**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

| **x**                                                        | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
| ** **                                                   |       | ** **                                                                                    |
| **For the quarterly period ended  September 30, 2006.** |
| ** **                                                   |       | ** **                                                                                    |
| **OR**                                                       |
| ** **                                                   |       | ** **                                                                                    |
| **o**                                                        |       | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

**Forthe transition period from             to**

**Commission file number: 0-26886**

**MEDICSIGHT,INC.**

(Exact name of Registrant as specified in its charter)

| **Delaware**              |   | **13-4148725**                        |
|---------------------------|--------|---------------------------------------|
| (State of  Incorporation) |   | (I.R.S. Employer  Identification No.) |

**KensingtonCentre, 66 Hammersmith Road, London, W14 8UD, UNITED KINGDOM**

(Address of principal executive offices, including zipcode)

Registrant’s telephone number, including area code: **011-44-20-7605-7950**

Indicate by check whether the Registrant (1) hasfiled all reports to be filed by Section 13 or 15(d) of the Securities andExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90days.    Yes    x    No    o

Indicate by check mark whether the Registrant is alarge accelerated filer, an accelerated filer or a non-accelerated filer (asdefined in Rule 12b-2 of the Exchange Act):
| Large Accelerated Filer o | Accelerated filer o | Non-accelerated Filer x |
|--------------------------------|---------------------|-------------------------|

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

The number of shares of the registrant’s common stock,$0.001 par value, outstanding as of November 14, 2006 was 38,900,383.

 

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**Forward-LookingStatements**

This Quarterly Report on Form 10-Q and the informationincorporated herein by reference contain forward-looking statements thatinvolve a number of risks and uncertainties. Although our forward-lookingstatements reflect the good faith judgment of our management, these statementscan only be based on facts and factors currently known by us. Consequently,forward-looking statements are inherently subject to risks and uncertainties,and actual results and outcomes may differ materially from results and outcomesdiscussed in the forward-looking statements.

Forward-looking statements can be identified by theuse of forward-looking words such as “believe,” “expect,” “hope,” “may,” “will,”“plan,” “intend,” “estimate,” “could,” “should,” “would,” “continue,” “seek,” “proforma” or “anticipate,” or other similar words (including their use in thenegative), or by discussions of future matters such as our future clinical orproduct development, regulatory review of our products or product candidates,commercialization of our products, our financial performance, possible changesin legislation and other statements that are not historical. These statementsinclude but are not limited to statements under the captions “Risk Factors” and“Management’s Discussion and Analysis of Financial Condition and Results ofOperations” as well as other sections in this report. You should be aware thatthe occurrence of any of the events discussed under the heading “Risk Factors”and elsewhere in this report could substantially harm our business, results ofoperations and financial condition and that if any of these events occurs, thetrading price of our common stock could decline and you could lose all or apart of the value of your shares of our common stock.

The cautionary statements made in this report areintended to be applicable to all related forward-looking statements whereverthey may appear in this report. We urge you not to place undue reliance onthese forward-looking statements, which speak only as of the date of thisreport. We undertake no obligation to publicly update any forward-lookingstatements, whether as a result of new information, future events or otherwise.

Our main operating currency is UK sterling.

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**INDEX**
| **PART I – FINANCIAL INFORMATION** |       |
|-----------------------------------------|------------|
| ** **                              | ** ** | ** ** | ** ** |
| Item 1                                  |       | Condensed Consolidated Balance Sheets – September 30,  2006 and December 31, 2005 |   |
|                                    |       |   |   |
|                                    |       | Condensed Consolidated Statements of Operations – for  the quarters ended September 30, 2006 and 2005 |   |
|                                    |       |   |   |
|                                    |       | Condensed Consolidated Statements of Operations – for  the nine months ended September 30, 2006 and 2005 |   |
|                                    |       |   |   |
|                                    |       | Condensed Consolidated Statements of Cash Flows – for  the nine months ended September 30, 2006 and 2005 |   |
|                                    |       |   |   |
|                                    |       | Notes to Condensed Consolidated Financial Statements |   |
|                                    |       |   |   |
| Item 2                                  |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations |   |
|                                    |       |   |   |
| Item 3                                  |       | Quantitative and Qualitative Disclosure About Market  Risk |   |
|                                    |       |   |   |
| Item 4                                  |       | Controls & Procedures |   |
|                                    |       |   |   |
| **PART II – OTHER INFORMATION**    |       |
| ** **                              | ** ** | ** ** | ** ** |
| Item  1                                 |       | Legal  Proceedings |   |
|                                    |       |   |   |
| Item 1A                                 |       | Risk Factors |   |
|                                    |       |   |   |
| Item 2                                  |       | Unregistered Sale of Equity Securities and Use of  Proceeds |   |
|                                    |       |   |   |
| Item 3                                  |       | Default Upon Senior Securities |   |
|                                    |       |   |   |
| Item 4                                  |       | Submission of Matters to a Vote of Security Holders |   |
|                                    |       |   |   |
| Item  5                                 |       | Other  Information |   |
|                                    |       |   |   |
| Item 6                                  |       | Exhibits |   |
|                                    |       |   |   |
| SIGNATURES                              |       |

 

 

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**MEDICSIGHT, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(in thousands, except share and pershare amounts)**
| ** **                                                                                                                           | ** ** | **September 30  2006** | ** ** | **December 31  2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                                                                                                                           | ** ** | **(unaudited)**             | ** ** | ** **                 | ** ** |
| ASSETS                                                                                                                               |       |                        |       |                       |       |
| CURRENT ASSETS:                                                                                                                      |       |                        |       |                       |       |
| Cash and cash  equivalents                                                                                                           |       | $                           | 10,955     |                       | $          | 7,249 |   |
| Cash held for  common stock subscribed but unissued                                                                                  |       | —                      |       | 4,000                      |       |
| Marketable  securities                                                                                                               |       | 3,644                       |       | —                     |       |
| Prepaid expenses                                                                                                                     |       | 201                         |       | 213                        |       |
| Value-Added Tax  receivable                                                                                                          |       | 192                         |       | 61                         |       |
| Other current  assets                                                                                                                |       | 498                         |       | 344                        |       |
| Total current  assets                                                                                                                |       | 15,490                      |       | 11,867                     |       |
|                                                                                                                                 |       |                        |       |                       |       |
| PROPERTY EQUIPMENT, at cost,  net of accumulated depreciation of $706 and $1,542 respectively                                        |       | 435                         |       | 252                        |       |
| INVESTMENTS                                                                                                                          |       | 359                         |       | 359                        |       |
| SECURITY DEPOSITS                                                                                                                    |       | 880                         |       | 808                        |       |
| EXCESS OF PURCHASE  PRICE OVER NET ASSETS ACQUIRED                                                                                   |       | 11,200                      |       | 11,200                     |       |
|                                                                                                                                 |       |                        |       |                       |       |
| Total assets                                                                                                                         |       | $                           | 28,364     |                       | $          | 24,486 |   |
|                                                                                                                                 |       |                        |       |                       |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                           |       |                        |       |                       |       |
|                                                                                                                                 |       |                        |       |                       |       |
| CURRENT LIABILITIES:                                                                                                                 |       |                        |       |                       |       |
| Accounts payable                                                                                                                     |       | $                           | 1,513      |                       | $          | 1,172 |   |
| Accounts payable  - related party                                                                                                    |       | 23                          |       | 1,151                      |       |
| Accrued expenses                                                                                                                     |       | 1,293                       |       | 404                        |       |
| Current portion  of obligations under capital leases                                                                                 |       | 12                          |       | 19                         |       |
| Total current  liabilities                                                                                                           |       | 2,841                       |       | 2,746                      |       |
| Obligations under  capital leases, net of current portion                                                                            |       | —                      |       | 6                          |       |
| Total  liabilities                                                                                                                   |       | 2,841                       |       | 2,752                      |       |
|                                                                                                                                 |       |                        |       |                       |       |
| MINORITY INTEREST                                                                                                                    |       | $                           | 8,756      |                       | $          | — |   |
|                                                                                                                                 |       |                        |       |                       |       |
| STOCKHOLDERS’ EQUITY:                                                                                                           |       |                        |       |                       |       |
|                                                                                                                                 |       |                        |       |                       |       |
| Common stock, $0.001  par value, 40,000,000 shares authorized 38,900,383 and 36,392,883 shares  issued and outstanding, respectively |       | 39                          |       | 36                         |       |
| Share Premium                                                                                                                        |       | 218,061                     |       | 208,684                    |       |
| Common stock  subscribed but unissued, net                                                                                           |       | —                      |       | 3,600                      |       |
| Accumulated  other comprehensive income                                                                                              |       | 319                         |       | 128                        |       |
| Accumulated  deficit                                                                                                                 |       | (201,652                    | )          | (190,714                   | )          |
| Total  stockholders’ equity                                                                                                     |       | 16,767                      |       | 21,734                     |       |
|                                                                                                                                 |       |                        |       |                       |       |
| Total stockholders’ equity & liabilities and minority interest                                                              |       | $                           | 28,364     |                       | $          | 24,486 |   |

 

The accompanying notes are an integral part of thesecondensed consolidated financial statements.

