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| **UNITED  STATES  SECURITIES AND EXCHANGE COMMISSION** |   | OMB  APPROVAL                                          |
|--------------------------------------------------------|--------|--------------------------------------------------------|
| OMB Number: 3235-0416                                  |
| **Washington, D.C. 20549**                             |   | Expires: April 30, 2003                                |
|                                                   |   | Estimated average burden  hours per response:   9708.0 |
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| **FORM 10-Q**                                          |   |                                                   |

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|                                                                                                                                    | **(Mark One)**                                                                                |
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|                                                                                                                                    |                                                                                          |
| **ý**                                                                                                                              | **Quarterly report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934**  |
|                                                                                                                                    |
| **For the quarterly period  ended March 31, 2003**                                                                                      |
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| **o**                                                                                                                                   | **Transition report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934** |
|                                                                                                                                    |
| **For the transition period  from          to        ** |

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**Commission file number   0-26886**

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**MEDICSIGHT, INC.**

**(Exactname 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 zip code)**                       |
|                                                                                    |   |                                      |
| **(011) 44-20-7598-4070**                                                               |
| **(Registrant’s telephone number,  including area code)**                          |
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| **(Former name, former address and  former fiscal year, if changed since last report)** |

** **

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

** **

**Indicateby check whether the registrant is an accelerated filed (as defined in Rule12b-2 of the Exchange Act): Yes  **o   No  ý

** **

**APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY**

**PROCEEDINGS 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 Act of 1934subsequent to the distribution of securities under a plan confirmed bycourt.  Yes  **o   No  o

** **

**APPLICABLE ONLY TO CORPORATE ISSUERS**

** **

**Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date:  As of April 30,2003:  21,155,183 shares of CommonStock, par value $0.001 per share.**

 

 

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**PARTI**

# ** **

# **FINANCIAL INFORMATION**

## **Item 1.**                       FinancialStatements

 

Medicsight, Inc. and itssubsidiaries 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 March 31, 2003 areattached to this Report, commencing at page F-1.

 

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

 

**NOTEREGARDING FORWARD LOOKING STATEMENTS**

** **

Some of the statements inthis Quarterly Report are forward-looking statements within the meaning of thefederal securities laws. Generally forward-looking statements can be identifiedby the use of terms like “believe,” “may,” “will,” “expect,” “anticipate,”“plan,” “hope” and similar words, although this is not a complete list and wemay express some forward-looking statements differently. Discussions relatingto our plan of operation, our business strategy and our competition, amongothers, contain such statements. Actual results may differ materially fromthose contained in our forward-looking statements for a variety of reasons. Wehave based these forward-looking statements on our current expectations andprojections about future events.  Theseforward-looking statements are subject to risks, uncertainties and assumptionsabout the Company, discussed elsewhere in this Report.

 

We undertake noobligation to update publicly or revise any forward-looking statements, whetheras a result of new information, future events or otherwise.  In light of these risks, uncertainties andassumptions, the forward-looking events contained or incorporated by referencein this Prospectus might not occur.

 

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

 

**BACKGROUND**

 

Medicsight, Inc. wasoriginally incorporated as a Utah corporation in 1977. On December 19,2000, the Company entered into an Agreement and Plan of Merger with itswholly-owned subsidiary HTTP Technology, Inc., a Delaware corporation, andthereby effected a re-incorporation of the Company from Utah to Delaware. Allreferences in this Report to “the Company” refer to Medicsight, Inc., theDelaware corporation, if the event occurred on or after December 19, 2000or to HTTP Technology, Inc., the Utah corporation, if the event occurred priorto December 19, 2000. On October 28, 2002, the Company’s name was changedfrom HTTP Technology, Inc. to Medicsight, Inc.

 

The Company maintains itscorporate offices at 46 Berkeley Square, London, W1J 5AT, United Kingdom,telephone +44 (0) 207-598-4070, facsimile: +44 (0) 207-598-4071,Internet address: http://www.medicsight.com.

 

**BUSINESS STRATEGY**

 

We are a developer ofsoftware technology in the medical sector. We have three principal operatingsubsidiaries: Medicsight PLC (“MS-PLC”), Medicsight Asset Management Limited(“MAM”) and Lifesyne UK Limited (“Lifesyne”). HTTP Insights Ltd (“Insights”) andHTTP Software PLC (“Software”), formerly subsidiaries of the Company, were soldto independent third parties during the fourth quarter of 2002.

 

*MS-PLC.* Our majority-owned subsidiary, MS-PLC, is currently engaged in effortsto commercialize a digital expert recognition software system for digital dataderived from medical imaging 

 

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hardware. AtMarch 31, 2003, the Company owned 67,127,300 ordinary shares in MS-PLC,constituting 83.9% of the outstanding shares. MS-PLC undertook a privateoffering outside the United States of an additional 6,131,398 ordinary shares,which was closed on December 31, 2002. As part of this offering, inDecember 2002 we acquired a further 1,258,718 shares in MS-PLC for £1,258,718($ 2,014,000). On December 23, 2002, we entered into a share swap withGeneral Nominees and Asia IT Nominees whereby the Company issued 1,866,666shares to General Nominees (1,674,894 shares) and Asia IT Nominees (191,772shares) in return for 7,000,000 MS-PLC shares held by General Nominees(6,280,852 shares) and Asia IT Nominees (719,148 shares) respectively.

 

*Lifesyne.* Lifesyne is a wholly owned subsidiary of MS-PLC that was established inSeptember 2002 for the purpose of providing a branded operating entity forthe United Kingdom and Ireland markets. Lifesyne will be the entity thatoperates the scanning centers located in the United Kingdom.

 

*MAM.* MAM is also a wholly-owned subsidiary of MS-PLC that was established inSeptember 2002 for the purpose of acquiring fixed assets on behalf of theoperating entities in the group. MAM will negotiate and acquire equipment andfund leasehold improvements and development, which in turn will be leased tothe relevant operating entity.

 

We have restructured ourbusiness to focus more closely on the medical imaging applications derived fromour original core technology. We have concluded the process of incorporatingall research, software development, management and marketing activities relatedto our medical imaging initiatives into MS-PLC. In November 2001 assetswere transferred from our other subsidiaries to MS-PLC and the costs incurredon the development of the MedicsightTM system (our digital expert recognitionsoftware system for digital data derived from medical imaging hardware) werereimbursed and assigned by way of a loan note from MS-PLC. The amount of theloan note to Medicsight, Inc. was £3,659,104, and this loan note wasconverted into 57,868,582 ordinary shares of MS-PLC issued to the Company and15,000,000 ordinary shares of MS-PLC issued to the former parent of Insights inNovember 2001.

