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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-Q**

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| **(Mark One)**                                        |
|-------------------------------------------------------|
|                                                  |
| **ý**                                            | **Quarterly  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|                                                  |   |
| **For the quarterly period ended September 30, 2002** |
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| **o**                                                 | **Transition  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |

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**For the transition periodfrom                to                **

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**Commission file number   0-26886**

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**MEDICSIGHT, INC.**

**(Exactname of registrant as specified in its charter)**

** **

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

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

**(Addressof principal executive offices, including zip code)**

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**(011) 44-20-7598-4070**

**(Registrant’stelephone number, including area code)**

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**HTTP TECHNOLOGY, INC.**

**(Formername, former address and former fiscal year, if changed since last report)**

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**Indicate by check whether theregistrant: (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days   Yes  **ý   No   o

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**APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCYPROCEEDINGS DURING THE PRECEDING FIVE YEARS**

** **

**Indicate by check mark whether theregistrant filed all documents and reports required to be filed by Section 12,13 or 15(d) of the Securities Exchange Act of 1934 subsequent to thedistribution of securities under a plan confirmed by court.   Yes  **o   No   o

** **

**APPLICABLE ONLY TO CORPORATE ISSUERS**

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**Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date:  As of November 11,2002:  57,868,711 shares of CommonStock, par value $0.001 per share.**

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# **PART I**

# ** **

# **FINANCIAL INFORMATION**

## **Item 1.**                       FinancialStatements

 

Medicsight, Inc.(formerly HTTP Technology, Inc.) and its subsidiaries are collectively referredto in this Report as the “Company”.  Forpurposes of the discussion contained herein, all financial information is reportedon a consolidated basis. The financial statements for the Company’s fiscalquarter ended September 30, 2002 are attached to this Report, commencing atpage F-1.  On October 28, 2002, theCompany’s name was changed from HTTP Technology, Inc. to Medicsight, Inc.

## ** **

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

 

Except forhistorical information, the material contained in this Management’s Discussionand Analysis or Plan of Operation is forward-looking.  Readers are urged to review the list of certain important factorsset forth in “Cautionary Statement for Purposes of the “Safe Harbor” Provisionsof the Private Securities Litigation Reform Act of 1995” contained in theCompany’s Annual Report on Form 10-KSB for the fiscal year ended December 31,2001 (“Fiscal 2001”), which may cause actual results to differ materially fromthose described. These risks and uncertainties include the rate of marketdevelopment and acceptance of medical imaging technology, the unpredictabilityof the Company’s sales cycle, the limited revenues and significant operatinglosses generated to date, and the possibility of significant ongoing capitalrequirements.

 

Theseforward-looking statements are subject to risks, uncertainties and assumptionsabout the Company, including, among other things:

 

•      Our ability to commercialize ourtechnology;

 

•      Our business and prospects must beconsidered in light of the risks, uncertainties, expenses and difficultiesfrequently encountered by companies in their early stages of development,particularly companies in new and rapidly evolving markets;

 

•      Our ability to attract and retaincustomers;

 

•      Our ability to secure financing as andwhen necessary;

 

•      Our ability to achieve adequate levels ofrevenue to recover our investment in capitalized software development costs andacquired technology;

 

•      Our ability to retain the services of ourkey management, and to attract new members of the management team;

 

•      The likelihood of significant ongoingcapital requirements; and

 

•      Our ability to effect and retainappropriate patent, copyright and trademark protection of our products.

 

We have restructured ourbusiness to focus on the medical imaging applications derived from our originalcore technology.  We have concluded theprocess of incorporating all research, software development, management andmarketing activities related to our medical imaging initiatives into oursubsidiary, Medicsight PLC (“Medicsight”). Assets have been transferred andcosts incurred on the development of the Medicsight system have been reimbursedand assigned by way of a loan note from Medicsight.  The amount of the loan note to the Company was £3,659,104, andthis loan note has been converted into 57,868,582 ordinary shares of Medicsightissued to the Company and 15,000,000 ordinary shares of Medicsight issued toNightingale Technologies Limited (“Nightingale”).

 

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The Medicsightsystem analyzes digital data from the new generation of 16-detector multi-slicescanners, and then alerts the clinician to any areas of possibleabnormality.  We believe the Medicsightsystem will be capable of reliably detecting isolated pulmonary nodules (lungcancer), calcification of the arteries and other abnormalities indicative ofdisease at earlier stages than current medical tools. The potential advantageof the Medicsight system is that it does not rely on the human eye or humaninterpretation to detect possible abnormalities, thereby resulting in theopportunity of increased precision, scalability and cost savings.  After the system uses its technology toidentify possible abnormalities, the clinician will then apply his/hereducation, training and experience to determine the next steps in medicaldiagnosis and treatment.  The Medicsightsystem is capable of processing unprecedented volumes of images.  It is now widely accepted that the mosteffective way to achieve early detection of these leading deadly diseases isthrough large scale radiological scanning. Such scanning would allow national healthcare bodies to provide societywith the best protection against premature death.

 

Medicsightwill offer an early diagnosis solution previously not thought possible because:

 

•      The proprietary technology enablesMedicsight to automate accurately and reliably the process of scan analysis.

 

•      The service will be significantly cheaperthan at present as it does not rely on radiologists as first readers who incurrent practice account for a significant proportion of the scan cost.

 

•      Significant patient volume can be achievedas the analysis is fully automated; scanning volumes are not constrained by thefinite number of radiologists.

 

•      The business model is unique as we intendto establish broad penetration through a series of cost-effective, efficient,screening services.

 

The new enabler isthe 16-detector computed tomography (“CT”) scanner. This allows sub-millimetercross-sectional slices to be captured with increased speed and reducedradiological dose when compared with traditional single slice machines. Thisprovides over 600 images of the chest cavity instead of 34 for single slicescanners. The amount of detail now available, while enabling early detection ofsmaller nodules and areas of calcification, increases the time required foranalysis by radiologists. Therefore automation is essential.

 

Anumber of service centers will be established to provide a referral-only CTservice for the early detection of coronary heart disease (“CHD”), lung andcolorectal cancer.  Referring medicalpractitioners will send high-risk individuals or those displaying non-specificsigns of ill health to the center for a specific scan.  No self-referrals will be accepted.

 

Thelaunch country will be the United Kingdom (specifically in London) followed byother opportunities in the United States and Western Europe.

 

Thecountries in Western Europe in which Medicsight plans to open centers have apopulation of almost 400 million people. Cities with an agglomerated populationof over 1 million people were selected within the target countries. These cityagglomerations have a total population of 154 million. Within this group 66million individuals are within the target age range for Medicsight’s serviceoffering.

 

TheCompany will operate its new scanning centers under the Lifesyne brand name.

 

Thefirst Lifesyne center is currently being commissioned followed by the scanningof our first target group this month. From the outset we will be scanning forthe earliest signs of heart disease and lung cancer. Lifesyne’s first centerwill be in West London within the Hammersmith Hospitals NHS Trust.  Two other high profile sites in CentralLondon are also at an advanced stage of negotiation and we anticipate thembeing operational in the first quarter of 2003. Further Lifesyne centers areexpected to be on stream throughout the UK in mid-2003. The initial units willbe used to gain regulatory approval and continue to acquire market and clinicaldata and to generate revenues.

 

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Medicsighthas identified GE Medical Systems, part of the General Electric Company ofAmerica, as our supplier of the new 16 Detector Scanners. The Company hasengaged in a series of group family doctor (GP’s) presentations in CentralLondon as part of its awareness campaign during which Medicsight’s proposalswere warmly received.