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**MEDICSIGHT, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(in thousands, except share and pershare amounts)**

**(unaudited)**
| ** **                                            | ** ** | **Three Months Ended September 30,** | ** ** |
|-------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                            | ** ** | **2006**                                                 | ** ** | **2005** | ** ** |
| ** **                                            | ** ** | ** **                                               | ** ** | ** ** | ** ** |
| REVENUES                                              |       | $                                                        | —     |   | $ | — |   |
|                                                  |       |                                                     |       |   |   |
| EXPENSES:                                             |       |                                                     |       |   |   |
| Selling, general and administrative charges           |       | 3,634                                                    |       | 2,419 |   |
| Research and development cost                         |       | 494                                                      |       | 558 |   |
|                                                  |       | 4,128                                                    |       | 2,977 |   |
|                                                  |       |                                                     |       |   |   |
| Operating loss                                        |       | (4,128                                                   | )          | (2,977 | ) |
|                                                  |       |                                                     |       |   |   |
| OTHER INCOME:                                         |       |                                                     |       |   |   |
| Interest and other income                             |       | 106                                                      |       | 9 |   |
|                                                  |       |                                                     |       |   |   |
| Net loss before  income taxes and minority interest   |       | (4,022                                                   | )          | (2,968 | ) |
|                                                  |       |                                                     |       |   |   |
| Income taxes                                          |       | —                                                   |       | — |   |
| Minority  Interest                                    |       | 115                                                      |       | — |   |
|                                                  |       |                                                     |       |   |   |
| Net loss from  continuing activities                  |       | (3,907                                                   | )          | (2,968 | ) |
|                                                  |       |                                                     |       |   |   |
| Net loss from  impairment of assests held for sale    |       | —                                                   |       | (394 | ) |
| Net loss from  operations of Lifesyne                 |       | —                                                   |       | (290 | ) |
|                                                  |       |                                                     |       |   |   |
| Net loss                                              |       | $                                                        | (3,907     | ) | $ | (3,652 | ) |
|                                                  |       |                                                     |       |   |   |
| PER SHARE DATA:                                       |       |                                                     |       |   |   |
| Net loss from continuing activities                   |       | $                                                        | (0.10      | ) | $ | (0.09 | ) |
| Net loss from discontinued activities                 |       | $                                                        | —     |   | $ | (0.02 | ) |
|                                                  |       |                                                     |       |   |   |
| Basic and diluted loss per share                      |       | $                                                        | (0.10      | ) | $ | (0.11 | ) |
|                                                  |       |                                                     |       |   |   |
| Weighted average  number of common shares outstanding |       | 38,490,329                                               |       | 34,123,713 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements

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**MEDICSIGHT, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(in thousands, except share and pershare amounts)**

**(unaudited)**

|                                                       | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                            | ** ** | **2006**                                                | ** ** | **2005** | ** ** |
| ** **                                            | ** ** | ** **                                              | ** ** | ** ** | ** ** |
| REVENUES                                              |       | $                                                       | —     |   | $ | — |   |
|                                                  |       |                                                    |       |   |   |
| EXPENSES:                                             |       |                                                    |       |   |   |
| Selling, general and administrative charges           |       | 9,623                                                   |       | 7,057 |   |
| Research and development cost                         |       | 1,634                                                   |       | 1,721 |   |
|                                                  |       | 11,257                                                  |       | 8,778 |   |
|                                                  |       |                                                    |       |   |   |
| Operating loss                                        |       | (11,257                                                 | )          | (8,778 | ) |
|                                                  |       |                                                    |       |   |   |
| OTHER INCOME:                                         |       |                                                    |       |   |   |
| Interest and other income                             |       | 204                                                     |       | 61 |   |
|                                                  |       |                                                    |       |   |   |
| Net loss before  income taxes and minority interest   |       | (11,053                                                 | )          | (8,717 | ) |
|                                                  |       |                                                    |       |   |   |
| Income taxes                                          |       | —                                                  |       | 883 |   |
| Minority  Interest                                    |       | 115                                                     |       | — |   |
|                                                  |       |                                                    |       |   |   |
| Net loss from  continuing activities                  |       | (10,938                                                 | )          | (7,834 | ) |
|                                                  |       |                                                    |       |   |   |
| Net loss from  impairment of assests held for sale    |       | —                                                  |       | (394 | ) |
| Net loss from  operations of Lifesyne                 |       | —                                                  |       | (882 | ) |
|                                                  |       |                                                    |       |   |   |
| Net loss                                              |       | $                                                       | (10,938    | ) | $ | (9,110 | ) |
|                                                  |       |                                                    |       |   |   |
| PER SHARE DATA:                                       |       |                                                    |       |   |   |
| Net loss from continuing activities                   |       | $                                                       | (0.29      | ) | $ | (0.23 | ) |
| Net loss from discontinued activities                 |       | $                                                       | —     |   | $ | (0.04 | ) |
|                                                  |       |                                                    |       |   |   |
| Basic and diluted loss per share                      |       | $                                                       | (0.29      | ) | $ | (0.27 | ) |
|                                                  |       |                                                    |       |   |   |
| Weighted average  number of common shares outstanding |       | 37,820,868                                              |       | 33,687,045 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements

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**MEDICSIGHT, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(in thousands)**

**(unaudited)**
| ** **                                                                   | ** ** | **Nine Months Ended September 30** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2006**                                               | ** ** | **2005** | ** ** |
| ** **                                                                   | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                        |       |                                                   |       |   |   |
| Net loss                                                                     |       | $                                                      | (10,938    | ) | $ | (9,110 | ) |
| Loss attributable to minority interest                                       |       | (115                                                   | )          | — |   |
| Loss from discontinued activities                                            |       | —                                                 |       | 1,276 |   |
| Loss from  continuing operations                                             |       | (11,053                                                | )          | (7,834 | ) |
|                                                                         |       |                                                   |       |   |   |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                                                   |       |   |   |
| Stock based compensation expense                                             |       | 353                                                    |       | — |   |
| Depreciation                                                                 |       | 204                                                    |       | 355 |   |
| Loss on disposal of fixed assets                                             |       | 11                                                     |       | 69 |   |
| (Increase)/decrease  in assests                                              |       |                                                   |       |   |   |
| Accounts receivable                                                          |       | —                                                 |       | 26 |   |
| Prepaid expenses and other current assets                                    |       | (142                                                   | )          | 8 |   |
| VAT receivable                                                               |       | (131                                                   | )          | 590 |   |
| Increase/(decrease)  in liabilities                                          |       |                                                   |       |   |   |
| Accounts payable                                                             |       | 341                                                    |       | (156 | ) |
| Accounts payable – related parties                                      |       | (1,128                                                 | )          | — |   |
| Accrued expenses                                                             |       | 889                                                    |       | (650 | ) |
| Net cash used in  operating activities                                       |       | (10,656                                                | )          | (7,592 | ) |
|                                                                         |       |                                                   |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                        |       |                                                   |       |   |   |
| Cash held for common stock subscribed but unissued                           |       | 4,000                                                  |       | — |   |
| Purchase of marketable securities                                            |       | (3,511                                                 | )          | — |   |
| Sale of fixed assets                                                         |       | —                                                 |       | 300 |   |
| Purchase of fixed assets                                                     |       | (398                                                   | )          | (101 | ) |
| Net cash  provided by investing activities                                   |       | 91                                                     |       | 199 |   |
|                                                                         |       |                                                   |       |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                        |       |                                                   |       |   |   |
| Principal payments under capital lease obligations                           |       | (13                                                    | )          | (333 | ) |
| Proceeds from common stock subscribed but unissued  (net of commisions)      |       | (3,600                                                 | )          | — |   |
| Proceeds from sale of common stock (net of  commissions)                     |       | 17,898                                                 |       | 4,676 |   |
| Net cash  provided by financing activities                                   |       | 14,285                                                 |       | 4,343 |   |
|                                                                         |       |                                                   |       |   |   |
| CASH FLOWS OF  DISCONTINUED OPERATIONS                                       |       |                                                   |       |   |   |
| Net cash used in operating activities                                        |       | —                                                 |       | — |   |
| Net cash used in financing activities                                        |       | —                                                 |       | (651 | ) |
|                                                                         |       |                                                   |       |   |   |
| Effects of  exchange rates on cash and cash equivalents                      |       | (14                                                    | )          | 174 |   |
|                                                                         |       |                                                   |       |   |   |
| NET CHANGE IN  CASH AND CASH EQUIVALENTS                                     |       | 3,706                                                  |       | (3,527 | ) |
|                                                                         |       |                                                   |       |   |   |
| CASH AND CASH  EQUIVALENTS – BEGINNING OF PERIOD                        |       | 7,249                                                  |       | 5,276 |   |
|                                                                         |       |                                                   |       |   |   |
| CASH AND CASH  EQUIVALENTS – END OF PERIOD                              |       | $                                                      | 10,955     |   | $ | 1,749 |   |
|                                                                         |       |                                                   |       |   |   |
| SUPLEMENTAL  DISCLOSURES OF CASH RECEIVED                                    |       |                                                   |       |   |   |
| Interest received                                                            |       | 204                                                    |       | 61 |   |
| Income tax benefit realized                                                  |       | —                                                 |       | 883 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financial statements