 

It is now widely acceptedthat the most effective way to achieve early detection of leading deadlydiseases is through radiological scanning. Such scanning would allow nationalhealthcare bodies to provide society with the best protection against prematuredeath.  The MedicsightTM system analyzesdigital data from the new generation of multi-slice computed tomography (“CT”)scanners, and then provides information to enable the clinician to identifyareas of possible abnormality. We believe that in the future the MedicsightTMsystem will be capable of reliably detecting isolated pulmonary nodules,calcification of the arteries and other abnormalities indicative of disease.The potential advantage of the MedicsightTM system is that it increasesprecision and reliability while also providing scalability that will becost-effective. The system uses its technology to provide tools to radiologistsfor the identification of possible abnormalities. The clinician will then applyhis/her experience to determine the next steps in medical diagnosis andtreatment. We believe the MedicsightTM system will be capable of processingunprecedented volumes of images.

 

We believe that the MedicsightTMsystem will:

 

•                                          enableaccurate and reliable scan analysis;

 

•                                          create aservice that will be significantly cheaper than at present as it reduces theburden on radiologists who in current practice account for a significantproportion of the scan cost; and

 

•                                          allowsignificant patient volume to be achieved because the analysis is semiautomated and scanning volumes are not then constrained by the finite number ofradiologists.

 

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The step change intechnology that increases the potential of the MedicsightTM system is the 16slice CT scanner. This allows sub-millimeter cross-sectional slices to becaptured with increased speed and reduced radiological dose when compared withtraditional single slice machines. The 16-slice CT scanner can provide over 600images of the chest instead of 30-60 for single slice scanners. The amount ofdetail now available, while enabling early detection of smaller nodules andareas of calcification, increases the time required for analysis byradiologists. Therefore the automation of scan analysis is essential. MS-PLChas identified GE Medical Systems, part of the General Electric Company ofAmerica, as a potential supplier of the new 16-slice detector CT scanners.

 

We are now supported bysome of the most prominent names in European medicine.  The Company’s Medical Board has beensubstantially expanded to include three Specialist Boards, each consisting ofrecognized authorities in the fields of heart, lung and colon, and bringing asignificant level of expertise to the development of our products and services.

 

We intend to establish anumber of service centers under the LifesyneTM brand name to provide areferral-only CT service for the early detection of coronary heart disease,lung and colorectal cancer. Referring medical practitioners will send high-riskindividuals or those displaying non-specific signs of ill health to the centerfor a specific scan. No self-referrals will be accepted. The first LifesyneTMcenter was commissioned in the fourth quarter of 2002 and was followed by thescanning of our first target group at the end of Fiscal 2002. This centercurrently scans primarily for the earliest signs of heart disease and lungcancer. The center is located in West London within the Hammersmith HospitalsNHS Trust (“NHS Trust”). The second development phase at the center wascompleted in February 2003. This phase included the creation of privatepre-scan rooms for recording patient information; providing customer changingfacilities; and patient video education films and information related to thehealth and well-being of our customers.  These features will also beavailable in all future LifesyneTM Centers. The Center has now been fully branded as LifesyneTM and has begun togenerate revenues from scanning services.

 

As forecast, it isMedicsight’s intention to establish three further LifesyneTM centers within thecoming months and lease negotiations are concluding in The City of London,Manchester and at a proposed flagship Center in Victoria, London. FurtherLifesyneTM centers are expected to be on stream within the UK in late-2003. Theinitial units will be used to gain data for submission to obtain regulatoryapproval and continue to acquire market and clinical data and to generatescanning revenues.

 

The success of LifesyneTMis largely dependent upon the effective implementation of its strategicmarketing plan.  A number of strategicprograms have been launched, all of which are supported by an integratedpromotions campaign.  These programsinclude a series of direct mailings to over 2,000 clinicians within the Londonarea to introduce them to the Company and its services, and advertisements intarget medical journals.  The Companyhas also recently completed recruitment of a medical sales force forLondon.  These people comprise primaryand secondary healthcare specialists who will call on doctors in London toprovide them with education and information about scan analysis while promotingLifesyne’s services.

 

The characteristics ofmarkets around the world directly affect how MS-PLC will commercialize itstechnology. In the UK there is a shortage of diagnostic imaging capacity andunder-investment in the health system. The vast majority of all diagnosticprocedures are carried out in a hospital environment making them inefficient,inconvenient and costly. It is therefore commercially attractive and necessaryto establish owned and operated diagnostic centers. However, in the UnitedStates and Western Europe, many diagnostic procedures already take placeoutside of a hospital environment and are carried out in privately ownedclinics or diagnostic imaging centers. For these markets, it is unnecessary forLifesyneTM to establish new operating units, which would in effect compete withthe existing market. Therefore, MS-PLC anticipates that it will createlicensees or franchises to achieve rapid penetration of the market at lowercapital expenditure and risk.

 

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Operational anddevelopment costs for Fiscal 2003 are estimated at approximately$8.5 million. MS-PLC has raised approximately $8.8 million duringFiscal 2002 by way of a private placement of 6.1 million shares (of whichthe Company has purchased 1,258,718 shares for consideration of$2 million) which was underwritten by Asia IT Capital Investments Limited(“Asia IT”). Additionally, MS-PLC has entered into a £10.0 million(approximately $16.0 million) secured credit facility with Asia IT thatceases in November 2004. MS-PLC expects to become financiallyself-sufficient during 2004.

 

Besides theCompany-operated LifesyneTM scanning centers in the United Kingdom, we willoperate partnerships with industry leaders to achieve rapid market penetrationacross our target regions.

 

MS-PLC’s progress in theUK market is vital to the early success of the Company’s business.  However, the largest market opportunity isin the United States.  With this inmind, the Company is concluding negotiations with a university-affiliatedmedical center to open the first US LifesyneTM center within their environs bythe end of this year.  This physical presence and endorsement in the US isdesigned to promote the LifesyneTM concept and the MedicsightTM system as onefranchise package.

 

Revenue streams for theMedicsightTM system are expected to include scan analysis fees and franchiselicense fees. However, we have yet to derive any revenue from the MedicsightTMsystem. We cannot assure you that MS-PLC will be successful in commercializingthe MedicsightTM system, or if such system is commercialized, that its use willbe profitable to MS-PLC. We face obstacles in commercializing our coretechnology and in generating operating revenues such as, but not limited to,successful development, testing of and gaining regulatory approval for thetechnology.

 

MS-PLC does not believethat there is currently any direct comparative competition to the MedicsightTMsystem. There are computer-aided diagnostic systems that work in the field,but, in our view, such existing systems are overly dependent on human resourcesto carry out the analysis, as none have the capability of the MedicsightTMsystem.

 

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.

 

**RISKFACTORS**

 

The Company hasidentified a number of other specific risk areas which may effect the Company’soperations and results in the future:

 

*Technical Risks.*  The MedicsightTM system may not deliver the levels of accuracy andreliability needed, or the development of such accuracy and reliability may bedelayed. The Company’s business model depends on this accuracy and reliability.Without it, the Company’s results of operations may be adversely affected.