 

Operationaland development costs for Fiscal 2002 are estimated at approximately $6.5million. Medicsight is attempting to raise approximately $9.0 million by way ofa private placing of 6.1 million shares which has been underwritten by Asia ITCapital Investments Limited (“Asia IT”). This is in addition to the Asia IT facility of £10,000,000 ($15.0million) that expires in November 2004. Medicsight expects to incur furtheroperational and development costs in 2003 of approximately $8.5 million beforeMedicsight is financially self sufficient in 2004. Our expansion strategyacross the United States and Europe calls for several business models.  Besides the Company-operated Lifesynescanning centers, we will operate partnerships with industry leaders to achieverapid market penetration across our target regions.  Revenue streams will include scan analysis fees and franchiselicense fees.

 

We haveyet to derive any revenue from the Medicsight system.  We cannot assure you that Medicsight will be successful incommercializing the Medicsight system, or if such system is commercialized,that its use will be profitable to Medicsight. We face obstacles in commercializing our core technology and ingenerating operating revenues such as, but not limited to, successfuldevelopment, testing of and gaining regulatory approval for the technology.

 

Medicsightdoes not believe that there is any direct competition to the automaticMedicsight offering. There are computer-aided diagnostic systems and a fewscreening businesses which work in the field, but, in our view, such existingsystems are overly dependent on human resources to carry out the analysis, as nonehave automated classification capability, and are therefore unable to achievelarge economies of scale.

 

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

 

**BACKGROUND**

 

Medicsight, Inc.was originally incorporated as a Utah corporation in 1977. On December 19,2000, the Company entered into an Agreement and Plan of Merger with its wholly–ownedsubsidiary HTTP Technology, Inc., a Delaware corporation, and thereby effecteda re-incorporation of the Company from Utah to Delaware. All references in thisReport to “the Company” refer to Medicsight, Inc., the Delawarecorporation, if the event occurred on or after December 19, 2000 or toHTTP Technology, Inc., the Utah corporation, if the event occurred prior toDecember 19, 2000. On October 28, 2002, the Company’s name was changedfrom HTTP Technology, Inc. to Medicsight, Inc.

 

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

 

**BUSINESS STRATEGY**

 

We area developer of software technology. We have five principal operatingsubsidiaries, Medicsight PLC (“Medicsight”), Medicsight Asset ManagementLimited (“MAM”), Lifesyne UK Limited (“Lifesyne”), HTTP Insights Limited(“Insights”), and HTTP Software PLC (“Software”).

 

*Medicsight*.  Our majority-owned subsidiary, Medicsight,is currently engaged in efforts to commercialize a state-of-the-art digitaldisease detection software system through the use of our core technology.  At September 30, 2002, the Company owned58,868,582 ordinary shares in Medicsight, constituting 75.7% of the outstandingshares. General Nominees LLC, a party related to Asia IT, owned 6,280,852ordinary shares in

 

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Medicsight,constituting 8.1% of the outstanding shares. Asia IT owned 5,188,907 ordinaryshares in Medicsight, constituting 6.7% of the outstanding shares. Medicsightis currently undertaking a private offering outside the United States of anadditional 6,131,398 ordinary shares, and at September 30, 2002, 3,922,700shares had been issued to persons not affiliated with Medicsight. This offeringis fully underwritten by Asia IT. When such offering is fully subscribed andsold, the Company will own 73.6% of Medicsight’s outstanding ordinary shares.

 

TheMedicsight system analyzes digital data from computed tomography scans and thenalerts the clinician to any areas of possible abnormality.  We believe the Medicsight system will becapable of reliably detecting cancer cells, calcification of the arteries andother abnormalities indicative of disease at earlier stages in the disease thancurrent medical tools are able to detect. The potential advantage of the Medicsight system is that it does notrely on the human eye or human interpretation to detect possible abnormalities,thereby resulting in significant cost savings and more consistent detection results.  After the system uses its technology toidentify possible abnormalities, the clinician will then apply his/hereducation, training and experience to determine the next steps in medicaldiagnosis and treatment.  The Medicsightsystem is capable of processing unprecedented volumes of images.  It is now widely accepted that the mosteffective way to achieve early detection of these leading deadly diseases isthrough large scale screening.  Suchscreening would allow national healthcare bodies to provide society with thebest protection against premature death.

 

*Lifesyne*.  A wholly owned subsidiary of Medicsightestablished in September 2002 for the purpose of providing a branded operatingentity for the United Kingdom and Ireland markets. Lifesyne will be the entitythat engages customers for the purpose of scanning.

 

*MAM*.  A wholly owned subsidiary of Medicsightestablished in September 2002 for the purpose of acquiring fixed assets onbehalf of the operating entities in the group. MAM will negotiate and acquireequipment and fund leasehold improvements and development, which in turn willbe leased to the relevant operating entity.

 

*Insights*.  A wholly-owned subsidiary, Insights,conceived our core proprietary technologies. Our principal technology is aStochastic Perception Engine that processes and classifies unstructured datainto meaningful outputs, enabling it to be viewed, interpreted or furthermanipulated by the user of the application. This type of technology sits at the core of many of today’s majorsoftware applications. Our Stochastic Perception Engine is comprised of fourprincipal capabilities: cluster analysis, statistical modeling, classificationand prediction.

 

All ofthe Insights team is currently focused on the Medicsight system and is nowemployed directly by Medicsight (as described below).  Insights currently owns the Stochastic Perception Engine and thepatent applications associated with the technology.

 

Commercializationof the Stochastic Perception Engine is anticipated to occur through jointventures and in-house development according to the optimum market entrystrategy. The technology is designed to be deployed in the form of softwaremodules or utility libraries, or embedded within microchips.

 

*Software*.  Over the last four years, our wholly-ownedsubsidiary, Software has generated revenue from its systems integrationbusiness together with maintenance of its in-house developed systemsintegration and network software products. In 2001, we decided to focus Software’s resources towards working withInsights to assist in development of the core technology of the StochasticPerception Engine.  The majority of theSoftware staff are now employed full-time by Medicsight. Current contracts betweenSoftware and existing customers have been completed. Software was sold to anindependent third party on October 28, 2002 for a nominal sum of approximately$1,500. As of October 28, 2002 it had net assets of approximately $4,500.

 

**RESULTS OFOPERATIONS**

 

*Revenues.*  For the nine months ended September 30,2002, and September 30, 2001, the Company’s gross revenues from operations were$79,000 and $159,000, respectively.  Forthe quarter ended September 30, 2002 and the quarter ended September 30, 2001, theCompany’s gross revenues from operations were

 

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$42,000and $16,000, respectively.  TheCompany’s revenue was primarily derived from the Company’s consultingactivities provided by Software.

 

During the ninemonths and quarter ended September 30, 2002, the Company had two customers whorepresented 100% of its revenues.  Thecustomers are Commonwealth Secretariat, which accounted for 68% and 74% ofsales, respectively, and Texaco Ltd., which accounted for 32% and 26% of sales,respectively. During the nine months and quarter ended September 30, 2001,Commonwealth Secretariat accounted for 54% and 63% of sales, respectively, andTexaco Ltd. accounted for 24% and 0% of sales, respectively.

 

*Research and Development*.  The Company’s research and developmentexpenses for the nine months and quarter ended September 30, 2002, were$862,000 and $307,000 respectively as compared to $1,212,000 and $473,000 forthe nine months and quarter ended September 30, 2001.  The Company’s research and development costs were comprised ofstaff and consultancy costs expensed on the Medicsight application.  The reduction in Fiscal 2002 from Fiscal2001 is due to changes in the number of staff and consultants working on thedevelopment.

