-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VWHMcC08ypEFZ7WQf2gJ3X7UkQcjO5Cxs4l1dSZ/uHGxJFk+kwwl+bMb7KjKgaaA VDfaErWARNFaB7dZW1aC4A== 0001104659-05-055059.txt : 20051114 0001104659-05-055059.hdr.sgml : 20051111 20051114084713 ACCESSION NUMBER: 0001104659-05-055059 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051114 DATE AS OF CHANGE: 20051114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICSIGHT INC CENTRAL INDEX KEY: 0001001601 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 133758042 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26888 FILM NUMBER: 051196770 BUSINESS ADDRESS: STREET 1: 46 BERKELEY SQUARE CITY: LONDON UNITED KINGDO ZIP: W1Y 7FF BUSINESS PHONE: 2124064700 MAIL ADDRESS: STREET 1: C/O LAW OFFICE OF BECKMAN MILLMAN & SAND STREET 2: 116 JOHN STREET CITY: NEW YORKMELVILLE STATE: NY ZIP: 10038 FORMER COMPANY: FORMER CONFORMED NAME: HTTP TECHNOLOGY INC DATE OF NAME CHANGE: 20001016 FORMER COMPANY: FORMER CONFORMED NAME: INTERNET HOLDINGS INC DATE OF NAME CHANGE: 19980520 FORMER COMPANY: FORMER CONFORMED NAME: CHINA BIOMEDICAL GROUP INC DATE OF NAME CHANGE: 19951003 10-Q 1 a05-18186_110q.htm QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(D)

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

(Mark One)

 

 

ý

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

For the quarterly period ended September 30, 2005

 

o

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

For the transition period from               to              

 

 

Commission file number   0-26886

 

MEDICSIGHT, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

13-4148725

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

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

(Address of principal executive offices, including zip code)

 

011- 44-20-7598-4070

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b—2 of the Exchange Act):  Yes  o             No  ý

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  As of November 10, 2005: 36,367,881 shares of Common Stock, par value $0.001 per share.

 

 


 

NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of Medicsight, Inc and its consolidated subsidiaries (the “Company”) to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of revenue, gross margin, expenses, earnings or losses from operations, synergies or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the execution of restructuring plans; any statement concerning developments, performance or industry rankings relating to products or services; any statements regarding future economic conditions or performance; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include the performance of contracts by suppliers, customers and partners; employee management issues; the difficulty of aligning expense levels with revenue changes; and other risks that are described herein, including but not limited to the specific risks areas discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of this report, and that are otherwise described from time to time in the Company’s Securities and Exchange Commission reports filed after this report. The Company assumes no obligation and does not intend to update these forward-looking statements.

 

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

 

2


 

PART 1

 

FINANCIAL INFORMATION

 

Item 1.                       Financial Statements

 

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

 

Item 2.                       Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

BACKGROUND

 

Medicsight, Inc develops enterprise-wide computer-aided detection (CAD) software that is used by the medical imaging market to aid in earlier detection of disease. Tested on one of the world’s largest databases of verified CT scan data, Medicsight’s software solutions help clinicians identify, measure, and analyze suspicious pathology, such as colorectal polyps and lung lesions. The company’s CAD Application Programming Interface (“API”) products include ColonCAD API, the first CAD technology available for CT colonography, and LungCAD API. Both products allow a concurrent-read that allows clinicians to review the original image simultaneously with the Medicsight CAD findings, which results in improved workflow and productivity. Medicsight continues to develop CAD software for a variety of disease states that can help in the early detection of disease and ultimately improve patient outcomes

 

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

 

During the nine months ended September 30, 2005 the Company issued approximately 1,298,000 shares of restricted stock raising $4,676,000 (net of commissions paid to Asia IT investments Ltd (“Asia IT”), a related party) as part of a private placement.

 

Between October 1, 2005 and November 10, 2005 the Company issued approximately 2,003,000 shares of restricted stock raising $7,729,000 (net of commissions paid to Asia IT, a related party) as part of a private placement. As part of this transaction Asia IT Nominees Ltd (“Asia Nominees”), a related party, acquired 1,050,000 shares for $4,200,000 and Mr. Tim Paterson-Brown, Chief Executive Officer and Director of Medicsight, Inc., acquired 250,000 shares for $1,000,000.

 

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

 

BUSINESS STRATEGY

 

Developers of enterprise computer aided detection (“CAD”) software technology for medical diagnostic applications applicable across differing business models. There are five principal operating subsidiaries: Medicsight PLC (“MS-PLC”), Medicsight USA, Inc (“MS-US”) (previously Lifesyne US), Medicsight International Limited (“MIL”), Medicsight On-Line, Inc (“MOL”), Lifesyne UK Limited (“Lifesyne UK”), and Medicsight Asset Management Limited (“MAM”).

 

3


 

MS-PLC. The majority-owned subsidiary, MS-PLC, is currently developing CAD software that allows clinicians to better interpret medical images acquired through a radiological device. This in turn helps them detect earlier some of the world’s most common causes of premature death. At September 30, 2005, the Company owned 70,677,300 ordinary shares in MS-PLC, constituting 81.8% of the outstanding shares.

 

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

 

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

 

MOL. MOL, a majority owned subsidiary, was recently incorporated in the State of Delaware, U.S.A. to research and develop a medical portal to allow medical professionals to gain access and use MS-PLC’s and other third party software where the relevant hardware is less accessible – such as the developing world. It is anticipated that MOL will obtain licenses from MS-PLC and others at commercial rates.

 

Lifesyne UK. Lifesyne is a wholly owned non-core subsidiary of MS-PLC that was established in September 2002. Lifesyne operates a scanning center in Westminster, London in the United Kingdom. In addition to providing scanning services, Lifesyne focuses on the rapid acquisition of patient CT scan data necessary to train and validate the Medicsight CAD software. On November 10, 2005 Lifesyne was sold to an independent third party for approximately $450,000. On August 18, 2005 MS-PLC entered into an option agreement with the purchaser to acquire Lifesyne for a non-refundable deposit of approximately $90,000 as the purchaser needed further time to arrange the financing for the acquisition. This deposit constituted part of the sale proceeds on completion of the acquisition. At that time the net assets of Lifesyne totaled approximately $844,000 leading to an impairment loss of approximately $394,000.

 

Revenues and operating losses for Lifesyne follow:

 

 

 

$(000)

 

 

 

Three months

 

Three months

 

Nine months

 

Nine months

 

 

 

Ended

 

Ended

 

Ended

 

Ended

 

 

 

September 30,
2005

 

September 30,
2004

 

September 30,
2005

 

September 30,
2004

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

113

 

$

111

 

$

395

 

$

399

 

Operating losses

 

$

290

 

$

519

 

$

882

 

$

1,175

 

 

MAM.  MAM is also a wholly owned subsidiary of MS-PLC that was established in September 2002 for the purpose of acquiring fixed assets on behalf of the operating entities in the group. As Lifesyne’s strategy changed MAM’s business was limited so all assets were transferred to MS-PLC or Lifesyne at market value on December 31, 2004. MAM has ceased trading now that all of its assets have been disposed of.

 

Medicsight is a medical imaging software company. The Company’s core technology is focused on the development of CAD software for clinicians to improve their ability to diagnose and treat diseases. For the last four years the Company has been working on developing algorithms in this area through a team of over 30 scientists and software developers.