 

*Market Risks.*  The market for the MedicsightTM system may be slower to develop orsmaller than estimated or it may be more difficult to build the market thananticipated. The medical community may resist the MedicsightTM system or beslower to accept it than we expect. Revenues from the LifesyneTM scanningcenters and the licensing of the MedicsightTM system may be delayed or costs maybe higher than expected which may result in the Company requiring additionalfunding. There can be no assurance that the Company will have access to suchfunding on commercially reasonable terms or at all. Any additional funding theCompany does receive may result in dilution to the Company’s existingshareholders and/or may adversely affect the Company’s results of operations.

 

*Regulatory Risks.*  The MedicsightTM system is subject tonumerous regulatory requirements in both the United States and Europe. Approvalmay be delayed or result in additional cost to the MedicsightTM system.Alternatively, the Company may not be able to obtain the necessary approval tocommercialize the MedicsightTM system. Such failure would negatively affect theCompany’s results of operations.

 

*Competitive Risks.*  There are a number of organizations, such assoftware companies in the medical imaging field and scanner manufacturers thathave an interest in developing a competitive offering to the MedicsightTMsystem. We cannot make any assurance that they will not attempt to develop suchofferings, that they will not be successful in developing such offerings orthat any offerings they do successfully develop will not have a competitiveedge versus the MedicsightTM system. Any such competitors that do successfullydevelop such an offering may erode the potential market for the MedicsightTMsystem.

 

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**RESULTS OFOPERATIONS**

 

*Revenues.* For the quarter ended March 31,2003 and the quarter ended March 31, 2002, the Company’s gross revenues fromoperations were  $9,000 and $16,000,respectively.  The Company’s revenue inthe quarter ended March 31, 2003 was derived from the Company’s LifesyneTMscanning operations. The Company’s revenue in the quarter ended March 31, 2002was derived from the Company’s consulting activities provided by Software whichhave been discontinued.

 

*Research and Development*.  The Company’s research and developmentexpenses for the quarter ended March 31, 2003 were $nil, as compared to$199,000 for the quarter ended March 31, 2002.   In Fiscal 2003, in accordance with Statement of FinancialAccounting Standards (FAS) 86, *Accounting for the Costs of Computer Software to beSold, Leased, or Otherwise Marketed*, the Company capitalized certaincomputer software development costs. Technical feasibility was established on completion of working modelsfor MedicHeart, MedicLung and MedicColon software products in January2003.  Subsequently, the Companycapitalized costs of $545,000 under FAS 86. These costs capitalised comprisestaff, consultants, regulatory and clinical trial costs specific to the threeproducts. In Fiscal 2002, the Company’s research and development costs werecomprised of staff and consultancy costs expensed on the MedicsightTM system.

 

*Selling, General and Administrative Expenses.*  The Company’s selling, general andadministrative expenses for the quarter ended March 31, 2003, were  $2,976,000 as compared to $2,368,000 for thequarter ended March 31, 2002. Professional fees, including consulting services, were  $380,000 for the quarter ended March 31,2003 as compared to $243,000 for the quarter ended March 31, 2002. Alsoincluded were salaries and directors’ compensation of  $564,000, service charges and rates for property leasing of  $137,000, and rent of $167,000.  The primary components of the increasedselling, general and administrative expenses for the quarter ended March 31,2003 was an increase in professional fees and an increase in marketing costs of$105,000 as the Company initiated its various marketing strategies.  No such marketing costs were incurred in thequarter ended March 31, 2002.

 

*Depreciation and Amortization Expense.* During Fiscal 2000, the Company acquired anintangible asset from the former parent of Insights consisting of technologyvalued at $22,470,000. Under SFAS No.142, this is considered an intangibleasset with a definite life of 5 years. Therefore the value of the asset isamortized on a straight-line basis over this period*.*  The amortization charge for the quarters ended March 31, 2003 andMarch 31, 2002 was $1,123,000.  TheCompany evaluates the carrying value of long-lived assets for impairment wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. The Company’s assessment for impairment of anasset involves estimating the undiscounted cash flows expected to result fromuse of the asset and its eventual disposition. An impairment loss recognized ismeasured as the amount by which the carrying amount of the asset exceeds thefair value of the asset.  No impairmentof intangibles was recorded in the quarter ended March 31, 2003.

 

*Impairment of Excess of Purchase Price over Net AssetsAcquired. *For thequarters ended March 31, 2003 and March 31, 2002, the Company had excess ofpurchase price over net assets acquired of $100,119,000 and $88,919,000respectively. The increase in the quarter ended March 31, 2003 of $11,200,000was due to the Company acquiring an additional 7,000,000 shares in MS-PLC. Theexcess of purchase price over net assets acquired of $88,919,000 was primarilyattributable to the Company’s acquisition of Insights. As stated above, theCompany adopted SFAS No. 142 on January 1, 2002. Under this standard,goodwill will no longer be amortized over its estimated useful life, butinstead will be tested for impairment on an annual basis or whenever indicatorsof impairment arise. The Company completed its annual impairment tests as ofJanuary 1, 2003 and no impairment was recorded. Prior to January 1, 2002,goodwill was tested for 

 

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impairment in a mannerconsistent with property, plant and equipment and intangible assets with adefinite life.

 

*Net Loss and Net Loss per Share.*  Net loss was $2,678,000 for the quarterended March 31, 2003 compared to a net loss of $2,299,000 for the quarter ended March 31, 2002.  Net loss per share for the quarter endedMarch 31, 2003 was $0.13, based on weighted average shares outstanding of21,154,874, compared to a net loss per share of $0.12 for the three monthsended March 31, 2002, based on weighted average shares outstanding of19,289,361. The increase in net loss for the quarter ended March 31, 2003, wasprincipally caused by increased selling, general and administrative expenses.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

*Working Capital.*  At March 31, 2003, the Company had $764,000 in current assets.Cash and cash equivalents amounted to $143,000. Current liabilities were $10,573,000 at March 31, 2003. At December 31, 2002, the Company had $2,284,000 in current assets andcash and cash equivalents amounted to $1,778,000.  Current liabilities were $8,945,000 at December 31, 2002. Workingcapital deficit at March 31, 2003 was $(9,809,000), as compared to $(6,661,000) at December 31, 2002. The ratio of current assets to current liabilities was 0.07 to 1.0 atMarch 31, 2003 as compared to 0.25 to 1.0 at December 31, 2002. The decrease isprimarily due to the decrease in cash and cash equivalents and increase inshort term debt.

 

*Net Decrease in Cash and Cash Equivalents.*  During the quarter ended March 31, 2003, theCompany’s cash and cash equivalents decreased by  $1,635,000. This decrease was primarily the result of cash flowsreceived from shares issued by MS-PLC and the increase in short term debt beingexceeded by net cash used for operations as Asia IT’s significant cash balancesheld on behalf of MS-PLC at December 31, 2002 were drawn on. The Company usednet cash of $2,764,000 in operations. The Company received net cash of$2,191,000 in financing activities and used $1,121,000 in investing activities.