 

*Selling, General and AdministrativeExpenses.*  TheCompany’s selling, general and administrative expenses for the nine months andquarter ended September 30, 2002, were $7,856,000 and $2,879,000, respectively,as compared to $4,458,000 and $1,402,000 for the nine months and quarter endedSeptember 30, 2001.  Professional fees,including consulting services, were $1,097,000 and $428,000 for the nine monthsand quarter ended September 30, 2002, respectively. Also included were salariesand directors’ compensation of $2,223,000 and $862,000, service charges andrates for property leasing of $255,000 and $100,000, and rent of $320,000 and$120,000, respectively.  The primarycomponent of the increased selling, general and administrative expenses for thenine months and quarter ended September 30, 2002 was an increase inamortization of intangibles from $131,000 and $45,000 respectively for the ninemonths and quarter ended September 30, 2001 to $3,370,000 and $1,123,000 forthe nine months and quarter ended September 30, 2002. This relates to theseparate identification of the technology acquired from Nightingale for$22,470,000, which was classified as goodwill for the nine months and quarterended September 30, 2001.  Partiallyoffsetting this increase were reductions in professional fees, rent and servicecharges.  The reduction in rent is dueto the Company having sold its lease on its Curzon St. offices in September2001.  Management expects selling,general and administrative expenses to continue at a level similar to thecurrent level in the near future as the Company continues to devote resourcesto the expansion of the Company.

 

*Depreciation and AmortizationExpense.* EffectiveJanuary 1, 2002 with the adoption of SFAS No. 142, goodwill will no longer beamortized.  Prior to January 1, 2002,goodwill was amortized on a straight-line basis over 5 years.  The amortization charge for the nine monthsand quarter ended September 30, 2001 was $14,251,000 and $5,616,000,respectively.

 

DuringFiscal 2000, the Company acquired an intangible asset from Nightingaleconsisting of technology valued at $22,470,000. Under SFAS No.142, this isconsidered an intangible asset with a definite life of 5 years. Therefore thevalue of the asset is amortized on a straight-line basis over this period*.*  The amortization charge for the nine monthsand quarter ended September 30, 2002 was $3,370,000 and $1,123,000,respectively, as compared to $131,000 and $45,000 for the nine months andquarter ended September 30, 2001.  TheCompany evaluates the carrying value of long-lived assets for impairmentwhenever events or changes in circumstances indicate that the carrying amountof an asset may not be recoverable. The Company’s assessment for impairment ofan asset involves estimating the undiscounted cash flows expected to resultfrom use of the asset and its eventual disposition. An impairment lossrecognized is measured as the amount by which the carrying amount of the assetexceeds the fair value of the asset.  Noimpairment of intangibles was recorded in the nine months and quarter endedSeptember 30, 2002.

 

*Impairment of excess of purchaseprice over net assets acquired. *Duringthe nine months and quarter ended September 30, 2002, the Company had excess ofpurchase price over net assets acquired of $88,919,000 from its acquisition ofInsights. During the nine months and quarter ended September 30, 2001, theCompany had excess of purchase price over net assets acquired of $98,087,000,associated with the acquisition of Insights and Software.  As stated above, the Company adopted SFASNo. 142 on January 1, 2002. Under this standard, goodwill will no longer beamortized over its estimated useful life, but instead will be tested forimpairment on an annual basis or whenever indicators of impairment arise.  The Company completed its transitional 

 

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impairmenttests in the quarter to June 30, 2002 and no impairment was recorded.  Prior to January 1, 2002, goodwill wastested for impairment in a manner consistent with property, plant and equipmentand intangible assets with a definite life.

 

*Impairment Loss on Investments.*For the nine months ended September 30, 2002, the Company incurred animpairment loss on investments of $30,000 related to the impairment in thecarrying value of Top Tier, Inc. Based on the financial status of Top Tier,Inc, the investment was permanently impaired, and the Company has recorded animpairment for the entire carrying value ($30,000) of this investment.**Forthe nine months and quarter ended September 30, 2001, investments of $2,412,000and $1,201,000, respectively, were impaired. Based on the financial status ofCompaer AG the investment was permanently impaired in the nine months endedSeptember 30, 2001, and the Company recorded an impairment for the entirecarrying value of this investment.

 

*Impairment of Vendor Guarantee*.  Impairment of a vendor guarantee in theamount of $5,900,000 for the nine months ended September 30, 2002 relates to animpairment of the guarantee provided by Dr. Alexander Nill as to the fair valueof certain assets acquired under the Company’s acquisition of Core VenturesLimited (“Core”) in September 2000.  Thevendor guarantee represents the fair value of 4.1 million shares returned tothe Company as partial consideration for the guarantee, of which 3.1 millionshares (the “Escrow Shares”) were placed in escrow. We have estimated the valueof the guarantee as the value of the common stock, based on the recent historyof the stock price, giving an estimated realizable value of $4,100,000. In thequarter ended September 30, 2002 the Company recorded a reduction in theimpairment of $820,000 to reflect the estimated realizable value. Impairment ofthe guarantee was $4,414,000 and $1,504,000 for the nine months and quarterended September 30, 2001.

 

OnMarch 6, 2002, Core entered into voluntary liquidation proceedings.  In accordance with the Companies Actgoverning companies organized in the British Virgin Islands, Core has appointeda liquidator to assess the fair value of its assets.  We intend to initiate legal proceedings in London to enforce Dr.Nill’s guarantee and to seek compensation for the shortfall in value on theguarantee, $15,009,000, which has not yet been provided to us by Dr. Nill.

 

*Net Loss andNet Loss per Share.*  Net loss was $13,396,000 for the ninemonths ended September 30, 2002 compared to a net loss of $26,434,000 for thenine months ended September 30, 2001. Net loss was $1,847,000 for the three months ended September 30, 2002compared to a net loss of $10,156,000 for the three months ended September 30,2001.  Net loss per share for the ninemonths ended September 30, 2002 was $0.23, based on weighted average sharesoutstanding of 57,868,387, compared to a net loss per share of $0.48 for thenine months ended September 30, 2001, based on weighted average sharesoutstanding of 54,956,112.  Net loss pershare for the three months ended September 30, 2002 was $0.03, based onweighted average shares outstanding of 57,868,711, compared to a net loss pershare of $0.18 for the three months ended September 30, 2001, based on weightedaverage shares outstanding of 57,855,148. The reduction in net loss for thenine months and quarter ended September 30, 2002, are principally due to thecessation of amortization of goodwill under SFAS No.142, offset by increasedselling, general and administrative expenses and impairment of the vendorguarantee.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

*Working Capital.*  At September 30, 2002, the Company had$2,549,000 in current assets. Cash and cash equivalents amounted to $2,202,000.Current liabilities were $7,154,000 at September 30, 2002.  At December 31, 2001, the Company had$657,000 in current assets and cash and cash equivalents amounted to $203,000.  Current liabilities were $5,862,000 atDecember 31, 2001. Working capital deficit at September 30, 2002 was$(4,605,000), as compared to $(5,205,000) at December 31, 2001.  The ratio of current assets to currentliabilities was 0.36 to 1.0 at September 30, 2002 as compared to 0.11 to 1.0 atDecember 31, 2001. The increase is primarily due to the increase in cash andcash equivalents.

 

*Net Increase in Cash and CashEquivalents.*  Duringthe nine months ended September 30, 2002, the Company’s cash and cashequivalents increased by $1,999,000. This increase was primarily the result ofcash flows received from shares issued by Medicsight and increase in short termdebt offset by net cash used for operations. The Company used net cash of$4,599,000 in operations. The Company received net cash of $6,637,000 infinancing activities and used $51,000 in investing activities.

 

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*Net Cash Used in Operations.*  The use of cash in operations of $4,599,000in the nine months ended September 30, 2002, was attributable to the Company’srelatively minimal revenues at the same time that the Company incurredsignificant operating costs. These significant costs included professionalfees, salaries and director compensation, and service charges associated withrental property and rent. The Company used cash in operations in the ninemonths ended September 30, 2001 of $4,641,000.

 

*Net Cash Used in InvestmentActivities.*  In thenine months ended September 30, 2002, the Company had a net cash outflow frominvestment activities of $51,000. The Company used the funds to purchaseadditional fixed assets. In the nine months ended September 30, 2001, theCompany had a net cash inflow from investment activities of $1,645,000.  Such funds were received in the nine monthsended September 30, 2001, from the sale of the Company’s shareholding in MDAGroup PLC and of funds received from shares sold under the shareholderguarantee. The Company does not currently have any commitments for materialcapital expenditures.