 

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

 

4


 

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

 

Mission Statement

 

The Company aims to be a leading developer of CAD software in the medical imaging market.  It will be successful in selling high-quality and innovative products to this market by:

 

•                                           Continued investment in the scientists that are developing the software products.

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

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

•                                          Continued investment in building the worlds largest verified CT scan databases.

 

Corporate Strategy Objectives

 

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

•                                           Working with third parties to develop the necessary distribution channels

•                                           Developing a strategic presence in Asia

•                                           Making selective acquisitions/partnerships that broaden

•              Product range/rate of product development

•              Geographic scope

•              The skills base

 

What differentiates the Company

 

We differentiate ourselves from the competition by delivering to the market innovative and market leading products that are clinically developed and supported by the world’s leading scientists and physicians. We are able to accomplish this by focusing on the following:

 

•                                          Commercial agreements with key distribution partners that allow the efficient and cost effective delivery of our products to the market

•                                           Relationships with the leading scientists and physicians in the world

•                                           Access to the largest and highest quality of patient and scan databases

 

How does this evidence itself?

 

Over the nine months to September 30, 2005 we have signed definitive agreements with TeraRecon, Inc, Viatronix, Inc and Vital Images, Inc to distribute out products.  We believe that these partners will allow our company to sell our products in an efficient and cost effective manner to a vast majority of the imaging market.

 

In each of our core product areas (heart, lung and colon) we have attracted leading medical experts in radiology, including Drs Henschke and Yankelvitz from Cornell, the leading world opinions in lung cancer screening. In addition Dr Pickhardt who conducted the ground breaking colon study published in New

 

5


 

England Medical Journal in December 2003 has agreed to participate. Doctors of this caliber are integral to our product strategy and our data collection strategy.

 

The third area, after science and medical expertise, is data which is crucial to the training and testing of our products The more data available the better opportunity of significantly improving product performance and we have, we believe access to the world’s largest lung and colon scan databases. However, it’s not just quantity of data that is important. Our databases include patient management histories and the observed outcomes that can then be correlated with the original CT scan findings. Thus these databases that include outcome data, will allow us to go beyond basic nodule or polyp detection to diagnostic and therapeutic prediction. As the databases grow and our access to them increases, it will enable the Company to continue to stay ahead of the field in the area of data acquisition and analysis and thus improve the reliability of image prediction which is at the core of the Company’s software products. We believe that this is an important area of differentiation from our competition.

 

Product Portfolio

 

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

 

The software products are called:

 

Medicsight ColonCAD

 

Medicsight LungCAD

 

Medicsight Heartscreen

 

Medicsight introduced a number of innovations to the market in 2004:

 

•                                           The first approved “joint read” detection products

•                                           The first colon neoplasm detection product

•                                          The first adjustable filter system to allow radiologists to adjust their diagnostic prediction settings to suite their requirements

 

Medicsight CAD tools enable radiologists to read CT scans of the colon and lung using a “concurrent-read” approach. Unlike “second-read” software, in which software is employed after radiologists complete their primary review, concurrent-read software enables radiologists to review the original, “unfiltered” images side-by-side simultaneously, with a software-enhanced image showing regions of interest.  Medicsight believes that using CAD in a concurrent-read increases colonic polyp and lung nodule detection efficiency by minimizing the impact on existing radiology workflows while providing valuable additional information to the radiologist.

 

There is increasing evidence in all three areas that early disease (cancer) detection leads to an improved life expectancy and this has been a core focus of our product development. However, our technology is also applicable to many other diseases and we are already starting to plan for these developments.

 

In terms of clinical practice and therefore market segmentation, the products can be split between diagnostic treatment and screening;

 

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

 

6


 

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

 

In October 2004, MS-PLC received approval from the U.S. Food and Drug Administration (“FDA”) for its ColonCAD product, an image analysis software tool that is used with CT colonography (“virtual colonoscopy”) to assist radiologists to search for and measure colorectal polyps. Virtual colonoscopy uses a CT scanner to generate both two-dimensional and three-dimensional views of inside of the colon in a non-invasive fashion. By contrast, traditional colonoscopy, in which a viewing instrument is physically inserted into the bowel is an invasive procedure with a well recognized morbidity and complication rate. Colorectal cancers most often start when malignant cells form within pre-existing benign polyps that are part of the inner surface of the large bowel. Detection and removal of these preexisting polyps can prevent them from developing into invasive tumors.

 

Medicsight ColonCAD works by using MS-PLC’s CAR technology to deploy a series of filters against image data derived from CT colonographies. These filters highlight spherical areas of the image as small as 5 mm (the size of a small pea), which could be potential polyps. The radiologist is also able to manually highlight any other irregularities for closer inspection.  Once suspect polyps are found, the software can precisely identify their boundaries and features and show them in 3D with a volume measurement, diameter, shape and location. This allows the radiologist to accurately review and track any growth in the polyps with a repeated CT scan.

 

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

 

LungCAD works by deploying a series of filters against the image data derived from CT scans. The software has a number of automatic and manual measurement tools to aid diagnosis, including 3D volume measurement and the ability to review follow up scans and tumor doubling times.

 

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

 

Business Development

 

In the last year, non–exclusive agreements have been signed with, TeraRecon, Inc (for the distribution of both LungCAD and ColonCAD), Viatronix, Inc (for both LungCAD and ColonCAD) and Vital Images, Inc (for Colon CAD). These agreements are the first of their kind for the Company and represent a major step forward in the Company’s plans to commercialize its advanced imaging technology on a worldwide basis. The intent is to incorporate MS-PLC’s software into the companies’ existing product offerings.

 

The agreement with TeraRecon (a leader of advanced image processing and 3D visualization solutions for medical applications) will allow current and new users of TeraRecon’s flagship Aquarius family of medical imaging products to add Medicsight’s ColonCAD API and LungCAD API image analysis software tools. The combined TeraRecon / Medicsight imaging system is expected to reach the market in late 2005 or early 2006 and will be debuted in November 2005 at the annual meeting of the Radiological Society of North America (“RSNA”) in Chicago, IL from November 24, 2005 to December 2, 2005..

 

7


 

The agreement with Viatronix (a leading innovator and developer of diagnostic 3D imaging software) will allow current and new users of Viatronix’s V3D-Colon and V3D-Explorer modules to add Medicsight ColonCAD API and LungCAD API image analysis software tools. Users of the integrated software will be able to interactively view Medicsight’s ColonCAD polyp identification marks or LungCAD lung nodule identification marks while viewing a virtual fly-through of the colon or viewing 3D CT lung images using real-time volume rendering.

 

The combined Viatronix / Medicsight imaging system is expected to reach the market in the fourth quarter of 2005. The V3D-Colon system, along with V3D-Explorer integrated with Medicsight LungCAD API, will be displayed in its full commercial form at the annual meeting of the RSNA in Chicago, IL in late November.

 

Vital Images has successfully integrated MS-PLC’s Colon CAD software into its CT colon product InnerviewGI™. Its commercial launch is intended to be at the RSNA conference in Chicago at the end of November 2005.

 

In April 2005 the Company signed a Letter of Intent with a major Japanese distributor to integrate MS-PLC’s Colon CAR™ software product into the workstations of its Japan distribution partner.

 

Expanding distribution

 

Significant business development has already taken place that has lead to an announcement regarding a ColonCAD distribution arrangement in Japan and plans to finalize agreements for distribution of our LungCAD software product in Japan in the fourth quarter of 2005.

