiscal years beginning after December 15,2005.  The adoption of Statement of Financial Accounting Standards (“SFAS”)No. 154 is not expected to have a material impact on the Company’sfinancial position or results of operations.

 

 In December 2004,the FASB issued Statement 153, “*Exchanges ofNon-monetary Assets, an amendment of APB Opinion No.29.”* Thestandard is based on the principle that exchanges of non-monetary assets shouldbe measured based on the fair value of the assets exchanged and eliminates theexception under APB Opinion No. 29 for an exchange of similar productiveassets and replaces it with an exception for exchanges of non-monetary assetsthat do not have commercial substance. The standard is effective fornon-monetary exchanges occurring in fiscal periods beginning after June 15,2005. The adoption of SFAS

 

F-9

----

 

No. 153 is notexpected to have a material impact on the Company’s financial position orresults of operations.

 

 In December 2004,the FASB issued Statement 123 (revised 2004), “*Share-BasedPayment.”* The standard eliminates the disclosure-only election underthe prior SFAS 123 and requires the recognition of compensation expensefor stock options and other forms of equity compensation based on the fairvalue of the instruments on the date of grant. The standard is effective forfiscal years beginning after June 15, 2005.

 

In November 2004,the FASB issued Statement 151, “*Inventory Costs.”*The standard clarifies that abnormal amounts of idle facility expense, freight,handling costs, and wasted materials should be recognized as current-periodcharges and requires the allocation of fixed production overheads to inventorybased on the normal capacity of the production facilities. The standard iseffective for inventory costs incurred during fiscal years beginning after June 15,2005. The adoption of SFAS No. 151 is not expected to have a materialimpact on the Company’s financial position or results of operations. 

 

F-10

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**SIGNATURE**

** **

In accordance with therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

 
|   | MEDICSIGHT, INC. |
|--------|------------------|
|   |             |
|   |             |
|   | By:              | /s/  TIM PATERSON-BROWN |   |
|   |             | Tim  Paterson-Brown |
|   |             | Chief  Executive Officer |
|   |             |
|   |             |
|   | By:              | /s/  PAUL A. GOTHARD |   |
|   |             | Paul  A. Gothard |
|   |             | Chief  Financial Officer |
|        |                  |  |  |  |

 

 

August 11, 2005

 

F-11

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