 

*Net Cash Provided by FinancingActivities.*  In thenine months ended September 30, 2002, the Company had a net cash inflow fromfinancing activities of $6,637,000. The funds received in the nine months endedSeptember 30, 2002, consisted of $5,836,000 received from the private offeringof Medicsight stock. At September 30, 2002, 3,922,700 shares had been issuedunder this offering to persons not affiliated with Medicsight. This offering isfully underwritten by Asia IT. In addition the Company received $820,000 drawndownunder the Asia IT facility. For the nine months ended September 30, 2001, theCompany had a net cash outflow from financing activities of $2,930,000. Thesefunds were used in reducing overdraft and short-term debt.

 

*Stockholders’ Equity.*  The Company’s stockholders’ equity atSeptember 30, 2002 was $98,433,000, including an accumulated deficit of$(67,855,000), as compared to $101,853,000 at December 31, 2001, including anaccumulated deficit of $(54,459,000). Additional paid-in capital was$170,715,000 and $166,298,000, at September 30, 2002 and December 31, 2001respectively. The reduction in stockholders’ equity was a result of an increasein accumulated deficit of $13,396,000, partially offset by an increase inadditional paid-in capital of $4,417,000 resulting from the placement ofMedicsight stock (par value $0.08 per share) at a premium of $1.42 per share.

 

*Additional Capital.*  The Company will require additional capitalduring its fiscal year ending December 31, 2002 to implement its businessstrategies, including cash for (i) payment of increased operating expensessuch as salaries for additional employees; and (ii) further implementationof those business strategies. Such additional capital may be raised throughadditional public or private financing, as well as borrowings and otherresources. Currently, the Company has two available lines of credit.

 

OnDecember 15, 2000, the Company entered into an unsecured credit facility withAsia IT which provides a $20,000,000 line of credit. Such line of creditoriginally expired on December 31, 2001, but has been extended until December31, 2003. Interest on advances under the credit facility accrues at 2% above USLIBOR. The Company can draw down on this credit facility for its financingrequirements, upon approval by the Company’s Board of Directors and subject toapproval by Asia IT (such approval not to be unreasonably withheld). TheCompany is restricted from borrowing funds, directly or indirectly, other thanthrough the credit facility with Asia IT, without the consent of Asia IT. Theavailability of the credit facility reduces upon the Company’s sale of any ofits investment assets. The amounts drawn and interest charged under thisfacility are repayable on demand or at the maturity of the facility.

 

OnNovember 20, 2001, Asia IT entered into a £10,000,000 ($15,000,000) creditfacility with Medicsight.  Such facilitymatures in November 2004 and is secured by a lien on all assets of Medicsight.  Interest on outstanding amounts accrues at2% above GBP LIBOR.  Pursuant to suchcredit facility, Medicsight had covenanted to undertake a public offering ofits ordinary shares in an amount not less than £25,000,000 not later than March2002.  However, there are noramifications for the Company or Medicsight if such public offering is notmade, and the credit facility nevertheless will remain in place.  The loan is convertible into ordinary sharesin Medicsight upon announcement of an Offer to Subscribe, Placing or other publicoffering of its ordinary shares at the same price per share as the offeringprice.  Currently, there is no loanoutstanding and therefore Asia IT will not be converting any loanstock toordinary shares.

 

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AtSeptember 30, 2002, the Company had drawn down $2,145,000 under the $20,000,000facility with Asia IT, and Medicsight had no drawings under its £10,000,000($15,000,000) facility with Asia IT.

 

DuringMarch 2002, Medicsight allotted 6,131,398 shares at £1.00 ($1.50) per share(par value £0.05) of which 3,922,700 shares have been placed.  Asia IT is underwriting the issue. As ofSeptember 30, 2002, Medicsight had received approximately $3,951,000 from theproceeds of such offering with the balance of approximately $1,885,000 beingheld by Asia IT on Medicsight’s behalf.

 

To theextent that additional capital is raised through the sale of equity orequity-related securities of the Company or its subsidiaries, the issuance ofsuch securities could result in dilution to the Company’s stockholders. Noassurance can be given, however, that the Company will have access to thecapital markets in the future, or that financing will be available onacceptable terms to satisfy the Company’s cash requirements to implement itsbusiness strategies. If we are unable to access the capital markets or obtainacceptable financing, our results of operations and financial conditions couldbe materially and adversely affected. We may be required to raise substantial additional funds through othermeans.  The products derived from ourproprietary software, including the Medicsight system, are expected to accountfor substantially all of our revenues from operations in the foreseeablefuture.  Our technology has not yet beenfully commercialized, and we have not begun to receive any revenues fromcommercial operations.  We cannot assureour stockholders that our technology and products will be commercializedsuccessfully, or that if so commercialized, that revenues will be sufficient tofund our operations.  If adequate fundsare not available to us, we may be required to curtail operations significantlyor to obtain funds through entering into arrangements with collaborativepartners or others that may require us to relinquish rights to certain of ourtechnologies or products that we would not otherwise relinquish.

 

*Critical Accounting Policies.*InDecember 2001 and January 2002, the Securities and Exchange Commissionrequested that all registrants list their three to five most “criticalaccounting policies” in the Management’s Discussion and Analysis of FinancialCondition and Results of Operations. The Securities and Exchange Commissionindicated a “critical accounting policy” is one which is both important to theportrayal of the company’s financial condition and results and requiresmanagement’s most difficult, subjective or complex judgments, often as a resultof the need to make estimates about the effect of matters that are inherentlyuncertain. We believe that the following accounting policies fit the definitionof critical accounting policies.

 

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

 

Impairmentof Excess of Purchase Price Over Net Assets Acquired—The Company adopted SFASNo. 142 on January 1, 2002.  Under thisstandard, goodwill will no longer be amortized over its estimated useful life,but will be tested for impairment on an annual basis and whenever indicators ofimpairment arise.  Under the provisionsof SFAS No. 142, any impairment loss identified upon adoption of this standardis recognized as a cumulative effect of a change in accounting principle.  Any impairment loss incurred subsequent tothe initial adoption of SFAS No 142 is recorded as a charge to current periodearnings.  Under the transitionalprovisions of SFAS No. 142, the Company’s goodwill will be tested forimpairment as of January 1, 2002.  TheCompany completed its impairment tests in the quarter to June 30, 2002 and noimpairment was recorded.

 

Researchand development—Costs incurred in connection with the development of softwareproducts that are intended for sale are accounted for in accordance withStatement of Financial Accounting Standards No. 86, “Accounting for the Costsof Computer Software to be Sold, Leased, or Otherwise Marketed”. Costs incurredprior to technological feasibility being established for the product areexpensed as incurred. Technological feasibility is established upon completionof a detail program design or, in its absence, completion of a working model.Thereafter, all software production costs are capitalized and subsequentlyreported at the lower of unamortized cost or net realizable value. Capitalizedcosts are amortized based on current and future revenue for each product withan annual minimum equal to the straight-line amortization over the remainingestimated economic life of the product. Amortization commences when the productis available for general release to customers.

 

9

----

 

*Recent accounting pronouncements.*InApril 2002, the Financial Accounting Standards Board (“FASB”) issued Statementof Financial Accounting Standards (“SFAS”) No. 145, Rescission of FASBStatements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and TechnicalCorrections. This statement provides guidance on the classification of gainsand losses from the extinguishment of debt and on the accounting for certainspecified lease transactions. The adoption of this statement will not have amaterial impact on the Company’s consolidated financial position, results ofoperations or cash flows.