 

The Company sees Japan and China, in particular, as strategically important and the Company believes that the significant business development to date should lead to further announcements in these areas this year.

 

Expanding product range and range of technologies

 

Whilst there is a significant ongoing investment in internal new product development programmes, the company is always seeking to build on its leading position. The market for advanced software applications is still embryonic, its ultimate structure remains to be defined; we aim to be one of the leaders and drivers of these changes and ultimately one of the consolidators in the sector.

 

Medicsight has stated as part of its corporate objectives that it will expand its operations via acquisition to fill gaps in technology or product. Over the next year we aim to put this general principal into practice. A number of interesting targets have been identified already that will enhance our ability to offer innovative, integrated clinical solutions to our partners. We believe that, in this way we are in an excellent position to develop differences between the competition and ourselves in this way.

 

International Advisory Boards

 

As the Company’s strategy has evolved, particularly, after the decision to concentrate our efforts on software development and international product distribution, we have acted to align our medical advisory mechanisms to the new circumstances.  The Company has therefore set up three International Advisory Boards (“IAB”).  The IABs have recruited and will continue to recruit individuals with the relevant expertise to become members and encourage the involvement of the radiologists undertaking beta testing of our products, providing data for software development and participating in our scientific program.

 

Some members of the original Medical Board have accepted appointments to the new IABs. New members will include persons with relevant expertise from the United States, Germany, France, Italy, China and Japan.  The IABs are co-chaired by Dr. John Costello (MS-PLC’s medical director), who reports back to

 

8


 

the MS-PLC Board; however, much of the scientific advice and leadership will be provided through a co-chairman, chosen from the IAB members.

 

Terms of Reference of the International Advisory Board

 

The IABs will meet twice a year and fulfill the following roles:

 

•                  Advise on the development and application of Medicsight CT image analysis software in the territories represented.

•                  Provide links to users of CT image analysis systems in their respective territories.

•                  Assist in investor relations on an international basis.

•                  Advise on, and participate in, clinical development programs for the Company’s software.

•                  Act as advisors in relation to regulatory submissions for the Company’s products.

•                  Advise on sources of library data (CT scans) to support training and development of the Company’s software.

 

Objectives of the International Advisory Board

 

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

 

•                  Ensure that members have a full understanding of the Medicsight technology and are motivated to participate in its development and application, both locally and internationally.

•                  Ensure that the clinical development program is compatible with local clinical practice.

•                  Ensure that the clinical development program is compatible with local regulatory guidelines.

•                  Obtain insight into local issues with respect to marketing of the Company’s products.

 

Risk Factors

 

We cannot assure you that the Company will be successful in commercializing the Medicsight™ system, or if such a system is commercialized, that its use will be profitable to the Company. We face obstacles in commercializing our core technology and in generating operating revenues such as, but not limited to, successful development, testing of and gaining regulatory approval for the technology.

 

The Company does not believe that there is currently any comparable system that is competitive with the Medicsight™ system. There are computer-aided diagnostic systems that operate in the field, but, in our view, such other systems are overly dependent on human resources to carry out the analysis, as none have the automated capability of the Medicsight™ system.

 

The Company has had only a limited operating history upon which an evaluation of its 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 new business in an ever-changing industry. There can be no assurance that the Company will be able to achieve profitable operations.

 

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

 

Technical Risks.  The Medicsight™ system may not deliver the levels of accuracy and reliability needed, or the development of such accuracy and reliability may be delayed.

 

Market Risks.  The market for the Medicsight™ system may be slower to develop or smaller than estimated or it may be more difficult to build the market than anticipated. The medical community may resist the Medicsight™ system or be slower to accept it than we expect. Revenues from the Lifesyne™ scanning

 

9


 

centers and the licensing of the Medicsight™ system may be delayed or costs may be higher than expected which may result in the Company requiring additional funding.

 

Regulatory Risks.  The Medicsight™ system is subject to regulatory requirements in both the United States and Europe. Approvals may not be obtained, may be delayed or incur additional cost to the Medicsight™ system.

 

Competitive Risks. There are a number of groups and organizations, such as software companies in the medical imaging field, scanner manufacturers, screening companies and other healthcare providers that may develop a competitive offering to the MedicsightTM system.  In addition these competitors may have significantly greater resources than the Company. We cannot make any assurance that they will not attempt to develop such offerings, that they will not be successful in developing such offerings or that any offerings they do develop will not have a competitive edge over the MedicsightTM system.

 

Financial Risk. These consolidated financial statements are presented on the basis that the Company will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business over a reasonable length of time. The Company has incurred significant operating losses since inception. As a result, the Company has generated negative cash flows from operations, and has an accumulated deficit at September 30, 2005 and there is uncertainty with respect to the availability and the utilization of its credit facility with Asia IT Capital Investments Limited (a related party) – see Note 3. The Company is operating in a developing industry based on new technology and its primary source of funds to date has been through the issuance of securities and borrowed funds. The Company is currently seeking additional funding and is actively developing the technology in order to bring it to market.

 

Corporate Structure. The Company’s corporate structure may make it more difficult or costly to take certain actions. The Company conducts substantially all its business through MS-PLC, a U.K. public company which is 81.8% owned by the Company, and through MS-PLC’s subsidiaries in the United Kingdom and the United States.  Although the Company and MS-PLC share directors and management, they are required to comply with corporate governance and other laws and rules applicable to public companies in the United Kingdom and the United States.  Should the Company propose to take any action, such as a transfer or allocation of assets or liabilities between the Company and MS-PLC, the Company would have to take into consideration the potentially conflicting interests of the Company’s stockholders and the minority stockholders of MS-PLC.  This may deter the Company from taking such actions that might otherwise be in the best interest of the Company or cause the Company to incur additional costs in taking such actions. MS-PLC would not be able to pay dividends or make other distributions of profits or assets to the Company without making pro rata payments or distributions to the minority stockholders of MS-PLC.  Although neither MS-PLC or the Company has plans to pay dividends or make distributions to its shareholders, the Company’s corporate structure may deter MS-PLC and the Company from doing so in the future. 

 

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

 

Other Risks. The Company’s ability to deliver its software could be hindered by risks such as the loss of key personnel or the patents and trademarks being successfully challenged or credit facilities being reduced or terminated by lenders.

 

10


 

RESULTS OF OPERATIONS

 

Revenues. For the nine months ended September 30, 2005 and September 30, 2004, and for the quarters ended September 30, 2005 and September 30, 2004, the Company’s gross revenues from continuing operations were $nil.

 

The Company’s revenues were derived from the Company’s discontinued Lifesyne™ scanning operations – see “Discontinued Operations” below.

 

Selling, General and Administrative Expenses. The Company’s selling, general and administrative expenses from continuing operations for the nine months and quarter ended September 30, 2005, were $7,057,000 and $2,419,000 respectively as compared to $7,453,000 and $2,287,000 for the nine months and quarter ended September 30, 2004 respectively.