 

*Net Cash Used in Operations.*  The use of cash in operations of  $2,764,000 in the quarter ended ended March31, 2003, was attributable to the Company’s relatively minimal revenues at thesame time that the Company incurred significant operating costs. These significantcosts included professional fees, salaries and director compensation, andservice charges associated with rental property and rent. The Company used cashin operations in the quarter ended March 31, 2002 of  $1,084,000.

 

*Net Cash Used in Investment Activities.*  In the quarter ended March 31, 2003, theCompany had a net cash outflow from investment activities of  $1,121,000. The Company used $576,000 topurchase additional fixed assets and $545,000 on development of its softwareproducts. In the quarter ended March 31, 2002, the Company had a net cashoutflow from investment activities of $35,000.  The Company used thefunds to purchase additional fixed assets.

 

*Net Cash Provided by Financing Activities.*  In the quarter ended March 31, 2003, theCompany had a net cash inflow from financing activities of  $2,191,000. The funds received in thequarter ended March 31, 2003, comprised of $78,000 received from the privateoffering of Medicsight stock and $2,122,000 received under our debt facilitieswith Asia IT. For the quarter ended March 31, 2002, the Company had a net cashinflow from financing activities of $1,007,000. The funds received comprised of $869,000 received from theprivate offering of MS-PLC stock and $143,000 received under our debt facilitieswith Asia IT.

 

*Stockholders’ Equity.*  The Company’s stockholders’ equity at March31, 2003 was  $105,197,000, including anaccumulated deficit of  $(74,852,000),as compared to $107,807,000 at December 31, 2002, including an accumulateddeficit of  $(72,174,000). Additionalpaid-in capital was  $182,952,000 and$182,897,000, at March 31, 2003 and December 31, 2002 respectively. Thereduction in stockholders’ equity was a result of an increase in accumulateddeficit of  $2,678,000 offset by anincrease in additional paid-in capital of $55,000 resulting from the placement of Medicsight stock (par valueapproximately $0.08 per share) at a premium of $1.42 per share.

 

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*Additional Capital.*  The Company will require additional capitalduring its fiscal year ending December 31, 2003 to implement its businessstrategies, including cash for (i) payment of increased operating expensessuch as salaries for additional employees; and (ii) further implementationof those business strategies. Such additional capital may be raised throughadditional public or private financing, as well as borrowings and otherresources. Currently, the Company has two available lines of credit.

 

On December 15, 2000, theCompany entered into an unsecured credit facility with Asia IT which provides a$20,000,000 line of credit. Such line of credit originally expired on December31, 2001, but has been extended until June 30, 2004. Interest on advances underthe credit facility accrues at 2% above US LIBOR. The Company can draw down onthis credit facility for its financing requirements, upon approval by theCompany’s Board of Directors and subject to approval by Asia IT (such approvalnot to be unreasonably withheld). The Company is restricted from borrowingfunds, directly or indirectly, other than through the credit facility with AsiaIT, without the consent of Asia IT. The availability of the credit facilityreduces upon the Company’s sale of any of its investment assets. The amountsdrawn and interest charged under this facility are repayable on demand or atthe maturity of the facility.

 

On November 20, 2001,MS-PLC entered into a £10,000,000 ($16,000,000) credit facility with AsiaIT.  Such facility matures in November2004 and is secured by a lien on all assets of Medicsight.  Interest on outstanding amounts accrues at2% above GBP LIBOR.  Pursuant to suchcredit facility, MS-PLC had covenanted to undertake a public offering of itsordinary shares in an amount not less than £25,000,000 not later than March2002.  MS-PLC did not complete such anoffering but the facility nevertheless remains in place. The loan isconvertible into ordinary shares in MS-PLC on announcement of an Offer toSubscribe, Placing or other public offering of its ordinary shares, at the sameprice per share as the offering price. Due to the private offering beingundertaken by MS-PLC, the loan is currently convertible.

 

At March 31, 2003, theCompany had drawn down  $4,311,000 underthe $20,000,000 facility with Asia IT, and Medicsight had drawn down  $125,000 under its £10,000,000 ($16,000,000)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 forsubstantially all of our revenues from operations in the foreseeable future.  Our technology has not yet been fully commercialized,and we have not begun to receive any significant revenues from commercialoperations.  We cannot assure ourstockholders 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.*In December2001 and January 2002, the Securities and Exchange Commission requested thatall registrants list their three to five most “critical accounting policies” inthe Management’s Discussion and Analyses of Financial Condition and Results ofOperations. 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.

 

Impairment of Long-livedAssets and Long-lived Assets To Be Disposed of. The Companyevaluates the carrying value of long-lived assets for impairment wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. The Company’s assessment for impairment of

 

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an asset involvesestimating the undiscounted cash flows expected to result from use of the assetand its eventual disposition. An impairment loss recognized is measured as theamount by which the carrying amount of the asset exceeds the fair value of theasset.

 

Impairment of Excess ofPurchase Price Over Net Assets Acquired*.*The Company adopted SFASNo. 142 on January 1, 2002.  Under thisstandard, goodwill will no longer be amortized over its estimated useful life,but will be tested for impairment on an annual basis and whenever indicators ofimpairment arise.  Under the provisionsof SFAS No. 142, any impairment loss identified upon adoption of this standardis recognized as a cumulative effect of a change in accounting principle.  Any impairment loss incurred subsequent tothe initial adoption of SFAS No 142 is recorded as a charge to current periodearnings.  Under the transitionalprovisions of SFAS No. 142, the Company’s goodwill was tested for impairment asof January 1, 2002.  The Company completedits annual impairment tests as of January 1, 2003 and no impairment wasrecorded.

 

Software DevelopmentCosts*.*Costs incurred in connection with thedevelopment of software products that are intended for sale are accounted forin accordance with Statement of Financial Accounting Standards No. 86,“Accounting for the Costs of Computer Software to be Sold, Leased, or OtherwiseMarketed”. Costs incurred prior to technological feasibility being establishedfor the product are expensed as incurred. For the Company, technicalfeasibility was established on completion of working models for MedicHeart,MedicLung and MedicColon software products in January 2003. 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.

 

Management regularlyreviews the carrying value of its software development costs to assess whetheror not there has been an impairment in its carrying value. When the carryingvalues of these assets exceed their estimated net recoverable amounts, an impairmentprovision is recorded.