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**MEDICSIGHT, INC.**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

**1.Summary of Significant Accounting Policies**

*Basis of Presentation and Liquidity*

The accompanying condensed consolidated financialstatements of Medicsight, Inc. have been prepared following the requirements ofthe Securities and Exchange Commission for interim reporting. As permittedunder those rules, certain footnotes or other financial information that arenormally required by U.S. generally accepted accounting principles (GAAP) havebeen condensed or omitted. The condensed consolidated financial statements areunaudited and reflect all adjustments (consisting solely of normal recurringadjustments) which are, in the opinion of management, necessary to presentfairly the financial position at, and the results of operations for, theinterim periods presented.

The results of operations for the three and nine monthperiods ended September 30, 2006 are not necessarily indicative of theresults to be expected for the entire year ending December 31, 2006 or offuture operating results for any interim period. The financial informationincluded herein should be read in conjunction with our Annual Report on Form10-K for the year ended December 31, 2005, which includes our audited consolidatedfinancial statements and the notes thereto.

The Company has incurred significant operating lossessince its inception. As a result, the Company has generated negative cash flowsfrom operations, and has an accumulated deficit of $201,652,000 at September30, 2006 and currently has no revenues. The Company is operating in adeveloping industry based on new technology and its primary source of funds todate has been through the issuance of securities. The Company is currentlyseeking additional funding and is actively developing the technology in orderto bring it to market. While the Company is optimistic and believes appropriateactions are being taken, there can be no assurance that management’s effortswill be successful or that the products the Company develops and markets willbe accepted by consumers.

*Principles of Consolidation*

The financial statements include the accounts of ourcompany and our majority owned subsidiaries. Our main operating subsidiariesare Medicsight PLC and Medicexchange PLC, both based in London (UK). Thefunctional currencies of our subsidiaries are their local currencies.  Allintercompany transactions and balances have been eliminated.  All foreigncurrency translation gains and losses arising on consolidation were recorded instockholders’ equity as a component of accumulated other comprehensive income(loss) in accordance with Statement of Financial Accounting StandardsNo. 52, *Foreign Currency Translation.* Minority Interest represents the minority equity investment in any ofthe Medicsight Inc group of companies, plus the minorities share of the netoperating result.

*Use of Estimates*

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the amounts reportedin the financial statements and accompanying notes. Actual results could differfrom those estimates.

*Marketable Securities*

We invest some of our cash balances in short-termhighly liquid available for sale marketable securities, which are carried inour balance sheet at fair value in accordance with Statement of FinancialAccounting Standards No. 115 *Accounting forCertain Investments in Debt and Equity Securities,* with unrealizedgains and losses reported in stockholders’ equity as a component of accumulatedother comprehensive income (loss) - unless we conclude that unrealized lossesrepresent an other-than-temporary impairment. In that circumstance, such losseswould be reflected in the consolidated statements of operations. Realized gainsand losses are included in interest income. Fair value is based

8

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upon quoted market pricesfor these or similar instruments.

At September 30, 2006 our available for salemarketable securities cost $3,511,000 and had a fair value of $3,644,000. We recorded an unrealized gain of $133,000 in accumulated other comprehensiveincome in stockholders’ equity.

*Comprehensive Income (Loss)*

Statement of Financial Accounting StandardsNo. 130, *Reporting Comprehensive Income*,established standards for the reporting and display of comprehensive income(loss) and its components. Comprehensive Income (Loss) consists all unrealizedforeign exchange translation gains and losses, plus the changes in unrealizedgains and losses on marketable securities. Comprehensive losses for the threeand nine months ended September 30, 2006 and 2005 are as follows (inthousands):
|                                           | ** ** | **Three Months ended  September 30,** | ** ** | **Nine months ended   September 30,** | ** ** |
|-------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                | ** ** | **2006**                                             | ** ** | **2005**                                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                      |       |                                                 |       |                                                      |       |   |   |   |   |
| Net loss as  reported                     |       | $                                                    | (3,907     | )                                                         | $          | (3,652 | ) | $ | (10,938 | ) | $ | (9,110 | ) |
| Unrealized  foreign exchange gain (loss)  |       | 121                                                  |       | 43                                                        |       | 58 |   | (105 | ) |
| Unrealized gain  on marketable securities |       | 86                                                   |       | —                                                    |       | 133 |   | — |   |
| Comprehensive loss                        |       | $                                                    | (3,700     | )                                                         | $          | (3,609 | ) | $ | (10,747 | ) | $ | (9,215 | ) |

*Research and Development Expensesand Accruals*

Research and development expenses include personneland facility related expenses, outside contract services including clinicaladvisors and other consulting services. Research and development costs areexpensed as incurred. In instances where we enter into agreements with thirdparties, costs are expensed upon the earlier of when non-refundable amounts aredue or as services are performed. Amounts due under such arrangements may be eitherfixed fee or fee for service, and may include upfront payments, monthlypayments, and payments upon the completion of milestones or receipt ofdeliverables.

*Net Loss Per Share*

In accordance with Statement of Financial AccountingStandards No. 128, *Earnings Per Share*, basic and diluted net loss per share have been computed using the weightedaverage number of shares of common stock outstanding during each period. Ourcalculation of diluted net loss per share excludes potentially antidilutiveshares, as these shares were antidilutive for all periods presented. Ourcalculation of diluted net income per share may be affected in future periodsby the dilutive impact of our outstanding stock options.

*Investments*

We account for investments in non-marketable securitiesunder the cost method where (a) we own less than a 20% interest; and (b) we donot have significant influence over the entity.  We continually revieweach investment to assess for other-than-temporary decreases in value.  AtSeptember 30, 2006 we held 6% in Eurindia PLC, a company that invests in smallIndian IT services companies.  Following recent information received fromEurindia’s management, we estimate the current value of our investment to beabout $860,000.

*Goodwill and Other Intangible Assets*

In accordance with Statement of Financial AccountingStandard No. 142, *Goodwill and OtherIntangible Assets,* goodwill is no longer amortized but is tested forimpairment on an annual basis and whenever indicators of impairment arise.

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*Lease Commitments and Security Deposit*

Our main corporate office is at Kensington Centre, 66Hammersmith Road, London W14 8UD, United Kingdom.

On August 25, 2006, weexecuted a 10 year agreement with Pirbright Holdings Limited, to lease 8,787square feet of modern open plan, more work efficient, office space at theKensington Centre, 66 Hammersmith Road, London W14 8UD, UK, and simultaneouslyvacated premises with no further obligations at 46 Berkeley Square, London W1J5AT, UK (where we previously paid the same annual amount for 3,876 square feetof office space).  This new leasecommenced on August 25, 2006.

Under this new leaseagreement our UK property rent, services and related costs will beapproximately £360,000 ($656,000) per annum, paid quarterly in advance.  We have the right to terminate this agreementon the expiry of the fifth year of the lease. Our annual rent is subject to upward only review on August 24, 2011.

We have two 10-monthrent-free periods: the first commencing August 25, 2006; the second commencingAugust 25, 2011.  We have accounted forthis lease as an Operating Lease, and have accounted for the lease rentalexpenses on a straight line basis over the period of the lease.  We had a balance of $36,000 of deferred rentat September 30, 2006.