 

The significant elements of the Selling, General and Administrative Expenses from continuing operations are outlined in the table below:

 

 

 

($000’s)

 

 

 

Nine months

 

Quarter

 

Nine months

 

Quarter

 

 

 

ended

 

Ended

 

ended

 

ended

 

 

 

September 30, 2005

 

September 30, 2004

 

 

 

 

 

 

 

 

 

 

 

Salaries and directors’ compensation

 

2,912

 

983

 

2,444

 

827

 

 

 

 

 

 

 

 

 

 

 

Payroll taxes and other staff costs

 

416

 

128

 

470

 

88

 

 

 

 

 

 

 

 

 

 

 

Professional fees

 

691

 

262

 

725

 

186

 

 

 

 

 

 

 

 

 

 

 

Property rent

 

500

 

194

 

470

 

164

 

 

 

 

 

 

 

 

 

 

 

Property service charges

 

247

 

62

 

306

 

93

 

 

The increase in salaries and director’s compensation for the nine months ended September 30, 2005 as compared to the nine months ended September 30, 2004 is due to the increase in staff as the Company moves from its research and development stage to a more commercially orientated entity. The increase in professional fees for the quarter ended September 30, 2005 is due to increased legal costs associated with our various patent applications.

 

Research and Development Cost. The Company’s research and development cost for the nine months and quarter ended September 30, 2005, was $1,721,000 and $558,000 respectively as compared to $2,221,000 and $701,000 for the nine months and quarter ended September 30, 2004 respectively. The reduction was due to the MS-PLC reducing its use of outside consultants and the costs of data acquisition as MS-PLC gains access to the largest and highest quality of patient and scan databases. The Company’s research and development costs are comprised of staff and consultancy costs expensed on the Medicsight™ system.

 

11


 

Income Tax Benefit Realized. The receipt of $883,000 relates to a tax credit paid by the United Kingdom taxation authorities in the second quarter of Fiscal 2005 under its R&D tax relief scheme for small and medium enterprises to MS-PLC. The tax credit can either be set-off against taxable profits or, if not available, can be paid. If it is paid then this is set-off against the net operating loss carry forwards. The basis for the R&D relief is too encourage the development of new technologies and is only applicable to the research and development of a new technology and not a product.

 

The receipt represented the tax credit received for expenditures incurred between November 2001 and December 2003. The Company did not accrue for any potential tax credit for Fiscal 2004 as it has determined that the completion date of the new technology occurred at the end of Fiscal 2003 and therefore no application for Fiscal 2004 will be made.

 

Discontinued Activities. During the third quarter of 2005 a plan was initiated for the disposal of the Lifesyne business.  In accordance with Statement of Financial Accounting Standards No. 144 Accounting for Impairment or disposal of Long-Lived Assets Lifesyne has been accounted for as discontinued operations.  Accordingly, our financial statements have been restated to reflect the Lifesyne Segment as a discontinued operation in our consolidated statements of operations and cash flows for all periods presented.  Statement of operations information presented in the notes to consolidated financial statements has been restated to reflect continuing operations for all periods presented. Balance sheet information presented in the notes to consolidated financial statements has been restated to reflect continuing operations for 2005 only.  In addition, the September 30, 2005 consolidated balance sheet reflects the assets and liabilities of the discontinued operations as held for sale.

 

On November 10, 2005 Lifesyne was sold to an independent third party for approximately $450,000. On August 18, 2005 MS-PLC entered into an option agreement with the purchaser to acquire Lifesyne for a non-refundable deposit of approximately $90,000 as the purchaser needed further time to arrange the financing for the acquisition. This deposit constituted part of the sale proceeds on completion of the acquisition. At that time the net assets of Lifesyne totaled approximately $844,000 leading to an impairment loss of approximately $394,000.

 

Assets and Liabilities

 

$’000

 

 

 

 

 

Property and equipment

 

1,075

 

Impairment loss

 

(394

)

 

 

681

 

Current assets

 

136

 

Current liabilities

 

(367

)

 

 

$

450

 

 

Revenues and operating losses for Lifesyne follow:

 

 

 

$(000)

 

 

 

Three months

 

Three months

 

Nine months

 

Nine months

 

 

 

Ended

 

Ended

 

Ended

 

Ended

 

 

 

September 30,
2005

 

September 30,
2004

 

September 30,
2005

 

September 30,
2004

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

113

 

$

111

 

$

395

 

$

399

 

Operating losses

 

$

290

 

$

519

 

$

882

 

$

1,175

 

 

12


 

Net Loss and Net Loss per Share.  Net loss was $9,110,000 and $3,652,000 respectively for the nine months and quarter ended September 30, 2005 as compared to a net loss of $10,232,000 and $3,024,000 for the nine months and quarter ended September 30, 2004.  Net loss per share for the nine months and quarter ended September 30, 2005 was $0.27 and $0.11 respectively, based on weighted average shares outstanding of 33,687,045 and 34,123,713 respectively, as compared to a net loss per share for the nine months and quarter ended September 30, 2004 was $0.34 and $0.10 respectively, based on weighted average shares outstanding of 30,157,023 and 31,104,194 respectively.

 

The decrease in net losses for the nine months to September 30, 2005 as compared to the nine months to September 30, 2004 are due to decreases in selling, general and administrative expenses, research and development costs and the receipt of the R&D tax credit under a United Kingdom taxation scheme.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Working Capital Information as at September 30: 

 

 

 

($000’s)

 

 

 

September
30, 2005

 

December 31,
2004

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

1,749

 

5,276

 

 

 

 

 

 

 

Current Assets

 

3,157

 

6,515

 

 

 

 

 

 

 

Current Liabilities

 

(1,887

)

(2,353

)

 

 

 

 

 

 

Working Capital Surplus

 

1,270

 

4,162

 

 

 

 

 

 

 

Ratio of Current Assets to Current Liabilities

 

1.67

 

2.77

 

 

Net Decrease in Cash and Cash Equivalents. During the nine months ended September 30, 2005, the Company’s cash and cash equivalents decreased by $3,527,000. This decrease was primarily the result of cash flows received from shares issued by the Company being exceeded by the net cash used in operating activities. The Company used net cash of $7,592,000 in continuing operations and used net cash of $651,000 in discontinued operations. The Company received net cash of $4,343,000 in financing activities and received $199,000 from investing activities.

 

Net Cash Used in Operations. The use of cash in continuing operations of  $7,592,000 in the nine months ended September 30, 2005, was attributable to the Company’s relatively minimal revenues at the same time that the Company incurred significant operating and software research and development costs. The effect of these costs was reduced by the tax credit of $883,000 received by MS-PLC. These significant costs included professional fees, salaries and director compensation, marketing, regulatory costs and property service charges and rent. The Company used cash in continuing operations in the nine months ended September 30, 2004 of  $10,331,000.

 

Net Cash provided by Investing Activities. In the nine months ended September 30, 2005, the Company had a net cash inflow from investing activities of $199,000. On May 25, 2005 Medicsight’s indirect subsidiary

 

13


 

MAM completed the sale of the CT Lightspeed 16 scanner located at the redundant test center at Ravenscourt Hospital in West London for $300,000, net of applicable sales tax, to GE Medical Systems. Additionally, the Company purchased $101,000 in fixed assets in the same period. In the nine months ended September 30, 2004 the Company had a net cash outflow from investing activities of $121,000. The Company used the funds to purchase additional fixed assets.

 

Net Cash Provided by Financing Activities. In the nine months ended September 30, 2005, the Company had a net cash inflow from financing activities of $4,343,000. The funds received in the nine months ended September 30, 2005, consisted of $4,676,000 from the Company’s private offerings less $333,000 used to settle the lease outstanding on the CT Lightspeed 16 scanner sold by MAM. For the nine months ended September 30, 2004, the Company had a net cash inflow from financing activities of $19,728,000. The funds received consisted of $22,851,000 received from the private offering of the Company’s stock, which were partly used to reduce the bank overdraft ($196,000) and to repay the short term debt – related party by $2,880,000.