 

*ContractualObligations*

 

The Company has thefollowing contractual obligations:

 
|                                       |   |      |   | **Payments  Due By Period** |   |
|--------------------------------------------|--------|-----------|--------|-----------------------------|--------|
| **Contractual  Obligations ($000’s)** |   | **Total** |   | **Less than  1 year**       |   | **1-3 years** |   | **3-5 years** |   | **More than  5 years** |   |
|                                       |   |      |   |                        |   |   |   |   |   |   |   |
| Long-Term Debt                             |   | 3,250     |   | 3,250                       |   | — |   | — |   | — |   |
| Capital Lease  Obligations                 |   | 65        |   | 36                          |   | 29 |   | — |   | — |   |
| Total                                      |   | 3,315     |   | 3,286                       |   | 29 |   | — |   | — |   |

 

## **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 all repayable ondemand:

 
| **Debt  Holder**                |   | **Facility** |       | **Balance** |   | **Interest  rate** |   | **At March  31** |   |
|---------------------------------|--------|--------------|------------|-------------|--------|--------------------|--------|------------------|--------|
|                            |   |         |       |        |   |               |   |             |   |   |   |
| Nightingale Technologies Ltd    |   | $            | 10,000,000 |        | $      | 3,250,000          |   | US Libor + 2     | %      | 3.28 | % |
| Asia IT Capital Investments Ltd |   | $            | 20,000,000 |        | $      | 4,311,000          |   | US Libor + 2     | %      | 3.28 | % |
| Asia IT Capital Investments Ltd |   | $            | 15,000,000 |        | $      | 125,000            |   | GBP Libor + 2    | %      | 5.57 | % |

 

10

----

 

A hypothetical 100 basispoint adverse movement in interest rates would increase interest cost byapproximately $77,000 per annum assuming no further drawdowns or repayments aremade.

 

**Foreign Exchange Risk**

 

The Company’s exposure tomarket risk associated with changes in exchange rates relate to its debtfacility with Nightingale Technologies Ltd. This US$3.25m facility istranslated into British Pounds as Finance accounts for its transactions inBritish Pounds and is therefore exposed to fluctuations between British Poundsand U.S. Dollar rates. A hypothetical 100 basis point adverse movement ($1.50to $1.49 to £1.00) would increase the principal to repaid by  $16,000.

 

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

 

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

 

*Evaluationof Disclosure Controls and Procedures*

 

We maintain controls andprocedures designed to ensure that information required to be disclosed in thisreport is recorded, processed, accumulated and communicated to our management,including our chief executive officer and our chief financial officer, to allowtimely decisions regarding the required disclosure. Management necessarilyapplied its judgment in assessing the costs and benefits of such controls andprocedures, which, by their nature, can provide only reasonable assuranceregarding management’s control objectives. Within the 90 days prior to thefiling date of this report, our management, with the participation of our chiefexecutive officer and chief financial officer, carried out an evaluation of theeffectiveness of the design and operation of these disclosure controls andprocedures. Our chief executive officer and chief financial officer concluded,as of fifteen days prior to the filing date of this report, that thesedisclosure controls and procedures are effective.

 

*Changesin Internal Controls*

 

Subsequent to the date ofthe above evaluation, we made no significant changes in our internal controlsor in other factors that could significantly affect these controls, nor did wetake any corrective action, as the evaluation revealed no significantdeficiencies or material weaknesses.

 

11

----

 

# **PART II**

 

## **Item 1.**                       LegalProceedings

 

There are currently nopending legal proceedings.

 

## **Item 2.**                       Changes inSecurities and Use of Proceeds

 

(a)           None.

 

(b)           None.

 

(c)           None.

 

(d)           Not applicable.

 

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

 

None.

 

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

 

None.

 

## **Item 5.**                       OtherInformation

 

None.

 

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

 

### (a)           Exhibits

 

### 99.1         Certification of Chief ExecutiveOfficer (Filed herewith)

 

**99.2         Certification ofChief Financial Officer (Filed herewith)**

 

### (b)           Reports on Form 8-K

 

None.

** **

 

12

----

 

**MEDICSIGHT,INC. AND SUBSIDIARIES**

** **

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2003**

 
| Consolidated Balance Sheets  as of March 31, 2003 (Unaudited) and December 31, 2002 (Audited)                                             | F-2        |
|-------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                                                      |       |
| Consolidated  Statements of Operations for the Quarter Ended March 31, 2003 (Unaudited) and  the Quarter Ended March 31, 2002 (Unaudited) | F-3        |
|                                                                                                                                      |       |
| Consolidated  Statement of Cash Flows for the Quarter Ended March 31, 2003 (Unaudited) and  the Quarter Ended March 31, 2002 (Unaudited)  | F-4        |
|                                                                                                                                      |       |
| Notes to  Consolidated Financial Statements                                                                                               | F-5 to F-9 |

 

F-1

----

 

**MEDICSIGHT,INC. AND SUBSIDIARIES**

** **

**CONSOLIDATED BALANCE SHEETS**

 

**(In$ thousands)**

 
|                                                                                                                                  |   | **March 31, 2003** |    | **December 31, 2002** |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|-----------------------|--------|
|                                                                                                                                  |   | **(unaudited)**    |    | **(audited)**         |   |
| ASSETS                                                                                                                                |   |               |    |                  |   |
| CURRENT ASSETS:                                                                                                                       |   |               |    |                  |   |
| Cash and cash equivalents                                                                                                             |   | $                  | 143     |                  | $      | 1,778 |   |
| Accounts receivable (net of allowance for doubtful debts of $nil and  $nil, respectively)                                             |   | 4                  |    | 1                     |   |
| Other receivables                                                                                                                     |   | 41                 |    | 1                     |   |
| Prepaid expenses                                                                                                                      |   | 261                |    | 222                   |   |
| Sales tax receivable                                                                                                                  |   | 315                |    | 282                   |   |
| Total current assets                                                                                                                  |   | 764                |    | 2,284                 |   |
|                                                                                                                                  |   |               |    |                  |   |
| PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation of  $586 and $480, respectively                                      |   | 1,512              |    | 1,416                 |   |
|                                                                                                                                  |   |               |    |                  |   |
| OTHER ASSETS, software development costs, at cost                                                                                     |   | 545                |    | —                |   |
|                                                                                                                                  |   |               |    |                  |   |
| INVESTMENTS, at cost                                                                                                                  |   | 525                |    | 525                   |   |
|                                                                                                                                  |   |               |    |                  |   |
| SECURITY DEPOSITS                                                                                                                     |   | 748                |    | 5                     |   |
|                                                                                                                                  |   |               |    |                  |   |
| INTANGIBLE ASSET, at cost, net of accumulated amortization of $10,111  and $8,988, respectively                                       |   | 12,359             |    | 13,482                |   |
|                                                                                                                                  |   |               |    |                  |   |
| EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net of accumulated  amortization of $16,645 at both dates                          |   | 100,119            |    | 100,119               |   |
| Total assets                                                                                                                          |   | $                  | 116,572 |                  | $      | 117,831 |   |
|                                                                                                                                  |   |               |    |                  |   |
| LIABILITIES AND STOCKHOLDERS’  EQUITY                                                                                            |   |               |    |                  |   |
| CURRENT LIABILITIES:                                                                                                                  |   |               |    |                  |   |
| Accounts payable                                                                                                                      |   | $                  | 1,975   |                  | $      | 2,468 |   |
| Accrued expenses                                                                                                                      |   | 703                |    | 704                   |   |
| Accrued professional expenses                                                                                                         |   | 191                |    | 191                   |   |
| Short-term debt                                                                                                                       |   | 7,704              |    | 5,582                 |   |
| Total current liabilities                                                                                                             |   | 10,573             |    | 8,945                 |   |
| CAPITAL LEASE                                                                                                                         |   | 65                 |    | 74                    |   |
| Total liabilities                                                                                                                     |   | $                  | 10,638  |                  | $      | 9,019 |   |
|                                                                                                                                  |   |               |    |                  |   |
| STOCKHOLDERS’ EQUITY:                                                                                                            |   |               |    |                  |   |
| Common stock, $0.001 par value, 100,000,000 shares authorized,  21,154,874 and 21,154,874 shares issued and outstanding, respectively |   | 21                 |    | 21                    |   |
| Additional paid-in capital                                                                                                            |   | 182,952            |    | 182,897               |   |
| Vendor guarantee                                                                                                                      |   | (3,227             | )       | (3,227                | )      |
| Cumulative foreign currency translation adjustment                                                                                    |   | 303                |    | 290                   |   |
| Accumulated deficit                                                                                                                   |   | (74,852            | )       | (72,174               | )      |
| Total stockholders’ equity                                                                                                       |   | 105,197            |    | 107,807               |   |
|                                                                                                                                  |   |               |    |                  |   |
| MINORITY INTEREST                                                                                                                     |   | 737                |    | 1,005                 |   |
|                                                                                                                                  |   | 105,934            |    | 108,812               |   |
| Total liabilities and stockholders’ equity                                                                                       |   | $                  | 116,572 |                  | $      | 117,831 |   |