The following is a scheduleof the future minimum rental payments required under operating leases that haveinitial or remaining non cancellable terms in excess of one year (inthousands):

| Year Ending  | ** ** | ** ** | ** ** |
|-------------------|------------|------------|------------|
| 2006              | ** ** | **$**      | Nil        | ** ** |
| 2007              |       | 312        |       |
| 2008              |       | 416        |       |
| 2009              |       | 416        |       |
| 2010              |       | 416        |       |
| Later Years       |       | 486        |       |
| **Total Minimum** | ** ** | **$**      | 2,046      | ** ** |

**2.Discontinued Activities**

During the third quarter of 2005 a plan was initiatedfor the disposal of the Lifesyne business and Lifesyne was subsequently sold onNovember 10, 2005.  In accordance with Statement of Financial AccountingStandards No. 144 *Accounting for Impairmentor Disposal of Long-Lived Assets,* Lifesyne has been accounted for asdiscontinued operations.  Accordingly, our financial statements for thethree and nine months ended September 30, 2005 have been restated to reflectthe Lifesyne Segment as a discontinued operation in our consolidated statementsof operations and cash flows.

The revenues and operating losses for Lifesyne were(in thousands):
|                  | ** ** | **Three Months ended  September 30,** | ** ** | **Nine months ended   September 30,** | ** ** |
|------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **       | ** ** | **2006**                                             | ** ** | **2005**                                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
|             |       |                                                 |       |                                                      |       |   |   |   |   |
| Revenue          |       | $                                                    | —     |                                                      | $          | 113 |   | $ | — |   | $ | 395 |   |
| Operating losses |       | $                                                    | —     |                                                      | $          | 290 |   | $ | — |   | $ | 882 |   |

**3. Stock-Based Compensation**

We have 4 Stock Option Plans in Medicsight PLC (one ofour UK subsidiary companies).  The shares in this company are not publiclytraded.

a.                                                       Plan A - On March 20, 2003 weapproved a stock option plan “A” and reserved 4,000,000 shares for issuanceupon exercise of options granted under this plan. On April 19, 2003, theRemuneration Committee also approved the stock option plan and implemented iton April 30, 2003 and granted options over 2,828,600 shares to employees. AtSeptember 30, 2006 there were 1,491,000 options outstanding and 100% of theoptions issued were exercisable under this plan.

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b.                                                      Plan B - On September 30, 2004we granted options for 3,400,500 shares under stock option plan “B”.Subsequently on August 15, 2005, we approved the stock option plan “B”. AtSeptember 30, 2006 there were 1,621,500 options outstanding.  70% of theoptions issued were exercisable under this plan at September 30, 2006. 100% of the options issued become fully vested on December 31, 2006.

c.                                                       Plan C - On June 30, 2005 wegranted options for 230,000 shares under the stock option plan “C”. On August15, 2005, we approved stock option plan “C”. In February 2006 and May 2006 we granted options for an additional280,000 shares under this plan.  AtSeptember 30, 2006 there were 345,000 options outstanding and 43,333 of theoptions issued were exercisable.  Options issued under this plan vest inequal one-thirds after employees have been employed for 12, 24 and 36 monthsfrom date of grant.

d.                                                      Plan D – On July 13, 2006 weapproved stock option plan “D” and granted options for 1,375,000 shares underthis plan.  At September 30, 2006 therewere 1,375,000 options outstanding and none of the options issued wereexercisable under this plan at September 30, 2006.  Options under this plan vest in equalone-thirds after employees have been employed for 12, 24 and 36 months from thedate of grant.

We have one Stock Option Plan in Medicexchange PLC(one of our UK subsidiary companies). The shares in this company are not publicly traded.

Plan A – On July 13, 2006 we approved MedicexchangePLC stock option plan “A” and granted options for 950,000 shares under thisplan.  At September 30, 2006 there were950,000 options outstanding and nil were exercisable.  Options issued under this plan vest in equalone-thirds after employees have been employed for 12, 24 and 36 months from thedate of grant.

Effective January 1, 2006, we adopted Statement ofFinancial Accounting Standards No. 123 (revised), *Share-Based Payment SFAS 123(R)* , utilizing the ModifiedProspective Application method.  Prior to the adoption of

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SFAS 123(R), we accountedfor stock option grants in accordance with Accounting Principle Board (“APB”)Opinion No. 25 *Accounting for Stock Issuedto Employees* (the intrinsic value method) and, accordingly,recognized no compensation expense for stock option grants if the intrinsicvalue of a grant was zero or less.

Under the Modified Prospective Application method,SFAS 123(R) applies to new awards and to awards that were outstanding onJanuary 1, 2006 that are subsequently modified, repurchased or cancelled. Under the Modified Prospective Application method, we recognised compensationcosts in the first nine months of 2006 including:

a.                                                       cost for all share-basedpayments granted prior to, but not yet vested as of, January 1, 2006 - based onthe grant-date fair value estimated in accordance with the original provisionsof SFAS 123; and

b.                                                      compensation cost for allshare-based payments granted subsequent to January 1, 2006 - based on thegrant-date fair value estimated in accordance with the provisions of SFAS123(R).

Prior periods have not been restated to reflect theimpact of adopting this new accounting standard.

As a result of adopting SFAS 123(R) the net loss forthe nine months ended September 30, 2006 was $353,000 higher than if we hadcontinued to account for stock-based compensation under APB Opinion No. 25 forour stock option grants.

The following table illustrates the effect onoperating results and per share information if we had accounted for stock-basedcompensation in accordance with SFAS 123 for the three and nine monthsended September 30, 2005 (unaudited, in thousands except per share amounts)
|                                                    | ** ** | **Three Months ended  September 30, 2005** | ** ** | **Nine months ended  September 30, 2005** | ** ** |
|----------------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
|                                               |       |                                                           |       |                                                          |       |
| Net loss as  reported                              |       | $                                                              | (3,652     | )                                                             | $          | (9,110 | ) |
| Fair value  method of stock based compensation     |       | (563                                                           | )          | (883                                                          | )          |
| Proforma net  loss                                 |       | (4,215                                                         | )          | (9,993                                                        | )          |
|                                               |       |                                                           |       |                                                          |       |
| Reported loss  per common share, basic and diluted |       | (0.11                                                          | )          | (0.27                                                         | )          |
| Proforma loss  per common share, basic and diluted |       | (0.12                                                          | )          | (0.30                                                         | )          |
|                                                    |            |                                                                |            |                                                               |            |  |  |

 

We used the Black-Scholesoption-pricing model to estimate the fair value of each of the stock optionawards under Medicsight PLC and Medicexchange PLC with the followingweighted-average assumptions for the indicated periods:
|                                         | ** ** | **For all periods shown** | ** ** |
|-----------------------------------------|------------|------------------------------------------|------------|
|                                    |       |                                     |       |
| Dividend yield                          |       | 0.0%                                     |       |
| Expected  volatility                    |       | 60%  to 81%                              |       |
| Risk-free rate                          |       | 3.5%  to 4.75%                           |       |
| Expected life of  options               |       | 1  to 4 years                            |       |
| Forfeiture rate                         |       | —%                                  |       |
| Weighted-average  grant-date fair value |       | £0.39 ($0.70)                       |       |

The assumptions above are based on multiple factorsincluding 10 year United Kingdom treasury bonds for the risk-free rate,expected future exercising patterns (we cannot base the estimate on thehistorical exercise patterns as no options have been exercised) and thevolatility of the Company’s own stock price.

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The following table summarizes stock option activityfor the nine months ended September 30, 2006 under all option plans:
|                                            | ** ** | **Number of  Options** | ** ** | **Weighted Average  Remaining  Contractual Term  (years)** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|--------------------------------------------|------------|-----------------------------|------------|----------------------------------------------------------------------|------------|-------------------------------------|------------|
|                                       |       |                        |       |                                                                 |       |                                |       |
| Balance January  1, 2006                   |       | 4,146,200                   |       |                                                                 |       |                                |       |
| Granted                                    |       | 2,605,000                   |       |                                                                 |       |                                |       |
| Forfeited                                  |       | (968,700                    | )          |                                                                 |       |                                |       |
| Exercised                                  |       | —                      |       |                                                                 |       |                                |       |
| Outstanding  September 30, 2006            |       | 5,782,500                   |       | 8.4                                                                  |       | $                                   | 9,748,000  |   |
|                                       |       |                        |       |                                                                 |       |                                |       |
| Options exercisable at  September 30, 2006 |       | 2,669,383                   |       | 7.2                                                                  |       | $                                   | 4,864,000  |   |

The weighted average exercise price for all options is£0.93 ($1.69).

The weighted average grant-date fair value of optionsgranted during the nine months ended September 30, 2006 and 2005 were $0.75 and$0.49 respectively.