 

Stockholders’ Equity. The Company’s stockholders’ equity at September 30, 2005 was $13,926,000, including an accumulated deficit of $(187,608,000), as compared to $18,465,000 at December 31, 2004, including an accumulated deficit of $(178,498,000). Additional paid-in capital was $201,327,000 and $196,652,000, at September 30, 2005 and December 31, 2004 respectively. The increase in stockholders’ equity was a result of an increase in additional paid-in capital of $4,676,000 resulting from the placement of the Company’s stock offset by an increase in accumulated deficit of $9,110,000.

 

Additional Capital. The Company will require additional capital during its fiscal years ending December 31, 2005 and 2006 to implement its business strategies, including cash for payment of increased operating expenses such as salaries for additional employees. Such additional capital may be raised through additional public or private equity offerings, as well as borrowings and other resources. Currently, the Company has two available lines of credit.

 

During the nine months ended September 30, 2005 the Company issued approximately 1,298,000 shares of restricted stock raising $4,676,000 (net of commissions paid to Asia IT investments Ltd (“Asia IT”), a related party) as part of a private placement.

 

Between October 1, 2005 and November 10, 2005 the Company issued approximately 2,003,000 shares of restricted stock raising $7,729,000 (net of commissions paid to Asia IT, a related party) as part of a private placement. As part of this transaction Asia IT Nominees Ltd (“Asia Nominees”), a related party, acquired 1,050,000 shares for $4,200,000 and Mr. Tim Paterson-Brown, Chief Executive Officer and Director of Medicsight, Inc., acquired 250,000 shares for $1,000,000.

 

On December 15, 2000, the Company entered into an unsecured credit facility with Asia IT that provides a $20,000,000 line of credit. Such line of credit originally expired on December 31, 2001, but has been extended until June 30, 2008. Interest on advances under the credit facility accrues at 2% above US LIBOR. The Company can draw down on this credit facility for its financing requirements, upon approval by the Company’s Board of Directors and subject to approval by Asia IT (such approval not to be unreasonably withheld). The Company is restricted 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 reduces upon the Company’s sale of any of its investment assets. The amounts drawn and interest charged under this facility are repayable on demand or at the maturity of the facility.

 

On November 20, 2001, Asia IT entered into a £10,000,000 ($18,000,000) credit facility with MS-PLC.  Such facility matures on June 30, 2008 and is secured by a lien on all assets of MS-PLC.  Interest on outstanding amounts accrues at 2% above GBP LIBOR. The loan is convertible into ordinary shares in MS-PLC on announcement of an Offer to Subscribe, Placing or other public offering of its ordinary shares, at the same price per share as the offering price.

 

14


 

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

 

To the extent that additional capital is raised through the sale of equity or equity-related securities of the Company or its subsidiaries, the issuance of such securities could result in dilution to the Company’s stockholders. No assurance can be given, however, that the Company will have access to the capital markets in the future, or that financing will be available on acceptable terms to satisfy the Company’s cash requirements to implement its business strategies. If we are unable to access the capital markets or obtain acceptable financing, our results of operations and financial conditions could be materially and adversely affected.  We may be required to raise substantial additional funds through other means.   The products derived from our proprietary software, including the Medicsight™ system, are expected to account for substantially all of our revenues from operations in the foreseeable future.  Our technology has not yet been fully commercialized and we have not begun to receive any significant revenues from commercial operations.  We cannot assure our stockholders that our technology and products will be commercialized successfully, or that if so commercialized, that revenues will be sufficient to fund our operations.  If adequate funds are not available to us, we may be required to curtail operations significantly or to obtain funds through entering into arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies or products that we would not otherwise relinquish.

 

Critical Accounting Policies

 

The Securities and Exchange Commission requested that all registrants list their most critical accounting policies in the Management’s Discussion and Analyses of Financial Condition and Results of Operations. The Securities and Exchange Commission indicated a “critical accounting policy” is one which is both important to the portrayal of the company’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe that the following accounting policies fit the definition of critical accounting policies.

 

Revenue Recognition. We expect to earn our revenue primarily from software licenses and related services. Our revenue is recognized in accordance with Statement of Position 97-2 (SOP 97-2), as amended by Statement of Position 98-9. Currently the Company’s revenues derive from its scanning services operated by LifesyneTM. Scan revenue is recognized when the service is delivered.

 

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

 

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

 

15


 

Research and Development. Costs incurred in connection with the development of software products that are intended for sale are accounted for in accordance with Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”. Costs incurred prior to technological feasibility being established for the product are expensed as incurred. Technological feasibility is established upon completion of a detail program design or, in its absence, completion of a working model. Thereafter, all software production costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product. Amortization commences when the product is available for general release to customers.

 

The Company decided that capitalizing such expenditure was inappropriate because of the difficulty in assigning costs accurately to the various software products and versions being developed as technical and development staff are moved from product to product and version to version on a regular basis. Therefore the Company has decided to expense all research and development costs. The Company’s research and development costs are comprised of staff and consultancy costs expensed on the Medicsight™ system.

 

Impairment of Long-lived Assets and Long-lived Assets To Be Disposed of. The Company evaluates the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s assessment for impairment of an asset involves estimating the undiscounted cash flows expected to result from use of the asset and its eventual disposition. An impairment loss recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

 

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

 

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

 

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

 

Recent Accounting Pronouncements

 

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

 

In December 2004, the FASB issued Statement 153,”Exchanges of Non-monetary Assets, an amendment of APB Opinion No.29.” The standard is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged and eliminates the exception under

 

16


 

APB Opinion No. 29 for an exchange of similar productive assets and replaces it with an exception for exchanges of non-monetary assets that do not have commercial substance. The standard is effective for non-monetary exchanges occurring in fiscal periods beginning after June 15, 2005. The Company cannot determine the impact of SFAS 153 at this time.

 

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

 

Item 3.                       Quantitative and Qualitative Disclosures About Market Risk

 

Interest Rate Risk

 

The Company’s exposure to market risk associated with changes in interest rates relates to its debt obligations. The Company has the following debt facilities, which are all repayable on demand:

 

Debt Holder

 

Facility

 

Draw Down

 

Interest rate

 

At September 30

 

 

 

 

 

 

 

 

 

 

 

Asia IT Capital Investments Ltd

 

$

20,000,000

 

$

nil

 

US Libor + 2

%

6.44

%

 

 

 

 

 

 

 

 

 

 

Asia IT Capital Investments Ltd

 

$

18,000,000

 

$

nil

 

GBP Libor + 2

%

6.54

%

 

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

 

Foreign Exchange Risk

 

The Company holds limited cash balances in British Pounds so any adverse movements in the exchange rates are considered immaterial.

 

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

 

17


 

Item 4.                       Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation of the effectiveness of the design and operation of the Company’s  “disclosure controls and procedures” as of September 30, 2005. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. As defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, disclosure controls and procedures are controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

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

 

Changes in Internal Control over Financial Reporting

 

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

 

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

 

18


 

PART II

 

Item 1.                       Legal Proceedings 

 

There are currently no pending legal proceedings.

 

Item 2.                       Unregistered Sales of Equity Securities and Use of Proceeds

 

Between January 1, 2005 and September 30, 2005 the Company issued approximately 1,298,000 shares of common stock at $4.00 per share to a number of institutional investors and private individuals as part of a private placement raising approximately $4,676,000 net of commissions payable to Asia IT, a related party. The shares of common stock were issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933.