 

InJune 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated withExit or Disposal Activities (“SFAS No. 146”). SFAS No. 146 addressessignificant issues regarding the recognition, measurement, and reporting ofcosts associated with exit and disposal activities, including restructuringactivities. SFAS No. 146 also addresses recognition of certain costs related toterminating a contract that is not a capital lease, costs to consolidatefacilities or relocate employees, and termination benefits provided toemployees that are involuntarily terminated under the terms of a one-timebenefit arrangement that is not an ongoing benefit arrangement or an individualdeferred-compensation contract. SFAS No. 146 is effective for exit or disposalactivities that are initiated after December 31, 2002. The impact on theCompany’s financial position or results of operations from adopting SFAS No.146 has not yet been determined.

 

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

 

**Interest Rate Risk**

 

TheCompany’s exposure to market risk associated with changes in interest ratesrelates to its debt obligations. The Company has the following debt facilitiesall repayable on demand:

 
| **Debt Holder**                  |   | **Facility** |       | **Balance** |   | **Interest  rate** |   | **At  September 30** |   |
|----------------------------------|--------|--------------|------------|-------------|--------|--------------------|--------|----------------------|--------|
|                             |   |         |       |        |   |               |   |                 |   |   |   |
| Nightingale  Technologies Ltd    |   | $            | 10,000,000 |        | $      | 3,250,000          |   | US Libor + 2         | %      | 3.813 | % |
|                             |   |         |       |        |   |               |   |                 |   |   |   |
| Asia  IT Capital Investments Ltd |   | $            | 20,000,000 |        | $      | 2,145,000          |   | US Libor + 2         | %      | 3.813 | % |
|                             |   |         |       |        |   |               |   |                 |   |   |   |
| Asia  IT Capital Investments Ltd |   | $            | 15,000,000 |        | $      | —             |   | GBP Libor + 2        | %      | 5.951 | % |
|                                  |        |              |            |             |        |                    |        |                      |        |  |  |  |  |

 

Ahypothetical 100 basis point adverse movement in interest rates would increaseinterest cost by approximately $54,000 per annum assuming no further drawdownsor repayments are made.

 

**Foreign****Exchange Risk**

 

TheCompany’s exposure to market risk associated with changes in exchange ratesrelate to its debt facility with Nightingale Technologies Ltd. The facility isheld in British Pounds by Insights and is therefore exposed to fluctuationsbetween British Pounds and U.S. Dollar rates. A hypothetical 100 basis pointadverse movement ($1.50 to $1.49 to £1.00) would increase the principal torepaid by $16,000.

 

TheCompany holds limited cash balances in British Pounds so any adverse movementsin the exchange rates are considered immaterial. The funds held by Asia IT inBritish Pounds on behalf of Medicsight PLC are significant and a hypothetical100 basis point adverse movement ($1.50 to $1.49 to £1.00) would decrease thecash value in US$ by $13,000.

 

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

 

Evaluation of disclosure controls and procedures.

 

We maintain controls and procedures designed to ensure that informationrequired to be disclosed in this report is recorded, processed, accumulated andcommunicated to our management, including our chief executive officer and ourchief financial officer, to allow timely decisions regarding the requireddisclosure. Management necessarily applied its judgment in assessing the costsand benefits of such controls and procedures, which, by their nature, can

 

10

----

 

provide only reasonable assurance regarding management’s controlobjectives. Within the 90 days prior to the filing date of this report, ourmanagement, with the participation of our chief executive officer and chieffinancial officer, carried out an evaluation of the effectiveness of the designand operation of these disclosure controls and procedures. Our chief executiveofficer and chief financial officer concluded, as of fifteen days prior to thefiling date of this report, that these disclosure controls and procedures areeffective.

 

Changes in internal controls.

 

Subsequentto the date of the above evaluation, we made no significant changes in ourinternal controls or in other factors that could significantly affect thesecontrols, nor did we take any corrective action, as the evaluation revealed nosignificant deficiencies or material weaknesses.

# ** **

11

----

 

**PART II**

 

## **Item 1.**                 Legal Proceedings

 

There arecurrently no ongoing legal proceedings.

## ** **

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

 

(a)           None.

 

(b)           None.

 

(c)           None.

 

(d)           Not applicable.

## ** **

## **Item 3.**                 Defaults UponSenior Securities

 

None.

## ** **

## **Item 4.**                 Submission ofMatters to a Vote of Security Holders

 

On October 28,2002, an amendment to the Certificate of Incorporation, changing the name ofthe Company to Medicsight, Inc., was adopted by written consent of shareholdersholding in the aggregate 70.2% of the outstanding shares of the Company’scommon stock.

## ** **

## **Item 5.      Other Information**

 

None.

## ** **

## **Item 6.      Exhibits and Reports on Form 8-K**

###  

(a)                                 Exhibits

 

3                                         CompositeCertificate of Incorporation, as amended and currently in effect (incorporatedby reference to Exhibit 3 to the Company’s Report on Form 8-K filed October 28,2002).

 

99.1                          Statementrequired pursuant to 18 U.S.C. § 1350 (filed herewith).

 

99.2                          Certificationsunder Rule 13a-14 and 15d-14 (filed herewith).

** **

(b)                                ReportsOn Form 8-K

** **

**There were no reports on Form 8-K filed during the period July 1, 2002through September 30, 2002. The Company filed a Form 8-K on October 28, 2002,announcing the change of its name from HTTP Technology, Inc. to Medicsight, Inc**.

** **

12

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**MEDICSIGHT,INC. AND SUBSIDIARIES**

** **

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**AS OFAND FOR THE THREE AND NINE MONTHS ENDED**

**SEPTEMBER30, 2002**

 
| Consolidated  Balance Sheets as of September 30, 2002 (Unaudited)  and December 31, 2001                                                                     | F-2        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                                                                         |       |
| Consolidated Statements of  Operations for the Three Months Ended  September 30, 2002 (Unaudited) and the Three Months Ended  September 30, 2001 (Unaudited) | F-3        |
|                                                                                                                                                         |       |
| Consolidated Statements of  Operations for the Nine Months Ended  September 30, 2002 (Unaudited) and the Nine Months Ended  September 30, 2001 (Unaudited)   | F-4        |
|                                                                                                                                                         |       |
| Consolidated  Statement of Cash Flows for the Nine Months Ended  September 30, 2002 (Unaudited) and Nine Months Ended  September 30, 2001 (Unaudited)        | F-5        |
|                                                                                                                                                         |       |
| Notes  to Consolidated Financial Statements                                                                                                                  | F-6 to F-9 |

 

F-1

----

 

**MEDICSIGHT, INC. AND SUBSIDIARIES**

** **

**CONSOLIDATED BALANCE SHEETS**

 

(In thousands)