The activity with respect to the non-vested optionsunder our stock option plans was:
|                                   | ** ** | **Number of  Options** | ** ** | **Weighted Average  Grant Date Fair  Value** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|-------------------------------------------------------------|------------|
|                              |       |                        |       |                                                        |       |
| Non-vested at  January 1, 2006    |       | 843,110                     |       | $                                                           | 0.57       |   |
| Granted                           |       | 2,605,000                   |       | $                                                           | 0.72       |   |
| Vested                            |       | (43,333                     | )          |                                                        |       |
| Terminated/Cancelled              |       | (291,660                    | )          | $                                                           | 0.57       |   |
| Non-vested at September  30, 2006 |       | 3,113,117                   |       |                                                        |       |

At September 30, 2006, there was $1,840,000 of totalunrecognized compensation cost related to non-vested stock option awards whichis expected to be recognized over a weighted-average period of 3.5 years. The total fair value of options vested during the nine months ended September30, 2006 was $21,000.

**4.Stockholders’ Equity**

In the nine months ended September 30, 2006 we raised$10,030,000 (gross before commissions) by issuing 2,507,500 restricted sharesof our common stock.  We incurred commission of $1,003,000 to Asia ITCapital Investments Limited (a related party) raising a net amount of$9,027,000.

On July 10, 2006 we incorporated Medicexchange PLC asa 90% subsidiary company of Medicsight Inc with a 10% (approximately $10,000)of equity investment received from a third party company.

In the quarter ended September 30, 2006 we raised £5,000,000($9,327,000) (gross before commissions) by issuing 5,000,000 ordinary shares ofMedicexchange PLC (one of our UK subsidiary companies).  We paid commission of £250,000 ($466,000) andissued 250,000 ordinary shares to Asia IT Capital Investments Limited (arelated party), raising a net cash amount of £4,750,000 ($8,861,000).

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**5.Minority Interest**

Minority interest in Medicexchange PLC isapproximately 25% at September 30, 2006 and is as follows (in thousands):
| Medicexchange PLC -  incorporation             |   | $     | 10     |   |
|------------------------------------------------|--------|-------|--------|--------|
| Medicexchange  PLC – additional funding   |   | 8,861 |   |
| Total minority equity investment               |   | 8,871 |   |
| Less – minority share of operating losses |   | (115  | )      |
| Minority Interest at  September 30, 2006       |   | $     | 8,756  |   |

 

**6.Credit Facilities**

Asia IT Capital Investments Limited (a related party)has provided us with two credit facilities:

a.                   Medicsight Inc — has a credit facility forup to $20 million (expiring in December 2007).  Any draw downs againstthis facility would accrue interest at 2% above US LIBOR.  We arerestricted from borrowing funds directly or indirectly other than through thisfacility without the consent of Asia IT Capital Investments Limited;

b.                  Medicsight PLC (one of our UK subsidiarycompanies) — has a credit facility for up to £10 million ($18 million),(expiring in December 2007), that is secured by a lien on all of the assets ofthis company.  Any draw downs against this facility would accrue interestat 2% above Sterling LIBOR.

**7.Related Party Transactions**

A brother of Tim Paterson-Brown (our Chief ExecutiveOfficer) is a director of Asia IT Capital Investments Limited.

In the nine months ended September 30, 2006 weincurred $1,469,000 in private placement fees with Asia IT Capital InvestmentsLimited.  At September 30, 2006 $23,000 of these fees were unpaid.

In addition to these fees Asia IT Capital InvestmentsLimited was issued 250,000 ordinary shares in Medicexchange PLC.

Asia IT Capital Investments Limited has provided uswith two credit facilities (see Note 6).

In the quarter ended September 30, 2006, Allan Rowley(our Chief Financial Officer) purchased 15,000 ordinary shares in MedicexchangePLC for £15,000, which was received in full.

A former director (Glyn Thomas) is also a director ofICC Properties Limited.  In the nine months ended September 30, 2006, wepaid $349,500 in property rent to ICC Properties Limited.

**8.Subsequent Events**

On November 3, 2006 weexecuted a 2 year lease agreement for our new office in New York, whichwill become our North American base for investor relations and businessdevelopment.  Our annual non-cancellablerent obligations for this office are $16,000 in 2006, $96,000 in 2007 and$80,000 in 2008.

**9.Recent Accounting Pronouncements**

In June, 2006 the FASB issued FASB Interpretation No.48 Accounting for Uncertainty in Income Taxes, an interpretation of FASBStatement No. 109, Accounting for Income Taxes (“FIN 48”).  FIN 48clarifies the accounting for uncertainty in income taxes recognized in acompany’s financial statements in accordance with FASB Statement No. 109. FIN 48 stipulates a recognition threshold and measurement attribute for thefinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. FIN 48 also provides guidance on derecognition,classification, and interest and penalties. The provisions of FIN 48 are to beeffective for our fiscal year beginning after December 31, 2006. We have notyet determined the impact that uncertain tax positions will have on ourfinancial position or results of operations.

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

Medicsight, Inc. was originally incorporated as a Utahcorporation in 1977 and was re-incorporated in Delaware in 2000. All referencesin this report to “the Company”, “we” or “us” refer to Medicsight, Inc. andsubsidiaries.  We have two primary business objectives:

·                      Toconceive, develop and commercialize innovative medical imaging applicationsderived from our core technology known as Medicsight CAD. (“Medicsight PLC”)

·                      To establish a global online community formedical imaging professionals (to be known as Medicexchange) with a richselection of specialist clinical content for registered users combined with aproduct marketplace where medical imaging vendors can sell their solutionsonline.  (“Medicexchange PLC”)

**Medicexchange PLC**

Medicexchange provides medical imaging professionalswith a global online community (medicexchange.com) containing a rich variety ofrelevant clinical content and an online sales channel for medical imagingsoftware.

Medicexchange offers medical imaging software vendorsa single channel through which they can access a global community of medicalimaging professionals in order to sell and market their product solutions.Medicexchange will offer digitally downloadable solutions with both traditionalpricing models and flexible “per use” software pricing. We believe this modelis unique in this sector.

The content is part sourced from a variety of wellknown providers including AuntMinnie.com and the Chinese Journal of Radiologyunder exclusive agreements.

*Product Benefits*

Medicexchange will provide medical imagingprofessionals with a central solution for clinical content and productsrelevant to their specialty.

Medicexchange will provide vendors the opportunity tosell a variety of applications directly to radiologists in an efficient andlow-cost manner (including web-based downloads). The Medicexchange pricingmodels decrease the financial purchasing risk and setup times for radiologistsby giving them attractive pricing via an online channel.

Medicexchange covers the following imaging specialtyareas: Breast Imaging, Cardiology, Gastroenterology, Thoracic and Orthopedic.Other areas such as Neurology will be added later.

*Market Opportunity*

Radiologists expect frequency of computed tomography (“CT”)procedures alone to grow by over 35% over the next five years (source: Frost& Sullivan research). Traditional original equipment manufacturers (“OEM”)typically control the access to these applications and charge high per unitprice points (typically $50,000 to $200,000). These high price points createlong sales cycles. The online “per use” pricing model removes this obstacle topurchase. Online product purchasing and downloads create a flexible, on demandusage model.

Radiologists state a preference for the concept of a “peruse” pricing model and web-based downloadable tools. Over 80% would consider adedicated internet portal for their area of specialty a useful service (source:Frost & Sullivan research).

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*What differentiates the Company?*

By creating strong relationships with our 3rd  party partner vendorsMedicexchange intends to develop the clinical information and contacts, provideproducts and product demonstrations, training and support that will result inMedicexchange achieving its aim to be the leading global portal for clinicalvendors and professionals.

Medicexchange aims to provide essential information,training and collaborative tools to attract customers, enable them to use thedemonstration applications, purchase the applications and retain them as repeatusers.

The Medicexchange portal will be a global distributionportal (initially with websites in the U.S., Europe and Asia).  We believethat Medicexchange could materially change the way in which new medicalproducts reach the market. Other websites in the area, in our view, have notbeen able to take full advantage of the expressed desire in the medicalcommunity for portals, such as the Medicexchange, because their productofferings are limited compared to those of Medicexchange.

The brand. Being first to market, Medicexchange has already created a strong brandawareness in target markets.

The ability to “license wrap” a partners softwareproduct quickly, converting it into a pay per use product.

*Recent and Future Events*

Medicexchange launched the Medicexchange.com websitein China on October 19 this year, being the world’s first medical imagingportal in China.  In advance of thislaunch we have strengthened our management teams, by appointing Adam Boyse asCEO of Medicexchange PLC and Nancy Zhuang as Sales Director for MedicexchangeChina.

We expect to launch the USA portal later this year,and the European portal early in 2007.