 

Between October 1, 2005 and November 10, 2005 the Company issued approximately 2,003,000 shares of common stock at $4.00 per share to a number of institutional investors and private individuals as part of a private placement raising approximately $7,729,000 (net of commissions) as part of a private placement. The shares of common stock were issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933.

 

Item 3.                       Defaults Upon Senior Securities

 

None.

 

Item 4.                       Submission of Matters to a Vote of Security Holders

 

None.

 

Item 5.                       Other Information

 

None.

 

19


 

Item 6.                       Exhibits and Reports on Form 8-K

 

(a)

Exhibits

 

 

31.1

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer - filed herewith).

 

 

31.2

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer - filed herewith).

 

 

32.1

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer - filed herewith).

 

 

32.2

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer - filed herewith).

 

 

(b)

Reports on Form 8-K

 

 

 

None

 

20


 

MEDICSIGHT, INC. AND SUBSIDIARIES

 

INDEX TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

AS OF AND FOR THE THREE AND NINE MONTH PERIODS ENDED

SEPTEMBER 30, 2005

 

Condensed Consolidated Balance Sheets as of September 30, 2005 (Unaudited) and December 31, 2004

F-2

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2005 (Unaudited) and the Three Months Ended September 30, 2004 (Unaudited)

F-3

 

 

Condensed Consolidated Statements of Operations for the Nine months Ended September 30, 2005 (Unaudited) and the Nine months Ended September 30, 2004 (Unaudited)

F-4

 

 

Condensed Consolidated Statement of Cash Flows for the Nine months Ended September 30, 2005 (Unaudited) and the Nine months Ended September 30, 2004 (Unaudited)

F-5

 

 

Notes to Condensed Consolidated Financial Statements

F-6 to F-10

 

F-1


 

MEDICSIGHT, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In $ thousands)

 

 

 

September 30,
2005

 

December 31,
2004

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

1,749

 

$

5,276

 

Accounts receivable

 

—

 

26

 

Other receivables

 

56

 

28

 

Prepaid expenses

 

462

 

498

 

Sales tax receivable

 

73

 

687

 

Assets held for disposal

 

817

 

—

 

Total current assets

 

3,157

 

6,515

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation of $1,516 and $2,202, respectively

 

284

 

2,066

 

 

 

 

 

 

 

INVESTMENTS, at cost

 

359

 

359

 

 

 

 

 

 

 

SECURITY DEPOSITS

 

827

 

901

 

 

 

 

 

 

 

EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED

 

11,200

 

11,200

 

 

 

 

 

 

 

Total assets

 

$

15,827

 

$

21,041

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Current portion of obligations under capital leases

 

$

14

 

$

107

 

Accounts payable

 

1,079

 

1,193

 

Accrued expenses

 

427

 

1,053

 

Liabilities held for disposal

 

367

 

—

 

Total current liabilities

 

1,887

 

2,353

 

CAPITAL LEASE, net of current portion

 

14

 

223

 

Total liabilities

 

$

1,901

 

$

2,576

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Common stock, $0.001 par value, 40,000,000 shares authorized, 34,365,381 and 33,067,125 shares issued and outstanding,respectively

 

34

 

33

 

Additional paid-in capital

 

201,327

 

196,652

 

Cumulative foreign currency translation adjustment

 

173

 

278

 

Accumulated deficit

 

(187,608

)

(178,498

)

TOTAL STOCKHOLDERS’ EQUITY

 

13,926

 

18,465

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

15,827

 

$

21,041

 

 

The accompanying notes are an integral part of these condensed statements.

 

F-2


 

MEDICSIGHT, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In $ thousands, except per share amounts)

 

 

 

Three Months

 

Three Months

 

 

 

Ended

 

Ended

 

 

 

September 30,
2005

 

September 30,
2004

 

 

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

REVENUES

 

$

—

 

$

—

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Selling, general and administrative charges

 

2,419

 

2,287

 

Research and development cost

 

558

 

701

 

Impairment of investment

 

—

 

70

 

 

 

 

 

 

 

 

 

2,977

 

3,058

 

 

 

 

 

 

 

Operating loss

 

(2,977

)

(3,058

)

 

 

 

 

 

 

OTHER INCOME

 

 

 

 

 

Interest and other income

 

9

 

82

 

 

 

 

 

 

 

LOSS FROM OPERATIONS BEFORE MINORITY INTEREST AND DISCONTINUED OPERATIONS

 

(2,968

)

(2,976

)

 

 

 

 

 

 

MINORITY INTEREST

 

—

 

471

 

 

 

 

 

 

 

DISCONTINUED OPERATIONS:

 

 

 

 

 

Loss from impairment of assets held for sale

 

(394

)

—

 

Loss from operations of Lifesyne

 

(290

)

(519

)

 

 

 

 

 

 

NET LOSS

 

$

(3,652

)

$

(3,024

)

 

 

 

 

 

 

LOSS PER SHARE:

 

 

 

 

 

Basic and diluted:

 

 

 

 

 

Loss from continuing operations

 

$

(0.09

)

$

(0.08

)

Loss from discontinued operations

 

$

(0.02

)

$

(0.02

)

 

 

 

 

 

 

Net loss

 

$

(0.11

)

$

(0.10

)

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

34,123,713

 

31,104,194

 

 

The accompanying notes are an integral part of these condensed statements.

 

F-3


 

MEDICSIGHT, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In $ thousands, except per share amounts)

 

 

 

Nine months

 

Nine months

 

 

 

Ended

 

Ended

 

 

 

September 30,
2005

 

September 30,
2004

 

 

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

REVENUES

 

$

—

 

$

—

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Selling, general and administrative charges

 

7,057

 

7,453

 

Research and development cost

 

1,721

 

2,221

 

Impairment of investment

 

—

 

70

 

 

 

 

 

 

 

 

 

8,778

 

9,744

 

 

 

 

 

 

 

Operating loss

 

(8,778

)

(9,744

)

 

 

 

 

 

 

OTHER INCOME

 

 

 

 

 

Interest and other income

 

61

 

82

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAX BENEFIT REALIZED, MINORITY INTEREST AND DISCONTINUED OPERATIONS

 

(8,717

)

(9,662

)

 

 

 

 

 

 

INCOME TAX BENEFIT REALIZED

 

883

 

—

 

 

 

 

 

 

 

LOSS BEFORE MINORITY INTEREST, AND DISCONTINUED OPERATIONS

 

(7,834

)

(9,662

)

 

 

 

 

 

 

MINORITY INTEREST

 

—

 

605

 

 

 

 

 

 

 

DISCONTINUED OPERATIONS:

 

 

 

 

 

Loss from impairment of assets held for sale

 

(394

)

—

 

Loss from operations of Lifesyne

 

(882

)

(1,175

)

 

 

 

 

 

 

Net loss

 

$

(9,110

)

$

(10,232

)

 

 

 

 

 

 

LOSS PER SHARE:

 

 

 

 

 

BASIC AND DILUTED

 

 

 

 

 

Loss from continuing operations

 

$

(0.23

)

$

(0.30

)

Loss from discontinued operations

 

$

(0.04

)

$

(0.04

)

 

 

 

 

 

 

Net loss

 

$

(0.27

)

$

(0.34

)

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

33,687,045

 

30,157,023

 

 

The accompanying notes are an integral part of these condensed statements.