 

THE ACCOMPANYING NOTESARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

 

F-2

----

 

**MEDICSIGHT, INC. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**(In $ thousands, except per share amounts)

 
|                                                 |   | **Three Months  Ended  March 31, 2003** |   | **Three Months  Ended  March 31, 2002** |   |
|------------------------------------------------------|--------|-----------------------------------------|--------|-----------------------------------------|--------|
|                                                 |   | **(unaudited)**                         |   | **(unaudited)**                         |   |
| REVENUES                                             |   | $                                       | 9      |                                    | $      | 16 |   |
|                                                 |   |                                    |   |                                    |   |
| EXPENSES:                                            |   |                                    |   |                                    |   |
| Selling, general and administrative charges          |   | 2,976                                   |   | 2,368                                   |   |
| Research and development cost                        |   | —                                  |   | 199                                     |   |
|                                                 |   | 2,976                                   |   | 2,567                                   |   |
|                                                 |   |                                    |   |                                    |   |
| Net Loss before minority interest                    |   | (2,967                                  | )      | (2,551                                  | )      |
|                                                 |   |                                    |   |                                    |   |
| MINORITY INTEREST                                    |   | 289                                     |   | 252                                     |   |
|                                                 |   |                                    |   |                                    |   |
| Net loss                                             |   | $                                       | (2,678 | )                                       | $      | (2,299 | ) |
|                                                 |   |                                    |   |                                    |   |
| PER SHARE DATA:                                      |   |                                    |   |                                    |   |
| Basic and diluted loss per share                     |   | $                                       | (0.13  | )                                       | $      | (0.12 | ) |
|                                                 |   |                                    |   |                                    |   |
| Weighted average number of common shares outstanding |   | 21,154,874                              |   | 19,289,361                              |   |

** **

**THEACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIALSTATEMENTS.**

** **

F-3

----

 

**MEDICSIGHT,INC. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CASH FLOW**

**(In $thousands)**

 
|                                                                        |   | **Three Months****Ended  March 31, 2003** |   | **Three Months****Ended  March 31, 2002** |   |
|-----------------------------------------------------------------------------|--------|-------------------------------------------|--------|-------------------------------------------|--------|
|                                                                        |   | **(unaudited)**                           |   | **(unaudited)**                           |   |
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                      |   |                                      |   |                                      |   |
| Net loss                                                                    |   | $                                         | (2,678 | )                                         | $      | (2,299 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities |   |                                      |   |                                      |   |
| Depreciation                                                                |   | 113                                       |   | 58                                        |   |
| Amortization of intangible assets                                           |   | 1,123                                     |   | 1,123                                     |   |
| Minority interest in net earnings of subsidiary                             |   | (289                                      | )      | (252                                      | )      |
| Changes in operating assets and liabilities                                 |   |                                      |   |                                      |   |
| (Increase)/decrease in accounts receivable                                  |   | (3                                        | )      | 48                                        |   |
| (Increase) in prepaid expenses and other current assets                     |   | (79                                       | )      | (13                                       | )      |
| (Increase) in sales tax receivable                                          |   | (33                                       | )      | (40                                       | )      |
| (Increase) in security deposits                                             |   | (743                                      | )      | —                                    |   |
| (Decrease)/increase in accounts payable                                     |   | (166                                      | )      | 141                                       |   |
| (Decrease)/increase in accrued expenses                                     |   | (9                                        | )      | 229                                       |   |
| (Decrease) in accrued professional expenses                                 |   | —                                    |   | (79                                       | )      |
| Net cash used in operating activities                                       |   | $                                         | (2,764 | )                                         | $      | (1,084 | ) |
|                                                                        |   |                                      |   |                                      |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                       |   |                                      |   |                                      |   |
| Purchase of fixed assets                                                    |   | (576                                      | )      | (35                                       | )      |
| Software development costs                                                  |   | (545                                      | )      | —                                    |   |
| Net cash used in investing activities                                       |   | $                                         | (1,121 | )                                         | $      | (35 | ) |
|                                                                        |   |                                      |   |                                      |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                       |   |                                      |   |                                      |   |
| Decrease in capitalized lease                                               |   | (9                                        | )      | (5                                        | )      |
| Increase of debt                                                            |   | 2,122                                     |   | 143                                       |   |
| Shares in Medicsight issued for cash                                        |   | 78                                        |   | 869                                       |   |
| Net cash provided by financing activities                                   |   | $                                         | 2,191  |                                      | $      | 1,007 |   |
|                                                                        |   |                                      |   |                                      |   |
| Effects of exchange rates on cash and cash equivalent                       |   | 59                                        |   | 8                                         |   |
|                                                                        |   |                                      |   |                                      |   |
| NET DECREASE IN CASH                                                        |   | (1,635                                    | )      | (104                                      | )      |
|                                                                        |   |                                      |   |                                      |   |
| CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD                            |   | 1,778                                     |   | 203                                       |   |
|                                                                        |   |                                      |   |                                      |   |
| CASH & CASH EQUIVALENTS, END OF PERIOD                                  |   | $                                         | 143    |                                      | $      | 99 |   |

** **

**THEACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIALSTATEMENTS.**

** **

F-4

----

 

**MEDICSIGHT, INC. AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

** **

*(1)*                               Formationand Business of the Company

 

Medicsight, Inc.(formerly HTTP Technology, Inc.) and its subsidiaries are collectively referredto in this Report as the “Company”.  Ourbusiness objective is to conceive, develop and commercialize innovative medicalapplications derived from our core technology through our majority-ownedsubsidiary, Medicsight PLC (“MS-PLC”).