Medicexchange PLC continues to sign world wideAffiliates & Content agreements.  One of these being withAuntMinnie.com (the leading online source for radiology professionals worldwidewith over 130,000 registered users). Another being with the Chinese Journal of Radiology (which enjoys readershipnumbers in excess of 15,000 per month).  Under these agreements we getaccess to affiliate content and users for which the affiliate receivessponsorship fees as well as a commission on each completed sale we make to anaffiliate-user.

Medicexchange PLC has signed an online distributionagreements with Medicsight PLC and similar vendors as noted onmedicexchange.com, and has other similar distribution agreements in thepipeline.

In September this year Medicexchange PLC closed equityfunding of  £5 million ($9 million), viaAsia IT Capital Investments Limited (a related party), that will be used toaccelerate commercial operations.

**Medicsight PLC CAD**

Medicsight PLC’s CAD products help cliniciansidentify, measure, and analyze suspicious pathology, such as colorectal polypsand lung lesions. For the last four years, the Company has been working ondeveloping advanced technical algorithms in this area employing a team ofscientists, image processing experts and software developers.

To date, Medicsight PLC has focused on two of theleading causes of premature death, lung cancer and colorectal cancer. Betweenthem, these diseases are responsible for over 8.5 million premature deathsglobally. There is increasing evidence that early detection leads to animproved life expectancy. Developing technology that enables early detection oflung and colorectal cancers has been a core focus of our product development.However, Medicsight PLC’s technology is scalable to many other disease areas. Wehave plans to further extend our technologies to new areas of abdominal imagingsuch as liver during 2006.

The CAD products include ColonCAD ApplicationProgramming Interface (“API”), the first CAD technology available for CTcolonography, and LungCAD API. Medicsight CAD software is provided to medicalimaging partners as an integrated solution and will also be available onlinethrough Medicexchange directly to clinicians.

*Product Benefits*

Medicsight PLC’s CAD products have been developedusing some of the world’s largest and most populated diverse verified CT scandatabases.  These databases have beenbuilt over the last 5 years and are a clear advantage to the company whenvalidating the products across different populations.

Medicsight PLC’s CAD products are probably the mostclinically validated and researched CAD products in the world today.  This has been a result of investment ofresource to establish collaborations with some of the worlds leading experts.

Medicsight PLC’s CAD products enable radiologists toread CT scans using a “concurrent-read” approach. Unlike “second-read”software, in which software is used after radiologists complete their primaryreview, concurrent-read software enables radiologists to review the original, “unfiltered”images side-by-side simultaneously, with a software-enhanced image showingregions of interest.  We believe that using CAD in a concurrent-readcapacity increases colonic polyp and lung nodule detection efficiency byminimizing the impact on

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existing radiology workflowswhile providing valuable additional information to the radiologist.

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

*“Diagnostic” products; incidental “diseasedetection” and “disease tracking”* . These products have beendesigned to be used in symptomatic patients but to detect other diseasesincidental to those for which the investigation was originally requested.Subsequently, these incidentally identified lesions may be tracked so thattheir progress may be monitored by measurement.

“*Screening”products*; *population screening ofasymptomatic patients*. CAD CT seeks to provide a cost effectivesolution to identify certain diseases sufficiently early to make populationscreening programs more cost effective in terms of life years saved.

*Business Development*

Medicsight PLC has signed non—exclusive agreementswith TeraRecon, Inc (for the distribution of both LungCAD and ColonCAD),Viatronix, Inc (for the distribution of both LungCAD and ColonCAD) andMedicexchange PLC (for the distribution of MedicRead, ColonCAD and Lung CAD).These agreements are part of the Company’s plans to commercialize its advancedimaging technology on a worldwide basis. Medicsight PLC’s CAD software isintegrated into the partner companies’ existing product offerings.

TeraRecon has successfully integrated our ColonCAD andLungCAD software into TeraRecon’s flagship Aquarius family of medical imaging.The combined TeraRecon / Medicsight imaging system made its debut in November2005 at the annual meeting of the Radiological Society of North America (“RSNA”)in Chicago, Illinois.

Viatronix has successfully integrated our ColonCAD andLungCAD software into its V3D TM  Colon and V3D TM Explorer software applications. This was shown at the RSNA conference inChicago in November 2005.

Vital Images has successfully integrated our Colon CADsoftware into its CT Colonography application which is part of the Vitrea TM  software package. This wasalso shown at the November 2005 RSNA conference in Chicago.

In addition to these signed partnerships, MedicsightPLC is in discussion with a number of other major imaging companies and islooking to have further announcements in the near future.

In Japan, we expect to finalize agreements fordistribution of our LungCAD and ColonCAD in the coming months.

The Company sees Japan and China as strategicallyimportant in terms of future growth and believes that the extensive businessdevelopment and commitment of opening offices in these countries should lead tofurther opportunities and announcements in these countries in 2006.

*Regulatory Process*

In order to release new products into a specificmarket, Medicsight PLC must gain regulatory approvals for its Medicsight CADproducts. In the U.S., the Food and Drug Administration (“FDA”) is theregulatory authority. In Europe, regulatory approval is gained throughConformité Europeène (“CE”) marking.  InChina, the State Food and Drug Administration (“SFDA”).  In Japan, the Ministry of Health, Labour andWelfare (“MHLW”). The procedure used and timescales involved differ dependingon the region but fundamentally each region requires evidence of products beingdeveloped under a strict quality management system. In October 2005 we gainedISO 13485:2003 certification confirming the Medicsight PLC’s compliance withinternational quality standards. All of our products are designed, built,distributed and supported to this level of quality control.

We can follow one of two routes to obtain FDA approvalfor its products: a pre-market notification (“510(k)”) or a pre-market approval(“PMA”). A 510(k) application is submitted when the product is substantiallyequivalent to an existing legally marketed device. A PMA is required for significantrisk device and is the more stringent route

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which requires scientificevidence to demonstrate that the product is safe and effective for its intendeduse.

For European CE approvals, a company is required to beregularly audited by an external notified body to demonstrate an effectivequality system. If successful, the company may then label its products with CEmark.

Markets such as China and Japan have their ownregulatory bodies but these often require companies outside of these markets toshow evidence of an existing CE or FDA approval for a product before gainingapproval in the local market.

We have a significant amount of experience inpreparing, submitting and gaining regulatory approvals for its products. In theUS, Medicsight PLC has existing FDA 510(k) approvals for its LungCAR andColonCAR products and has approvals pending for the recent ColonCAD and LungCADreleases.

In Europe, Medicsight PLC has CE approval for allreleased products and is regularly audited by an external notified body.

Medicsight PLC is seeking approvals for its ColonCADand LungCAD products in Japan and China. As each new product is prepared forrelease, Medicsight PLC’s internal regulatory team prepares the regulatorydocumentation for each market in order to allow that product to be marketed andsold.

Because Medicsight PLC manages the approval process,its business partners can rapidly integrate and release their own productscontaining Medicsight CAD technology more quickly than if they had to gain allthe approvals independently.

We regard our extensive experience in successfullyobtaining European and FDA approvals as a valuable asset of the Company. Webelieve this experience will be useful in our efforts to obtain approval forour products in new markets such as China and Japan.

We have received confirmation from the FDA of theprocess to follow to complete the FDA approval of our CAD products.  The company’s LungCAR and ColonCAR (ComputerAssisted Read) products (which are earlier releases of the LungCAD and ColonCADproducts) are FDA approved.  We will beactively marketing the company’s CAR products in advance of gaining FDAapproval for our CAD products.

**CriticalAccounting Policies and the Use of Estimates**

On January 1, 2006 we adopted Statement of FinancialStandards No. 123 (revised), *Share-BasedPayment* SFAS 123(R), utilizing the Modified Prospective Applicationmethod.

We believe there have been no other significantchanges in our critical accounting policies during the nine months endedSeptember 30, 2006 as compared to our previous disclosures in Management’sDiscussion and Analysis of Financial Condition and Results of Operationsincluded in our Annual Report on Form 10-K for the fiscal year ended December31, 2005.

The accompanying discussion and analysis of ourfinancial condition and results of operations are based upon our condensedconsolidated financial statements and the related disclosures, which have beenprepared in accordance with U.S. generally accepted accounting principles(GAAP). The preparation of these condensed consolidated financial statementsrequires us to make estimates, assumptions and judgments that affect thereported amounts in our condensed consolidated financial statements andaccompanying notes. These estimates form the basis for making judgments aboutthe carrying values of assets and liabilities. We base our estimates andjudgments on historical experience and on various other assumptions that webelieve to be reasonable under the circumstances. Actual results could differmaterially from these estimates.