 
|                                                                                                                                   |   | **September 30, 2002** |   | **December 31, 2001** |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|-----------------------|--------|
|                                                                                                                                   |   | **(unaudited)**        |   | **(audited)**         |   |
| ASSETS                                                                                                                                 |   |                   |   |                  |   |
| CURRENT ASSETS:                                                                                                                        |   |                   |   |                  |   |
| Cash and cash equivalents                                                                                                              |   | 2,202                  |   | 203                   |   |
| Accounts receivable (net of allowance for doubtful  debts of $0 and $74, respectively)                                                 |   | —                 |   | 93                    |   |
| Other receivables                                                                                                                      |   | 4                      |   | 182                   |   |
| Prepaid expenses                                                                                                                       |   | 235                    |   | 118                   |   |
| Sales tax receivable                                                                                                                   |   | 108                    |   | 61                    |   |
|                                                                                                                                   |   |                   |   |                  |   |
| Total current assets                                                                                                                   |   | 2,549                  |   | 657                   |   |
|                                                                                                                                   |   |                   |   |                  |   |
| PROPERTY AND EQUIPMENT, at cost, net of accumulated  depreciation of $494 and $315, respectively                                       |   | 277                    |   | 359                   |   |
|                                                                                                                                   |   |                   |   |                  |   |
| INVESTMENTS, at cost                                                                                                                   |   | 670                    |   | 700                   |   |
|                                                                                                                                   |   |                   |   |                  |   |
| SECURITY DEPOSITS                                                                                                                      |   | 29                     |   | 50                    |   |
|                                                                                                                                   |   |                   |   |                  |   |
| INTANGIBLE ASSET, at cost, net of accumulated  amortization of $7,865 and $4,494, respectively                                         |   | 14,605                 |   | 17,976                |   |
|                                                                                                                                   |   |                   |   |                  |   |
| EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net  of accumulated amortization of $16,645 at both dates                           |   | 88,919                 |   | 88,919                |   |
|                                                                                                                                   |   |                   |   |                  |   |
| Total assets                                                                                                                           |   | 107,049                |   | 108,661               |   |
|                                                                                                                                   |   |                   |   |                  |   |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                             |   |                   |   |                  |   |
| CURRENT LIABILITIES:                                                                                                                   |   |                   |   |                  |   |
| Accounts payable                                                                                                                       |   | 684                    |   | 641                   |   |
| Accrued expenses                                                                                                                       |   | 909                    |   | 437                   |   |
| Accrued professional expenses                                                                                                          |   | 166                    |   | 209                   |   |
| Short-term debt                                                                                                                        |   | 5,395                  |   | 4,575                 |   |
| Total current liabilities                                                                                                              |   | 7,154                  |   | 5,862                 |   |
|                                                                                                                                   |   |                   |   |                  |   |
| CAPITAL LEASE                                                                                                                          |   | —                 |   | 19                    |   |
| Total liabilities                                                                                                                      |   | 7,154                  |   | 5,881                 |   |
|                                                                                                                                   |   |                   |   |                  |   |
| STOCKHOLDERS’ EQUITY:                                                                                                             |   |                   |   |                  |   |
| Common stock, $0.001 par value, 100,000,000 shares  authorized, 57,868,711 and 57,868,582 shares issued and outstanding,  respectively |   | 58                     |   | 58                    |   |
| Additional paid-in capital                                                                                                             |   | 170,715                |   | 166,298               |   |
| Vendor guarantee                                                                                                                       |   | (4,100                 | )      | (10,000               | )      |
| Cumulative foreign currency translation adjustment                                                                                     |   | (385                   | )      | (44                   | )      |
| Accumulated deficit                                                                                                                    |   | (67,855                | )      | (54,459               | )      |
| Total stockholders’ equity                                                                                                        |   | 98,433                 |   | 101,853               |   |
|                                                                                                                                   |   |                   |   |                  |   |
| MINORITY INTEREST                                                                                                                      |   | 1,462                  |   | 927                   |   |
|                                                                                                                                   |   | 99,895                 |   | 102,780               |   |
| Total liabilities and stockholders’ equity                                                                                        |   | 107,049                |   | 108,661               |   |

 

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

 

F-2

----

 

**MEDICSIGHT, INC. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(In thousands, except per share amounts)**

 
|                                                 |   | **Three Months  Ended  September 30,  2002** |   | **Three Months  Ended  September 30,  2001** |   |
|------------------------------------------------------|--------|----------------------------------------------|--------|----------------------------------------------|--------|
|                                                 |   | **(unaudited)**                              |   | **(unaudited)**                              |   |
|                                                 |   |                                         |   |                                         |   |
| REVENUES                                             |   | 42                                           |   | 16                                           |   |
|                                                 |   |                                         |   |                                         |   |
| EXPENSES:                                            |   |                                         |   |                                         |   |
| Selling, general and administrative charges          |   | 2,879                                        |   | 1,402                                        |   |
| Research and development cost                        |   | 307                                          |   | 473                                          |   |
| Impairment of investment                             |   | —                                       |   | 1,201                                        |   |
| Amortization of goodwill                             |   | —                                       |   | 5,616                                        |   |
| Impairment of vendor guarantee                       |   | (820                                         | )      | 1,504                                        |   |
|                                                 |   | 2,366                                        |   | 10,196                                       |   |
|                                                 |   |                                         |   |                                         |   |
| Operating loss                                       |   | (2,324                                       | )      | (10,180                                      | )      |
|                                                 |   |                                         |   |                                         |   |
| OTHER INCOME:                                        |   |                                         |   |                                         |   |
| Interest and other income                            |   | —                                       |   | 13                                           |   |
| Net foreign exchange gains                           |   | —                                       |   | 12                                           |   |
|                                                 |   | —                                       |   | 25                                           |   |
|                                                 |   |                                         |   |                                         |   |
| Net Loss before minority interest                    |   | (2,324                                       | )      | (10,155                                      | )      |
|                                                 |   |                                         |   |                                         |   |
| MINORITY INTEREST                                    |   | 477                                          |   | (1                                           | )      |
|                                                 |   |                                         |   |                                         |   |
| Net loss                                             |   | (1,847                                       | )      | (10,156                                      | )      |
|                                                 |   |                                         |   |                                         |   |
| PER SHARE DATA:                                      |   |                                         |   |                                         |   |
| Basic and diluted loss per share                     |   | $                                            | (0.03  | )                                            | $      | (0.18 | ) |
|                                                 |   |                                         |   |                                         |   |
| Weighted average number of common shares outstanding |   | 57,868,711                                   |   | 57,855,148                                   |   |
|                                                      |        |                                              |        |                                              |        |  |  |

** **

**THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESECONSOLIDATED FINANCIAL STATEMENTS.**

 

F-3

----

 

**MEDICSIGHT,INC. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**(Inthousands, except per share amounts)**

 
|                                                 |   | **Nine Months  Ended  September 30,  2002** |   | **Nine Months  Ended  September 30,  2001** |   |
|------------------------------------------------------|--------|---------------------------------------------|--------|---------------------------------------------|--------|
|                                                 |   | **(unaudited)**                             |   | **(unaudited)**                             |   |
|                                                 |   |                                        |   |                                        |   |
| REVENUES                                             |   | 79                                          |   | 159                                         |   |
|                                                 |   |                                        |   |                                        |   |
| EXPENSES:                                            |   |                                        |   |                                        |   |
| Selling, general and administrative charges          |   | 7,856                                       |   | 4,458                                       |   |
| Research and development cost                        |   | 862                                         |   | 1,212                                       |   |
| Impairment of investment                             |   | 30                                          |   | 2,412                                       |   |
| Amortization of goodwill                             |   | —                                      |   | 14,251                                      |   |
| Impairment of vendor guarantee                       |   | 5,900                                       |   | 4,414                                       |   |
|                                                 |   | 14,648                                      |   | 26,747                                      |   |
|                                                 |   |                                        |   |                                        |   |
| Operating loss                                       |   | (14,569                                     | )      | (26,588                                     | )      |
|                                                 |   |                                        |   |                                        |   |
| OTHER INCOME:                                        |   |                                        |   |                                        |   |
| Interest and other income                            |   | 3                                           |   | 152                                         |   |
|                                                 |   | 3                                           |   | 152                                         |   |
|                                                 |   |                                        |   |                                        |   |
| Net Loss before minority interest                    |   | (14,566                                     | )      | (26,436                                     | )      |
|                                                 |   |                                        |   |                                        |   |
| MINORITY INTEREST                                    |   | 1,170                                       |   | 2                                           |   |
|                                                 |   |                                        |   |                                        |   |
| Net loss                                             |   | (13,396                                     | )      | (26,434                                     | )      |
|                                                 |   |                                        |   |                                        |   |
| PER SHARE DATA:                                      |   |                                        |   |                                        |   |
| Basic and diluted loss per share                     |   | $                                           | (0.23  | )                                           | $      | (0.48 | ) |
|                                                 |   |                                        |   |                                        |   |
| Weighted average number of common shares outstanding |   | 57,868,387                                  |   | 54,956,112                                  |   |
|                                                      |        |                                             |        |                                             |        |  |  |