 

We were originallyincorporated as a Utah corporation in 1977. On December 19, 2000, we enteredinto an Agreement and Plan of Merger with our wholly-owned subsidiary HTTPTechnology, Inc., a Delaware corporation, and thereby effected a reincorporationof the company from Utah to Delaware. All references in this Annual Reportto  “the Company”, “we” or “us” refer toMedicsight, Inc., the Delaware corporation, if the event occurred on or afterDecember 19, 2000 or to HTTP Technology, Inc., the Utah corporation, if theevent occurred prior to December 19, 2000. We are authorized to issue 100,000,000 shares of Common Stock.

 

In April 2000, weacquired Radical Technology PLC, now known as HTTP Software PLC (“Software”),which provided us with a business dedicated to systems integration and softwaredevelopment.  In December 2000, weacquired Nightingale Technologies Ltd, now known as HTTP Insights Ltd(“Insights”), which provided us with proprietary technology called a StochasticPerception Engine.  A StochasticPerception Engine processes and classifies unstructured data into meaningfuloutputs, enabling it to be viewed, interpreted or further manipulated by theuser of the application. Similar technologies sit at the core of many oftoday’s major software applications. Our Stochastic Perception Engine is comprised of four principal modules:cluster analysis, statistical modeling, classification and prediction. Thistechnology has the ability to offer unprecedented processing speed, accuracyand comprehensiveness of results when compared to existing data classificationtechnologies. We believe that our Stochastic Perception Engine has significantpotential uses in a wide variety of fields, including medical image analysis,the design of pharmaceuticals, environmental mapping, handwriting recognition,robotics and surveillance.

 

We have restructured ourbusiness to focus more closely on the medical imaging applications derived fromour core technology.  We have concludedthe process of incorporating all research, software development, management andmarketing activities related to our medical imaging initiatives into MS-PLC. InNovember 2001 assets were transferred from our other subsidiaries to MS-PLC andthe costs incurred on the development of the MedicsightTM system(our state-of-the-art digital disease detection software system) werereimbursed and assigned by way of a loan note from MS-PLC.  The amount of the loan note to Medicsight,Inc. was £3,659,104, and this loan note was converted into 57,868,582 ordinaryshares of MS-PLC issued to the Company and 15,000,000 ordinary shares of MS-PLCissued to the former parent of Insights in November 2001.

 

F-5

----

 

*(2)*                               Basisof Presentation

 

The accompanying unauditedconsolidated financial statements of the Company have been prepared pursuant tothe rules of the Securities and Exchange Commission (the “SEC”). Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with generally accepted accounting principles in theUnited 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 the fiscalyear ended December 31, 2002, filed on April 14, 2003. In the opinion ofmanagement, the accompanying unaudited consolidated financial statementsreflect all adjustments, which are of a normal recurring nature, necessary fora fair presentation of the results for the periods presented. All significantinter-company transactions have been eliminated in consolidation.

 

The results of operationspresented for the quarter ended March 31, 2003, are not necessarily indicativeof the results to be expected for any other interim period or any future fiscalyear.

 

*(3)*                               Linesof Credit

 

On December 15, 2000, theCompany entered into an unsecured credit facility with Asia IT, which providesa $20,000,000 line of credit. Such line of credit originally expired onDecember 31, 2001, but has been extended until June 30, 2004. Interest onadvances under the credit facility accrues at 2% above US LIBOR. The Companycan draw down on this credit facility for its financing requirements, uponapproval by the Company’s Board of Directors and subject to approval by Asia IT(such approval not to be unreasonably withheld). The Company is restricted fromborrowing funds, directly or indirectly, other than through the credit facilitywith Asia IT, without the consent of Asia IT. The availability of the creditfacility would be reduced upon the Company’s sale of any of its investmentassets. The amounts drawn and interest charged under this facility arerepayable on demand or at the maturity of the facility.

 

On November 20, 2001,MS-PLC entered into a £10,000,000 ($16,000,000) credit facility with AsiaIT.  Such facility matures in November2004 and is secured by a lien on all assets of Medicsight.  Interest on outstanding amounts accrues at2% above GBP LIBOR.  Pursuant to suchcredit facility, MS-PLC had covenanted to undertake a public offering of itsordinary shares in an amount not less than £25,000,000 not later than March2002.  MS-PLC did not complete such anoffering but the facility nevertheless remains in place. The loan isconvertible into ordinary shares in MS-PLC on announcement of an Offer toSubscribe, Placing or other public offering of its ordinary shares, at the sameprice per share as the offering price. Due to the private offering beingundertaken by MS-PLC, the loan is currently convertible.

 

At March 31, 2003, theCompany had drawn down  $4,311,000 underthe $20,000,000 facility with Asia IT, and MS-PLC had drawn down  $125,000 under its £10,000,000 ($16,000,000)facility with Asia IT.

 

F-6

----

 

*(4)*                               Short-termDebt

 

The Company acquired Insights in December 2000.  At the time of such acquisition, Insightshad outstanding $6,006,000 of long-term debt. This debt was part of the original loan of $10,000,000 that Insightsowed to its parent company relating to the acquisition of patent applicationsfor its Stochastic Perception Engine technology.  The loan did bear interest at 2% above US LIBOR and is unsecured.All interest on the loan was forgiven prior to the principal being transferredto Medicsight Finance Ltd (“Finance”) on December 6, 2002. The principal of theloan does not mature until December 6, 2004 and is interest free.  As of March 31, 2003 and December 31, 2002,the balance of this loan was $3,250,000. The terms of the loan note include a provision whereby the lender canrequire repayment of the principal by giving two months notice of demand.  No notice has been given as of March 31,2003 and management does not expect the notice to be given.

 

*(5)*                               Stockholders’Equity

 

On December 30, 2002, the Company effected a 1-for-3reverse split (the “Split”) of its Common Stock.  As such, all share and per share information in the accompanyingfinancial statements have been restated to reflect the Split.