We believe the following policies to be the mostcritical to an understanding of our financial condition and results ofoperations because they require us to make estimates, assumptions and judgmentsabout matters that are inherently uncertain.

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*Stock Based Compensation*

We have issued employee stock options from bothMedicsight PLC and Medicexchange PLC (our UK subsidiary companies).  Weuse the Black-Scholes option pricing model to estimate the fair value ofemployee stock options. Calculating the fair value of these stock optionsrequires considerable judgment, including estimating stock price volatility,the amount of options that are expected to be forfeited and the expected lifeof the options awards.

The value of a stock option is derived from itspotential for appreciation. The more volatile the stock, the more valuable theoption becomes due to the greater possibility of significant changes in stockprice.  The expected option term also has a significant effect on thevalue of the option. The longer the term, the more time the option holder hasto allow the stock price to increase without a cash investment and thus, themore valuable the option. When establishing an estimate of the expected term,we consider the vesting period for the award and our estimate of employee’slikely stock option exercises, the expected volatility, and a comparison torelevant peer group data.

The shares underlying our currently awarded stockoptions are not publicly traded shares. We review our valuation assumptions ateach grant date and, as a result, we are likely to change our valuationassumptions used to value stock based awards granted in future periods. Actualresults, and future changes in estimates, may differ substantially from ourcurrent estimates. As a result, if factors change and we use differentassumptions, our stock-based compensation expense could be materially differentin the future.

**Resultsof Operations**

*Revenues.*

For the nine months and for the quarters endedSeptember 30, 2006 and September 30, 2005 our revenues from continuingoperations were $nil. The only revenues for the three months ended September30, 2005 were derived from the discontinued LifesyneTM scanning operations.

*Selling, General and AdministrativeExpenses*

Our selling, general and administrative expenses fromcontinuing operations were (in thousands):
|                                               | ** ** | **Three Months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Selling, general  and administrative expenses |       | $                                                    | 3,634      |                                                | $          | 2,419 |   | $ | 9,623 |   | $ | 7,057 |   |
|                                               |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |

 

Our selling, general andadministrative expenses have increased as we expand our internationalcommercial operations. The significant elements being (in thousands):

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|                                                                      | ** ** | **Three Months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|----------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                           | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Salaries and director’s  compensation (including payroll taxes) |       | $                                                    | 1,400      |                                                | $          | 1,058 |   | $ | 3,572 |   | $ | 3,171 |   |
| Contractors and  Consultants                                         |       | 250                                                  |       | 139                                                 |       | 395 |   | 384 |   |
| Professional fees                                                    |       | 332                                                  |       | 203                                                 |       | 853 |   | 425 |   |
| Property rent and rates                                              |       | 384                                                  |       | 261                                                 |       | 936 |   | 747 |   |
| Travel                                                               |       | 101                                                  |       | 138                                                 |       | 438 |   | 374 |   |
| Software licenses                                                    |       | 229                                                  |       | 9                                                   |       | 546 |   | 31 |   |
| Public relations                                                     |       | 499                                                  |       | 253                                                 |       | 1,382 |   | 767 |   |
|                                                                      |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |

*Research and Development (inthousands).*
|                                    | ** ** | **Three Months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                         | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Research and  development expenses |       | $                                                    | 494        |                                                | $          | 558 |   | $ | 1,634 |   | $ | 1,721 |   |
|                                    |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |

 

**Liquidityand Capital Resources**

*Working Capital Information asSeptember 30, 2006 (in thousands):*
|                                                                                                        | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                             | ** ** | **(unaudited)**                  | ** ** | ** **                      | ** ** |
| ** **                                                                                             | ** ** | ** **                       | ** ** | ** **                      | ** ** |
| Cash and Cash  Equivalents                                                                             |       | 10,955                           |       | 7,249                           |       |
|                                                                                                   |       |                             |       |                            |       |
| Current Assets                                                                                         |       | 15,490                           |       | 11,867                          |       |
| Current Liabilities                                                                                    |       | (2,841                           | )          | (2,746                          | )          |
| Working Capital Surplus                                                                                |       | 12,649                           |       | 9,121                           |       |
|                                                                                                   |       |                             |       |                            |       |
| Ratio of Current Assets  to Current Liabilities                                                        |       | 5.45                             |       | 4.32                            |       |
|                                                                                                   |       |                             |       |                            |       |
| Cash, cash equivalents, cash held for common stock subscribed but  unissued, and marketable securities |       | 14,599                           |       | 11,249                          |       |

As of  September30, 2006 we had $10,955,000 in cash and cash equivalents (compared to$7,249,000 at December 31, 2005) and $14,599,000 in cash, cash equivalents,marketable securities and cash for common stock subscribed but

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unissued, compared to $11,249,000 at December 31,2005.

Net cash used in operating activities was $10,656,000for the nine months ended September 30, 2006 ($7,592,000 for the nine monthperiod ended September 30, 2005).  This resulted primarily from:

a.                   our net loss of $11,053,000 ($7,834,000 forthe nine month period ended September 30, 2005);

b.                  adjusted for depreciation and stock-basedcompensation expenses (non cash items) of $557,000 ($355,000 for the nine monthperiod ended September 30, 2005);

c.                   an overall net reduction in current assets(excluding cash items) and current liabilities of $171,000 in the nine monthsended September 30, 2006 (compared to a net decrease of $182,000 in the ninemonth period ended September 30, 2005) – primarily due to the payment ofcommissions to Asia IT Capital Investments Limited (a related party) in thenine months ended September30, 2006;

d.                  $nil impact of the operating losses of theLifesyne (discontinued) business activities in the nine months ended September30, 2006 versus a $1,276,000 loss from Lifesyne activities in the nine monthsended September 30, 2005.

Net cash used in investing activities of $91,000 inthe nine months ended September 30, 2006 ($199,000 for the nine months endedSeptember 30, 2005) consisted primarily of:

a.                                               a $4,000,000 decrease in cash held forcommon stock subscribed but unissued;

b.                                              a cash outflow of $3,511,000 for thepurchase of available for sale marketable securities in the nine months endedSeptember 30, 2006;

c.                                               in the nine months ended September 30,2006 we had $nil cash inflow from the sale of fixed assets (versus $300,000 ofcash inflows for the nine months ended September 30, 2005);

d.                                              in the nine months ended September 30,2006 we used $398,000 in capital expenditure primarily due to leaseholdimprovements as part of our office move ($101,000 for the nine months endedSeptember 30, 2005).

Net cash flows from financing activities were$14,285,000 for the nine months ended September 30, 2006 (compared to$4,343,000 for the nine months ended September 30, 2005), consisting mainly of:

a.                                               $14,298,000 net proceeds from the saleof our common stock in Medicsight Inc and Medicexchange PLC – being $17,898,000of total new money received in the nine months ended September 30, 2006 - lessthe $3,600,000 net movement of monies received for common stock subscribed butunissued.  For the nine months ended September 30, 2005 we received$4,676,000 net new money from the sale of our common stock.

b.                                              A reduction in our principal paymentsunder our capital lease obligations – in the nine months ended September 30,2006 we paid $13,000 compared to $333,000 paid in the nine months endedSeptember 30, 2005.

In the nine months ended September 30, 2006 we had$nil cash flows from the discontinued Lifesyne activities. In the nine monthsended September 30, 2005 we had cash outflows of $651,000 from Lifesyneoperating activities.

*Additional capital fundingrequirements*

To date we have primarily financed our operationsthrough private placements of equity securities. At September 30, 2006 we had issued38,900,383 of our 40,000,000 authorized share capital.

In addition to the above, we still have the two linesof credit facilities (together totaling $38 million) available from Asia ITCapital Investments Limited (a related party).  We do not expect to haveto use any part of these credit lines.

*Risks and Uncertainties Related toOur Future Capital Requirements*

To the extent that additional capital is raisedthrough the sale of equity or equity-related securities of the Company or itssubsidiaries, the issuance of such securities could result in dilution to theCompany’s stockholders.

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

If we are unable to access the capital markets orobtain acceptable financing, our results of operations and financial conditionscould be materially and adversely affected.  We may be required to raisesubstantial additional funds through other means.

The products derived from our proprietary software,including the MedicsightTM system, are expected to account for substantially allof our revenues from operations in the foreseeable future.

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

If adequate funds are not available to us, we may berequired to curtail operations significantly or to obtain funds throughentering into arrangements with collaborative partners or others that mayrequire us to relinquish rights to certain of our technologies or products thatwe would not otherwise relinquish.

*Other Information*

None.