** **

**THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESECONSOLIDATED FINANCIAL STATEMENTS.**

 

F-4

----

 

**MEDICSIGHT, INC. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CASH FLOW**

**(In thousands)**

 
|                                                                        |   | **Nine Months  Ended  September 30,  2002** |   | **Nine Months  Ended  September 30,  2001** |       |
|-----------------------------------------------------------------------------|--------|---------------------------------------------|--------|---------------------------------------------|------------|
|                                                                        |   | **(unaudited)**                             |   | **(unaudited)**                             |       |
|                                                                        |   |                                        |   |                                        |       |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                       |   |                                        |   |                                        |       |
| Net loss                                                                    |   | (13,396                                     | )      | (26,434                                     | )          |
| Adjustments to reconcile net loss to net cash used in  operating activities |   |                                        |   |                                        |       |
| Depreciation                                                                |   | 173                                         |   | 146                                         |       |
| Amortization of intangible assets                                           |   | 3,370                                       |   | 131                                         |       |
| Amortization of goodwill                                                    |   | —                                      |   | 14,251                                      |       |
| Provision for doubtful accounts                                             |   | —                                      |   | 21                                          |       |
| Write down of investment                                                    |   | 30                                          |   | 2,412                                       |       |
| Impairment of vendor guarantee                                              |   | 5,900                                       |   | 4,414                                       |       |
| Minority interest in net earnings of subsidiary                             |   | (1,170                                      | )      | (18                                         | )          |
| Changes in operating assets and liabilities                                 |   |                                        |   |                                        |       |
| Decrease in accounts receivable                                             |   | 93                                          |   | 36                                          |       |
| Decrease/(increase) in prepaid expenses and other  current assets           |   | 61                                          |   | (169                                        | )          |
| (Increase)/decrease in sales tax receivable                                 |   | (47                                         | )      | 93                                          |       |
| Decrease in security deposits                                               |   | 21                                          |   | 197                                         |       |
| Increase in accounts payable                                                |   | 13                                          |   | 33                                          |       |
| Increase in accrued expenses                                                |   | 395                                         |   | 301                                         |       |
| (Decrease) in accrued professional expenses                                 |   | (42                                         | )      | (55                                         | )          |
| Net cash used in operating activities                                       |   | (4,599                                      | )      | (4,641                                      | )          |
|                                                                        |   |                                        |   |                                        |       |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                       |   |                                        |   |                                        |       |
| Purchase of fixed assets                                                    |   | (51                                         | )      | (161                                        | )          |
| Capitalized software development costs                                      |   | —                                      |   | 71                                          |       |
| Funds received on shareholder guarantee                                     |   | —                                      |   | 75                                          |       |
| Sale of investments                                                         |   | —                                      |   | 1,660                                       |       |
| Net cash (used in)/provided by investing activities                         |   | (51                                         | )      | 1,645                                       |       |
|                                                                        |   |                                        |   |                                        |       |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                       |   |                                        |   |                                        |       |
| Decrease in capitalized lease                                               |   | (19                                         | )      | (4                                          | )          |
| Decrease in bank overdraft                                                  |   | —                                      |   | (170                                        | )          |
| Increase/(repayment) of debt                                                |   | 820                                         |   | (2,756                                      | )          |
| Shares in Medicsight issued for cash                                        |   | 5,836                                       |   | —                                      |       |
| Net cash provided by/(used in) financing activities                         |   | 6,637                                       |   | (2,930                                      | )          |
|                                                                        |   |                                        |   |                                        |       |
| Effects of exchange rates on cash and cash equivalent                       |   | 12                                          |   | 3                                           |       |
|                                                                        |   |                                        |   |                                        |       |
| NET INCREASE/(DECREASE) IN CASH                                             |   | 1,999                                       |   | (5,923                                      | )          |
|                                                                        |   |                                        |   |                                        |       |
| CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD                            |   | 203                                         |   | 6,231                                       |       |
|                                                                        |   |                                        |   |                                        |       |
| CASH & CASH EQUIVALENTS, END OF PERIOD                                  |   | 2,202                                       |   | 308                                         |       |
|                                                                        |   |                                        |   |                                        |       |
| NON CASH FINANCING ACTIVITIES                                               |   |                                        |   |                                        |       |
| Issuance of shares associated with acquisitions                             |   | —                                      |   | $                                           | 93,117,120 |   |
|                                                                             |        |                                             |        |                                             |            |  |

** **

**THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESECONSOLIDATED FINANCIAL STATEMENTS.**

** **

F-5

----

 

**MEDICSIGHT,INC. AND SUBSIDIARIES**

**NOTES** TO CONSOLIDATED FINANCIAL STATEMENTS

** **

*(1)          Formation and Business of the Company*

 

Medicsight, Inc. and its subsidiaries (the “Company”)is a developer of sophisticated software technology. The Company’s businessobjective is to deliver the Medicsight business and to develop the Lifesynecenters and brand name.

 

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

 

A Stochastic Perception Engine processes andclassifies unstructured data into meaningful outputs, enabling it to be viewed,interpreted or further manipulated by the user of the application.  Similar technologies sit at the core of manyof today’s major software applications.

 

The Company’s Stochastic Perception Engine iscomprised of four principal modules: cluster analysis, statistical modeling,classification and prediction.  Thistechnology offers unsurpassed processing speed, accuracy and comprehensivenessof results when compared to existing data classification or neural networkbased technologies. The Company is concentrating on the development andcommercialization of the Medicsight system and as such has effectively mergedthe Insights scientific department and the Software development department intoMedicsight PLC (“Medicsight”). Software’s own core technology has not beenfurther developed since acquisition.

 

Insights currently owns the Stochastic PerceptionEngine and the patent applications associated with the technology.

 

Current contracts between Software and existingcustomers have been completed. Software was sold to an independent third partyon October 28, 2002 for a nominal sum of approximately $1,500. As of October28, 2002 it had net assets of approximately $4,500.

 

The Company is the successor consolidated entityformed by the reverse acquisition on December 22, 1999 by Fairfax Equity, Ltd.of Internet Holdings, Inc. a publicly-held company originally incorporated inUtah in 1977, under the name, Trolley Enterprises, Inc.  Fairfax Equity, Ltd. (“Fairfax”), which wastreated as the accounting acquirer in the transaction, was incorporated in theUnited Kingdom on October 18, 1999. Prior to its reverse acquisition byFairfax, control of the former Internet Holdings, Inc., as well as thecorporate name, had changed many times. All prior operations had previously been discontinued and all relatedclaims and counterclaims were settled, the last of which settlements occurredin November 1999.

 

On December 19, 2000, HTTP Technology, Inc. enteredinto an Agreement and Plan of Merger with its wholly-owned subsidiary HTTPTechnology, Inc., a Delaware corporation and thereby effected are-incorporation of the Company from Utah to Delaware.

 

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

 

F-6

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*(2)          Basis of Presentation*

 

The accompanying unaudited consolidated financialstatements of the Company have been prepared pursuant to the rules of theSecurities and Exchange Commission (the “SEC”). Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with generally accepted accounting principles in the United Stateshave been condensed or omitted pursuant to such rules and regulations. Theseunaudited consolidated financial statements should be read in conjunction withthe audited consolidated financial statements and notes thereto included in theCompany’s Annual Report on Form 10-KSB for the fiscal year ended December 31,2001, filed on April 19, 2002. In the opinion of management, the accompanyingunaudited consolidated financial statements reflect all adjustments, which areof a normal recurring nature, necessary for a fair presentation of the resultsfor the periods presented. All significant inter-company transactions have beeneliminated in consolidation.

 

Certain reclassifications have been made in prior period financialstatements to conform to the current presentation.