 

*(6)*                               Goodwilland Other Intangible Assets

 

Goodwill

 

The Company adopted SFASNo. 142 effective January 1, 2002. Under this standard, goodwill will no longerbe amortized over its estimated useful life, but will be tested for impairmenton an annual basis and whenever indicators of impairment arise. The Companycompleted its impairment tests as of January 1, 2003 and no impairment wasrecorded. Prior to January 1, 2002, goodwill was amortized on a straight-linebasis over 5 years.

 

Other Intangible Assets

 

The Company acquired anintangible asset from Insights consisting of technology valued at $22,470,000during Fiscal 2000. Under SFAS No.142, this is considered an intangible assetwith a definite life of 5 years. Therefore the value of the asset will beamortized on a straight-line basis over this period.

 

The carryingamount and accumulated amortization of acquired intangible assets follows:

 

|                         |   | **Jan 1,  2003** |       | **March 31,  2003** |   |
|------------------------------|--------|------------------|------------|---------------------|--------|
|                         |   |             |       |                |   |
| Technology                   |   | $                | 22,470,000 |                | $      | 22,470,000 |   |
|                         |   |             |       |                |   |
| Accumulated amortization     |   | $                | (8,988,000 | )                   | $      | (10,111,000 | ) |
|                         |   |             |       |                |   |
| Total intangible assets, net |   | $                | 13,482,000 |                | $      | 12,359,000 |   |

 

The table below showsexpected amortization expense for acquired intangible assets recorded as ofJanuary 1, 2002.

 

F-7

----

 

|                               |   | **2003** |   | **2004** |   | **2005** |   |
|------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                               |   |     |   |     |   |     |   |
| Amortization expense ($ thousands) |   | 4,494    |   | 4,494    |   | 4,494    |   |

 

The above amortizationexpense forecast is an estimate. Actual amounts of amortization expense maydiffer from estimated amounts due to additional intangible asset acquisitions,impairment of intangible assets, accelerated amortization of intangible assets,and other events.

 

*(7)*                               Other Assets –SoftwareDevelopment Costs

 

In accordance withStatement of Financial Accounting Standards (FAS) 86, *Accounting for the Costs of ComputerSoftware to be Sold, Leased, or Otherwise Marketed*, the Company hascapitalized certain computer software development costs. Technical feasibilitywas established on completion of working models for MedicHeart, MedicLung andMedicColon software products in January 2003. Subsequently, the Companycapitalized costs of $545,000 under FAS 86. These costs capitalized comprisestaff, consultants, regulatory and clinical trial costs specific to the threeproducts.

 

Amortization will beprovided based on the greater of the ratios that current gross revenues for aproduct bear to the total of current and anticipated future gross revenues forthat product, or the straight line method over the estimated useful life of theproduct. Amortization will commence when the product is available for generalrelease to customers.

 

Management regularlyreviews the carrying value of its software development costs to assess whetheror not there has been an impairment in its carrying value. When the carryingvalues of these assets exceed their estimated net recoverable amounts, animpairment provision is recorded.

 

*(8)*                               Security Deposits

 

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. Thevalue of the security deposit is £470,000 ($743,000) and is interest-bearing.

 

*(9)*                               MajorCustomers

 

The Company’s revenue in the quarter ended March 31,2003 was derived from the Company’s LifesyneTM scanning operations. During quarter ended March 31, 2002, the Companyhad one customer, Commonwealth Secretariat, which accounted for 100% of itsrevenues. These revenues were derived from Software’s consulting and supportservices.

 

*(10)*                        ComprehensiveIncome

 

As of March 31, 2003 and March 31, 2002, respectively,and for the quarter then ended, comprehensive income is comprised of a net lossfrom operations and the net effect of foreign currency translation adjustments.This comprised a net loss of  $2,678,000for the quarter ended March 31, 2003, and $2,299,000 for the quarter endedMarch 31, 2002, and foreign currency translation adjustments of  $13,000 and $(25,000), resulting incomprehensive loss of  $2,691,000 and$2,274,000, respectively.

 

*(11)        ContingentLiability*

 

As discussed in the notes to the financial statementsof our Annual Report on Form 10-K for the fiscal year ended December 31, 2002(filed April 14, 2003), during 2001 and 2002 the Company transferred assets oftwo previously acquired UK subsidiaries, Insights and Software to other whollyowned UK subsidiaries in order to simplify the Company’s organizationalstructure.

 

F-8

----

 

As a result of the above, potential tax liabilities inboth the US and UK arise.  The Companyis pursuing the necessary elections to mitigate any potential liability.  Based on the current facts and circumstancesthe Company does not believe it probable that a significant tax liability willbe incurred as a result of these past transactions.

 

*(12)*                        SubsequentEvents

 

On March 20, 2003, theBoard of Directors of MS-PLC approved a stock option plan for its employees andreserved 4,000,000 shares of its common stock for issuance upon exercise ofoptions granted under this plan. On April 19, 2003, the Remuneration Committeeof 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.

 

F-9

----

 

**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/ SIMON ZUANIC |   |
|                     | Simon Zuanic            |
|                     | Chief Executive Officer |
|                     |                    |
|                     |                    |
|                     | By:                     | /s/ PAUL GOTHARD |   |
|                     | Paul Gothard            |
|                     | Chief Financial Officer |
|                     |                    |
|                     |                    |
| Date:  May 13, 2003 |                    |

 

F-10

----

 

**CERTIFICATIONS**

 

I, **Simon Zuanic**, certify that:

 

1. I have reviewed this quarterly report on Form 10-Qof **Medicsight,Inc**;

 

2. Based on my knowledge, this quarterly report doesnot contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

3. Based on my knowledge, the financial statements,and other financial information included in this quarterly report, fairlypresent in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in thisquarterly report;

 

4. The registrant’s other certifying officers and Iare responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a) designed such disclosure controls and procedures toensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

b) evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5. The registrant’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a) all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and have identifiedfor the registrant’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6. The registrant’s other certifying officers and Ihave indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

 
|   | By:                     | /s/ SIMON ZUANIC |   |
|--------|-------------------------|------------------|--------|
|   | Simon Zuanic            |
|   | Chief Executive Officer |

 

Date:  May 13, 2003

 

F-11

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**CERTIFICATIONS**

 

I, **Paul Gothard**, certify that:

 

1. I have reviewed this quarterly report on Form 10-Qof **Medicsight,Inc**;

 

2. Based on my knowledge, this quarterly report doesnot contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

3. Based on my knowledge, the financial statements,and other financial information included in this quarterly report, fairlypresent in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in thisquarterly report;

 

4. The registrant’s other certifying officers and Iare responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a) designed such disclosure controls and procedures toensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

b) evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5. The registrant’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a) all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b) any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6. The registrant’s other certifying officers and Ihave indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
|   | By:                     | /s/ PAUL GOTHARD |   |
|--------|-------------------------|------------------|--------|
|   | Paul Gothard            |
|   | Chief Financial Officer |

 

Date:  May 13, 2003

 

F-12

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