 

F-4


 

MEDICSIGHT, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(In $ thousands)

 

 

 

Nine months
Ended

 

Nine months
Ended

 

 

 

September 30,
2005

 

September 30,
2004

 

 

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

 

$

(9,110

)

$

(10,232

)

Loss from discontinued operations

 

(1,276

)

(1,175

)

Loss from continuing operations

 

(7,834

)

(9,057

)

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

Depreciation

 

355

 

570

 

Impairment of investment

 

—

 

70

 

Minority interest in net loss of subsidiary

 

—

 

(605

)

Loss on disposal of fixed assets

 

69

 

—

 

(Increase)/decrease in assets

 

 

 

 

 

Accounts receivable

 

26

 

1

 

Prepaid expenses and other current assets

 

8

 

61

 

Sales tax receivable

 

590

 

(117

)

(Decrease) in liabilities

 

 

 

 

 

Accounts payable

 

(156

)

(1,185

)

Accrued expenses

 

(650

)

(69

)

 

 

 

 

 

 

Net cash provided by/(used in) operating activities

 

(7,592

)

(10,331

)

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Sale of fixed assets

 

300

 

—

 

Purchase of fixed assets

 

(101

)

(234

)

Net cash used in investing activities

 

199

 

(234

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Principal payments under capital lease obligations

 

(333

)

(47

)

Decrease of bank overdraft

 

—

 

(196

)

Proceeds from sale of common stock

 

4,676

 

22,851

 

Decrease in short term debt – related party

 

—

 

(2,880

)

Net cash provided by financing activities

 

4,343

 

19,728

 

 

 

 

 

 

 

Effect of exchange rates on cash and cash equivalents

 

174

 

(19

)

 

 

 

 

 

 

Discontinued Operations

 

(651

)

(1,175

)

 

 

 

 

 

 

NET CHANGE IN CASH & CASH EQUIVALENTS

 

(3,527

)

(7,969

)

 

 

 

 

 

 

CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD

 

5,276

 

845

 

 

 

 

 

 

 

CASH & CASH EQUIVALENTS, END OF PERIOD

 

$

1,749

 

$

8,814

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH PAID

 

 

 

 

 

Interest

 

4

 

38

 

Income tax benefit realized

 

(883

)

—

 

 

The accompanying notes are an integral part of these condensed statements.

 

F-5


 

MEDICSIGHT, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS

 

(1)                               Formation and Business of the Company

 

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

 

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

 

(2)                               Basis of Presentation and liquidity

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the Fiscal years ended December 31, 2004. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the periods presented. All significant inter-company transactions have been eliminated in consolidation.

 

The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period.

 

The unaudited condensed consolidated include the accounts of Medicsight, Inc. and its subsidiaries in which it has a controlling interest.  All inter-company accounts have been eliminated in consolidation.  The Company has ceased recognizing the minority interest in its consolidated subsidiaries losses because the losses have exceeded the minority shareholders equity interest in the subsidiary.

 

These unaudited condensed consolidated financial statements are presented on the basis that the Company will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business over a reasonable length of time. The Company has incurred significant operating losses since inception. As a result, the Company has generated negative cash flows from operations, and has an accumulated deficit at September 30, 2005 and there is uncertainty with respect to the availability and the utilization of its credit facility with Asia IT Capital Investments Limited (a related party) – see Note 3. The Company is operating in a developing industry based on new technology and its primary source of funds to date has been through the issuance of securities and borrowed funds. The Company will continue to seek additional funding when required and is actively developing the technology in order to bring it to market. While the Company is optimistic and believes appropriate actions are being taken, there can be no assurance, however, that management’s efforts will be successful or that the products the Company develops and markets will be accepted by consumers.

 

F-6


 

(3)                               Lines of Credit

 

On December 15, 2000, the Company entered into an unsecured credit facility with Asia IT, which provides a $20,000,000 line of credit. Such line of credit originally expired on December 31, 2001, but has been extended until June 30, 2008. Interest on advances under the credit facility accrues at 2% above US LIBOR. The Company can draw down on this credit facility for its financing requirements, upon approval by the Company’s Board of Directors and subject to approval by Asia IT (such approval not to be unreasonably withheld). The Company is restricted 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 would be reduced upon the Company’s sale of any of its investment assets. The amounts drawn and interest charged under this facility are repayable on demand or at the maturity of the facility.

 

On November 20, 2001, MS-PLC entered into a £10,000,000 ($18,000,000) credit facility with Asia IT.  Such facility matures on June 30, 2008 and is secured by a lien on all assets of MS-PLC.  Interest on outstanding amounts accrues at 2% above GBP LIBOR.  The loan is convertible into ordinary shares in MS-PLC on announcement of an Offer to Subscribe, Placing or other public offering of its ordinary shares, at the same price per share as the offering price.

 

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

 

(4)                               Discontinued Activities

 

During the third quarter of 2005 a plan was initiated for the disposal of the Lifesyne business.  In accordance with Statement of Financial Accounting Standards No. 144 Accounting for Impairment or disposal of Long-Lived Assets Lifesyne has been accounted for as discontinued operations.  Accordingly, our financial statements have been restated to reflect the Lifesyne Segment as a discontinued operation in our consolidated statements of operations and cash flows for all periods presented.  Statement of operations information presented in the notes to consolidated financial statements has been restated to reflect continuing operations for all periods presented. Balance sheet information presented in the notes to consolidated financial statements has been restated to reflect continuing operations for 2005 only.  In addition, the September 30, 2005 consolidated balance sheet reflects the assets and liabilities of the discontinued operations as held for sale.

 

On November 10, 2005 Lifesyne was sold to an independent third party for approximately $450,000. On August 18, 2005 MS-PLC entered into an option agreement with the purchaser to acquire Lifesyne for a non-refundable deposit of approximately $90,000 as the purchaser needed further time to arrange the financing for the acquisition. This deposit constituted part of the sale proceeds on completion of the acquisition. At that time the net assets of Lifesyne totaled approximately $844,000 leading to an impairment loss of approximately $394,000.

 

Revenues and operating losses for Lifesyne follow:

 

 

 

$(000)

 

 

 

Three months

 

Three months

 

Nine months

 

Nine months

 

 

 

Ended

 

Ended

 

Ended

 

Ended

 

 

 

September 30,
2005

 

September 30,
2004

 

September 30,
2005

 

September 30,
2004

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

113

 

$

111

 

$

395

 

$

399

 

Operating losses

 

$

290

 

$

519

 

$

882

 

$

1,175

 

 

F-7


 

(5)                               Stockholders’ Equity

 

During the nine months ended September 30, 2005 the Company issued approximately 1,298,000 shares of restricted stock raising $4,676,000 (net of commissions paid to Asia IT investments Ltd (“Asia IT”), a related party) as part of a private placement.

 

(6)                               Accounting for Stock Based Compensation

 

On March 20, 2003, the Board of Directors of MS-PLC approved a stock option plan “A” for its employees and reserved 4,000,000 shares of its common stock for issuance upon exercise of options granted under this plan. On April 19, 2003, the Remuneration Committee of MS-PLC also approved the stock option plan and implemented it on April 30, 2003 granted options over 2,828,600 shares to employees of MS-PLC. At September 30, 2005 there were 1,872,500 options outstanding and 100% of the options issued were exercisable under this plan.