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**Item 3.**     **Quantitative and Qualitative Disclosures About MarketRisk**

*Interest Rate Risk*

Our exposure to market risk associated with changes ininterest rates relates to our debt obligations.  The Company has thefollowing debt facilities, which are all repayable on demand:
| **Debt Holder**                                        | ** ** | **Facility**                    | ** ** | **Draw Down** | ** ** | **Interest rate** | ** ** | **At September 30,  2006** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------|------------|--------------------|------------|------------------------|------------|--------------------------------------|------------|
| Asia IT Capital  Investments Limited (a related party) |       | $20 million                     |       | $nil               |       | US  Libor + 2%         |       | 7.69%                                |       |
| Asia IT Capital Investments Limited (a related party)  |       | £10 million  ($18 million) |       | $nil               |       | GBP Libor + 2%         |       | 7.01%                                |       |

A hypothetical 100 basis point increase in interestrates would increase interest cost by approximately $nil per annum assuming nofurther draw downs or repayments are made.

*Foreign Exchange Risk*

We hold limited cash balances in British Pounds - anyadverse movements in the exchange rates are considered immaterial.

Our operating currency is UK sterling (£), ourfinancial statements are reported in US Dollars.  Our assets, liabilitiesand results of operations are affected by movements in the $: £ exchange rate.

**Item 4.     Controlsand Procedures**

*Evaluation of Disclosure Controlsand Procedures*

As required by Rule 13a-15(b) under the Exchange Act,our management carried out an evaluation of the effectiveness of the design andoperation of the Company’s “disclosure controls and procedures” as of September30, 2006. This evaluation was carried out under the supervision and with theparticipation of our management, including our Chief Executive Officer andChief Financial Officer. 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 and forms.Disclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed by theCompany 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 that evaluation, our Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective as of September 30, 2006.  It should be notedthat the design of any system of controls is based in part upon certainassumptions about the likelihood of future events, and there can be noassurance that any design will succeed in achieving its stated goals under allpotential future conditions, regardless of how remote.

*Changes in Internal Control overFinancial Reporting*

As required by Rule 13a-15(d) under the Exchange Act,our management, including our Chief Executive Officer and Chief FinancialOfficer, also conducted an evaluation of our internal control over financialreporting to

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determine whether anychange occurred during the quarter ended September 30, 2006, that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting. Based on that evaluation during the quarterended September 30, 2006 there has been no change in our internal control overfinancial reporting that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

The Company is currently undergoing a comprehensiveeffort in preparation for compliance with Section 404 of the Sarbanes-Oxley Actof 2002. This will involve the documentation, testing and review of ourinternal controls under the direction of senior management.

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**PART II.  OTHER INFORMATION**

**Item1.**     **Legal Proceedings**

There are currently no pending legal proceedings.

**Item1A.  Risk Factors**

We cannot assure you that the Company will be successfulin commercializing the Medicsight CAD products or the Medicexchange portal, orif the products or the portal are commercialized, that they will be profitableto the Company. We face obstacles in commercializing the Medicsight CADproducts and the Medicexchange portal and in generating operating revenues asdetailed below.

The Company does not believe that there is currentlyany comparable system that is competitive with the Medicsight CAD products.There are computer-aided diagnostic systems that operate in the field, but, inour view, such other systems are more dependent than ours on human resources tocarry out the analysis.  We are not aware of other systems in the fieldthat have the automated capability of our products.

The Company has had only a limited operating historyand no revenues from its continuing operations upon which an evaluation of itsprospects can be made. The Company’s prospects must be considered keeping inmind the risks, expenses and difficulties frequently encountered in theestablishment of a new business in constantly changing industry. There can beno assurance that the Company will be able to achieve profitable operations inthe foreseeable future or at all.

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

*Technical Risks*

The Medicsight CAD system may not deliver the levelsof accuracy and reliability needed, or the development of such accuracy andreliability may be delayed.

*Market Risks*

The market for the Medicsight CAD products andMedicExchange may be slower to develop or smaller than estimated or it may bemore difficult to build the market than anticipated. The medical community mayresist the Medicsight CAD and Medicexchange products or be slower to acceptthem than we expect. Revenues from Medicsight CAD and MedicExchange may bedelayed or costs may be higher than expected which may result in the Companyrequiring additional funding.

*Regulatory Risks*

The Medicsight CAD system is subject to regulatoryrequirements in the United States Europe, Japan, China and our other targetedmarkets. Necessary regulatory approvals may not be obtained or may bedelayed.  We may incur substantial additional cost in obtaining regulatoryapprovals for our products in our targeted markets.

*Competitive Risks*

There are a number of groups and organizations, suchas software companies in the medical imaging field, scanner manufacturers,screening companies and other healthcare providers that may develop acompetitive offering to the Medicsight CAD and Medicexchange.  In additionthese competitors may have significantly greater resources than the Company. Wecannot make any assurance that they will not attempt to develop such offerings,that they will not be successful in developing such offerings or that anyofferings they do develop will not have a competitive edge over Medicsight CADand Medicexchange.

24

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*Financial Risk*

The Company has incurred significant operating lossessince inception and has generated no revenues from continuing operations. As aresult, the Company has generated negative cash flows from operations and hasan accumulated deficit at September 30, 2006. The Company is operating in adeveloping industry based on new technology and its primary source of funds todate has been through the issuance of securities and borrowed funds. TheCompany is currently seeking additional funding and is actively developing thetechnology in order to bring it to market.

While the Company is optimistic and believes appropriateactions are being taken, there can be no assurance that management’s effortswill be successful or that the products the Company develops and markets willbe accepted by consumers.

*Corporate Structure*

The Company’s corporate structure may make it moredifficult or costly to take certain actions. The Company conducts substantiallyall its business through Medicsight PLC, a UK public company which is 81.8%owned by the Company, and through Medicsight PLC’s subsidiaries in the UnitedKingdom and the United States and also through Medicexchange PLC, which is 75%owned by the Company. Although the Company and its subsidiaries share directorsand management, they are required to comply with corporate governance andother laws and rules applicable to public companies in the UnitedKingdom and the United States.  Should the Company propose to take anyaction, such as a transfer or allocation of assets or liabilities between theCompany and any of its subsidiary entities, the Company would have to take intoconsideration the potentially conflicting interests of the Company’sstockholders and the minority stockholders of the subsidiary companies. This may deter the Company from taking such actions that might otherwise be inthe best interest of the Company or cause the Company to incur additional costsin taking such actions. Neither Medicsight PLC nor Medicexchange PLC would notbe able to pay dividends or make other distributions of profits or assetsto the Company without making pro rata payments or distributions to itsminority stockholders.  Although neither Medicsight PLC,Medicexchange PLC, nor the company have plans to pay dividends or makedistributions to their shareholders, the Company’s corporate structure maydeter us from doing so in the future.

*Foreign Exchange Risks*

As the Company’s main 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.

*Other Risks*

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.

**Item2.**     **Unregistered Sales of Equity Securities and Use ofProceeds**

In the nine months ended September 30, 2006 we issued2,507,500 restricted shares of our common stock at $4.00 per share to a numberof institutional investors and private individuals as a private placement,raising $10,030,000 (gross before commissions).

The shares of common stock were issued withoutregistration in reliance upon the exemption provided by Section 4(2) of theSecurities Act of 1933.

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**Item 3.**     **Defaults Upon Senior Securities**

None.

**Item4.**     **Submission of Matters to a Vote of Security Holders**

None.

**Item5.**     **Other Information**

None.

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**Exhibitsand Reports on Form 8-K**
| Exhibits | ** ** | ** **                                                                                                           |
|----------|------------|----------------------------------------------------------------------------------------------------------------------|
|     |       |                                                                                                                 |
| 31.1     |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 (Chief Executive Officer - filed herewith). |
| 31.2     |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 (Chief Financial Officer - filed herewith). |
| 32.1     |       | Certification pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 (Chief Executive Officer - filed herewith). |
| 32.2     |       | Certification pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (Chief Financial Officer - filed herewith). |

 

(b)     Reportson Form 8-K

None

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SIGNATURE

In accordance withthe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.
|                   |   | MEDICSIGHT, INC. |
|-------------------|--------|------------------|
|              |   |             |   |   |
|              |   | By:              |   | /s/ TIM PATERSON-BROWN |
|              |   |             |   | Tim Paterson-Brown |
|              |   |             |   | Chief Executive Officer |
|              |   |             |   |   |
|              |   |             |   |   |
|              |   | By:              |   | /s/ ALLAN ROWLEY |
|              |   |             |   | Allan Rowley |
|              |   |             |   | Chief Financial Officer |
|              |   |             |   |   |
|              |   |             |   |   |
| November 14, 2006 |   |             |   |   |

 

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