 

The results of operations presented for the ninemonths and quarter ended September 30, 2002, are not necessarily indicative ofthe results to be expected for any other interim period or any future fiscalyear.

 

*(3)          Lines of Credit*

 

On December 15, 2000, the Company entered into anunsecured credit facility with Asia IT, which provides a $20,000,000 line ofcredit. Such line of credit originally expired on December 31, 2001, but hasbeen extended until December 31, 2003. Interest on advances under the creditfacility accrues at 2% above US LIBOR. The Company can draw down on this creditfacility for its financing requirements, upon approval by the Company’s Boardof Directors and subject to approval by Asia IT (such approval not to beunreasonably withheld). The Company is restricted from borrowing funds,directly or indirectly, other than through the credit facility with Asia IT,without the consent of Asia IT. The availability of the credit facility wouldbe reduced upon the Company’s sale of any of its investment assets. The amountsdrawn and interest charged under this facility are repayable on demand or atthe maturity of the facility.

 

On November 20, 2001, Asia IT entered into a£10,000,000 ($15,000,000) credit facility with Medicsight.  Such facility matures in November 2004 andis secured by a lien on all assets of Medicsight.  Interest on outstanding amounts accrues at 2% above GBPLIBOR.  Pursuant to such creditfacility, Medicsight had covenanted to undertake a public offering of itsordinary shares in an amount not less than £25,000,000 not later than March2002.  However, there are noramifications for the Company if Medicsight does not comply with this covenant,and the credit facility nevertheless will remain in place.  The loan is convertible into ordinary sharesin Medicsight upon announcement of an Offer to Subscribe, Placing or otherpublic offering of its ordinary shares at the same price per share as theoffering price.  Currently there is noloan outstanding and therefore Asia IT will not be converting any loanstock toordinary shares.

 

At September 30, 2002, the Company had drawn down$2,145,000 under the $20,000,000 facility with Asia IT, and Medicsight had notdrawn down any funds under its £10,000,000 ($15,000,000) facility with Asia IT.

 

F-7

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*(4)          Short-term Debt*

 

The Company acquired Insights in December 2000.  At the time of such acquisition, Insightshad outstanding $6,006,000 of long-term debt. This debt is part of the original loan of $10,000,000 that Insights owedto its parent company relating to the acquisition of patent applications forits Stochastic Perception Engine technology. The loan bears interest at 2% above US LIBOR and is unsecured.  The principal of the loan and accruedinterest does not mature until October 5, 2003.  The debt is treated as short-term because the terms of the loannote include a provision whereby the lender can require repayment within onebusiness day of giving notice of demand, in the event Insights ceases to be awholly-owned subsidiary of its former parent. No notice had been given as of September 30, 2002 and management doesnot expect the notice to be given.  Asof September 30, 2002 and September 30, 2001, the balance of this loan was$3,250,000.

 

*(5)          Stockholders’ Equity*

 

On February 5, 2001, the Company effected a 2-for-1split (the “Split”) of its Common Stock. As such, all share and per share information in the accompanyingfinancial statements have been restated to reflect the Split.

 

*(6)          Goodwill and Other Intangible Assets*

 

Goodwill

 

The Company adopted SFAS No. 142 effective January 1,2002. Under this standard, goodwill will no longer be amortized over itsestimated useful life, but will be tested for impairment on an annual basis andwhenever indicators of impairment arise. The Company completed its impairmenttests in the quarter to June 30, 2002 and no impairment was recorded.  Prior to January 1, 2002, goodwill wasamortized on a straight-line basis over 5 years.  The amortization charge for the three and nine months endedSeptember 30, 2001 was $5,616,000 and $14,251,000, respectively.

 

Adjusted results for the three months to September 30,2001 assuming the discontinuation of amortization would be as follows:

 
|                      |   | **Total  ($’000)** |   | **Per Share** |   |
|---------------------------|--------|-------------------------|--------|---------------|--------|
|                      |   |                    |   |          |   |   |
| Loss  as reported         |   | (10,156,000             | )      | $             | (0.18  | ) |
|                      |   |                    |   |          |   |   |
| Amortization  of goodwill |   | 5,616,000               |   | $             | 0.10   |   |
|                      |   |                    |   |          |   |   |
| Pro  forma loss           |   | (4,540,000              | )      | $             | (0.08  | ) |

 

Adjusted results for the nine months to September 30,2001 assuming the discontinuation of amortization would be as follows:

 
|                      |   | **Total  ($’000)** |   | **Per Share** |   |
|---------------------------|--------|-------------------------|--------|---------------|--------|
|                      |   |                    |   |          |   |
| Loss  as reported         |   | (26,434,000             | )      | $             | (0.48  | ) |
|                      |   |                    |   |          |   |
| Amortization  of goodwill |   | 14,251,000              |   | $             | 0.26   |   |
|                      |   |                    |   |          |   |
| Pro  forma loss           |   | (12,183,000             | )      | $             | (0.22  | ) |

 

F-8

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Other Intangible Assets

 

The Company acquired an intangible asset from Insightsconsisting of technology valued at $22,470,000 during Fiscal 2000. Under SFASNo.142, this is considered an intangible asset with a definite life of 5 years.Therefore the value of the asset will be amortized on a straight-line basisover this period.

 

The carrying amount and accumulated amortization ofacquired intangible assets follows:

 
|                          |   | **Jan 1,  2002** |       | **Sept 30,  2002** |   |
|-------------------------------|--------|------------------|------------|--------------------|--------|
|                          |   |             |       |               |   |
| Technology                    |   | $                | 22,470,000 |               | $      | 22,470,000 |   |
|                          |   |             |       |               |   |
| Accumulated  amortization     |   | $                | (4,494,000 | )                  | $      | (7,865,000 | ) |
|                          |   |             |       |               |   |
| Total  intangible assets, net |   | $                | 17,976,000 |               | $      | 14,605,000 |   |

 

The table below shows expected amortization expensefor acquired intangible assets recorded as of January 1, 2002.

 
|                                |   | **2002** |   | **2003** |   | **2004** |   | **2005** |   |
|-------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
| Amortization  expense ($ thousands) |   | 4,494    |   | 4,494    |   | 4,494    |   | 4,494    |   |

 

The above amortization expense forecast is anestimate. Actual amounts of amortization expense may differ from estimatedamounts due to additional intangible asset acquisitions, impairment ofintangible assets, accelerated amortization of intangible assets, and otherevents.

 

*(7)          Major Customers*

 

During the nine months and quarter ended September 30,2002, the Company had two customers who represented 100% of its revenues.  The customers are Commonwealth Secretariat,which accounted for 68% and 74% of sales, respectively, and Texaco Ltd., whichaccounted for 32% and 26% of sales, respectively. During the nine months andquarter ended September 30, 2001, Commonwealth accounted for 54% and 63% ofsales, respectively, and Texaco Ltd. accounted for 24% and 0% of sales,respectively.

 

*(8)          Comprehensive Income*

 

As of September 30, 2002, and for the nine months andquarter then ended, comprehensive income is comprised of a net loss fromoperations and the net effect of foreign currency translation adjustments. Thiscomprised a net loss of $13,396,000 and $1,847,000 and foreign currencytranslation adjustments of $341,000 and $289,000, resulting in comprehensiveloss of $13,737,000 and $2,136,000, respectively.

 

F-9

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**SIGNATURE**

 

Inaccordance with the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 
|                          | **MEDICSIGHT, INC.**                                               |
|-------------------------------|--------------------------------------------------------------------|
|                          |                                                               |
|                          |                                                               |
|                          | By:                                                                | /s/ STEFAN  ALLESCH-TAYLOR |   |
|                          | Stefan Allesch-Taylor                                              |
|                          | Chairman and Chief  Executive Officer  and Chief Financial Officer |
|                          |                                                               |
| Date:  November 11, 2002 |                                                               |

 

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