 

On September 30, 2004 MS-PLC granted options over 3,400,500 shares to its employees under the stock option plan “B”. Subsequently on August 15, 2005, the Board of Directors of MS-PLC approved the stock option plan “B”. At September 30, 2005 there were 2,057,700 options outstanding and 70% of the options issued were exercisable under this plan after MS-PLC had passed certain vesting criteria.

 

On June 30, 2005 MS-PLC granted options over 200,000 shares to its employees. Subsequently on August 15, 2005, the Board of Directors of MS-PLC approved a stock option plan “C”. At September 30, 2005 there were 200,000 options outstanding and none of the options issued were exercisable. Options issued under this plan vest equally after employees have been employed for 12, 24 and 36 months.

 

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

 

 

 

Nine months

 

Nine months

 

Three months

 

Three months

 

 

 

Ended

 

Ended

 

Ended

 

Ended

 

 

 

September 30,
2005

 

September 30,
2004

 

September 30,
2005

 

September 30,
2004

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

 

 

$’000

 

$’000

 

$’000

 

$’000

 

 

 

 

 

 

 

 

 

 

 

Net loss as reported:

 

(9,110

)

(10,232

)

(3,652

)

(3,024

)

 

 

 

 

 

 

 

 

 

 

Fair value method of stock based compensation

 

(833

)

(165

)

(563

)

(121

)

 

 

 

 

 

 

 

 

 

 

Proforma net loss

 

(9,943

)

(10,397

)

(4,215

)

(3,145

)

 

 

 

 

 

 

 

 

 

 

Reported earnings per common share Basic and diluted

 

(0.27

)

(0.34

)

(0.11

)

(0.10

)

Proforma earnings per common share Basic and diluted

 

(0.29

)

(0.34

)

(0.13

)

(0.10

)

 

F-8


 

(7)                               Goodwill and Other Intangible Assets

 

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

 

(8)                               Security Deposits

 

As MS-PLC occupies approximately 95% of 46 Berkeley Square it acquired the security deposit on the offices for cash from International Cellulose Company Ltd in February 2003. The value of the security deposit is £470,000 ($827,000) and is interest-bearing.

 

(9)                               Lease Commitments

 

The Company had entered into property leases for the Westminster and Ravenscourt centers through its Lifesyne subsidiary. Following the sale of Lifesyne the Company has no outstanding formal property lease agreements.

 

The Company’s corporate offices at 46 Berkeley Square are leased to International Cellulose Company Limited (ICCL), a company registered in England and Wales. STG Holdings PLC, a significant stockholder of the Company, acquired 100% of the issued share capital of ICCL in November 2001. There is no formal lease agreement between ICCL and the Company for its offices at 46 Berkeley Square but the Company is charged by ICCL on the basis of space occupied. The approximate charge is $140,000 per quarter.

 

(10)                        Income Tax Benefit Realized

 

The receipt of $883,000 relates to a tax credit paid by the United Kingdom taxation authorities in the second quarter of Fiscal 2005 under its R&D tax relief scheme for small and medium enterprises to MS-PLC. The tax credit can either be set-off against taxable profits or, if not available, can be paid. If it is paid then this is set-off against the net operating loss carry forwards. The basis for the R&D relief is too encourage the development of new technologies and is only applicable to the research and development of a new technology and not a product.

 

The receipt represented the tax credit received for expenditures incurred between November 2001 and December 2003. The Company did not accrue for any potential tax credit for Fiscal 2004 as it has determined that the completion date of the new technology occurred at the end of Fiscal 2003 and therefore no application for Fiscal 2004 will be made.

 

(11)                        Comprehensive Income

 

As of September 30, 2005 and the nine months and quarter then ended, comprehensive income is comprised of a net loss from operations and the net effect of foreign currency translation adjustments. This comprised a net loss of $9,110,000 and $3,652,000 and foreign currency translation adjustments of $105,000 and ($43,000), resulting in comprehensive loss of  $9,215,000 and $3,609,000, respectively.

 

F-9


 

(12)        Recent Accounting Pronouncements

 

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

 

In December 2004, the FASB issued Statement 153,”Exchanges of Non-monetary Assets, an amendment of APB Opinion No.29.” The standard is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged and eliminates the exception under APB Opinion No. 29 for an exchange of similar productive assets and replaces it with an exception for exchanges of non-monetary assets that do not have commercial substance. The standard is effective for non-monetary exchanges occurring in fiscal periods beginning after June 15, 2005. The Company cannot determine the impact of SFAS 153 at this time.

 

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

 

(13)        Subsequent Events

 

Between October 1, 2005 and November 10, 2005 the Company issued approximately 2,003,000 shares of restricted stock raising $7,729,000 (net of commissions paid to Asia IT, a related party) as part of a private placement. As part of this transaction Asia IT Nominees Ltd (“Asia Nominees”), a related party, acquired 1,050,000 shares for $4,200,000 and Mr. Tim Paterson-Brown, Chief Executive Officer and Director of Medicsight, Inc., acquired 250,000 shares for $1,000,000.

 

F-10


 

SIGNATURE

 

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

MEDICSIGHT, INC.

 

 

 

 

 

By:

/s/ TIM PATERSON-BROWN

 

 

 

Tim Paterson-Brown

 

 

Chief Executive Officer

 

 

 

 

 

By:

/s/ PAUL A. GOTHARD

 

 

 

Paul A. Gothard

 

 

Chief Financial Officer

 

 

 

 

November 14, 2005

 

 

 EX-31.1 2 a05-18186_1ex31d1.htm 302 CERTIFICATION

Exhibit 31.1

 

CERTIFICATION

 

I, Tim Paterson-Brown, certify that:

 

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

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

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

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

By:

/s/ TIM PATERSON-BROWN

 

 

 

Tim Paterson-Brown

 

 

Chief Executive Officer

November 14, 2005

 

 

E-1

 EX-31.2 3 a05-18186_1ex31d2.htm 302 CERTIFICATION

Exhibit 31.2

 

CERTIFICATION

 

I, Paul Gothard, certify that:

 

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

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

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

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

By:

/s/ PAUL A. GOTHARD

 

 

 

Paul A. Gothard

 

 

Chief Financial Officer

 

 

 

November 14, 2005

 

 

E-1

 EX-32.1 4 a05-18186_1ex32d1.htm 906 CERTIFICATION

Exhibit 32.1

 

CERTIFICATION PURSUANT TO SECTION 906

 

OF THE SARBANES-OXLEY ACT OF 2002

 

I, Tim Paterson-Brown, Chief Executive Officer of Medicsight, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:

 

(1)    the Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2005 (the “Report”) fully complies with the requirements of  Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

 

(2)    the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

By:

/s/ TIM PATERSON-BROWN

 

 

 

Tim Paterson-Brown

 

 

Chief Executive Officer

November 14, 2005

 

 

E-1

 EX-32.2 5 a05-18186_1ex32d2.htm 906 CERTIFICATION

Exhibit 32.2

 

CERTIFICATION PURSUANT TO SECTION 906

 

OF THE SARBANES-OXLEY ACT OF 2002

 

I, Paul Gothard, Chief Financial Officer of Medicsight, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:

 

(1)    the Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2005 (the “Report”) fully complies with the requirements of  Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

 

(2)    the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

By:

/s/ PAUL A. GOTHARD

 

 

 

Paul A. Gothard

 

 

Chief Financial Officer

November 14, 2005

 

 

E-1

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