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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

MEDICSIGHT, INC.
(Exact Name of Registrant as Specified in its Charter)

        Securities registered under section 12(b) of the Exchange Act: Not applicable

        Securities registered under section 12(g) of the Exchange Act: Common Stock, par value $0.001 per share

        Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

        The aggregate market value of the voting and non-voting common equity of Medicsight, Inc. held by non-affiliates was $33,530,285 based on the average bid and asked prices of such common equity as of June 30, 2003.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS

        Check whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes o    No o

APPLICABLE ONLY TO CORPORATE REGISTRANTS

        As of March 31, 2004 the number of shares of Common Stock, par value $0.001 per share, of Medicsight, Inc. issued and outstanding was 29,282,431.

DOCUMENTS INCORPORATED BY REFERENCE

        None.

NOTE REGARDING AMENDMENT AND RESTATEMENT

        During fiscal 2003, the Company determined that the fair value of common stock issued in a previously recorded acquisition was incorrect. In addition, the Company identified certain errors in its previously issued financial statements related to impairment of intangibles, goodwill, and the vendor guarantee.

        As a result, the Company has restated its previously issued financial statements for the years ended December 31, 2002 and 2001. A summary of the significant effects of the restatements is set forth below.

        There is no effect on the consolidated statement of operations for the year ended December 31, 2001.

December 31, 2001

Fair Value attributable to the second tranche of shares issued to Nightingale Technologies Ltd

        The transaction affected is the fair value attributable to the second tranche of shares issued to Nightingale Technologies Ltd ("Nightingale") by Medicsight, PLC ("MS-PLC") on behalf of Medicsight, Inc ("Company") as part of the acquisition of HTTP Insights Ltd ("Insights") in 2000.

        Upon agreement with Nightingale, the seller of Insights, and in variance of the conditions precedent set forth in the original agreement, the parties agreed on November 22, 2001 that the obligation to issue the second tranche of contingent consideration would be satisfied by the direct issuance of shares in MS-PLC to Nightingale. On November 22, 2001, MS-PLC issued 15,000,000 shares to Nightingale, and Nightingale accepted such shares in satisfaction of our obligation under the original purchase agreement. The second tranche was valued at $21,832,000 based on the share price of the stock being issued by MS-PLC.

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        The Company believes that the initial fair value of the second tranche of 15 million shares at £1.00 ($1.455) per share was incorrect.

        At a MS-PLC board meeting in November 2001, the directors agreed to settle an outstanding Loan Note payable to the Company by MS-PLC of £3,659,000 ($5,324,000), by issuing 73,868,582 shares at par (£0.05 ($0.07)). At the request of the Company, MS-PLC issued the stock in two tranches: 58,868,582 shares to the Company and 15,000,000 shares to Nightingale. At the same time MS-PLC went on to issue a further 1 million shares (par value £0.05 ($0.07) per share) to the Company at par for a subscription price of £50,000 ($72,750) in cash. Subsequently the directors of MS-PLC have sought and obtained UK Legal Counsel's Opinion that concludes that the fair value of the shares issued to Nightingale in November 2001 was £0.05 ($0.07) per share and not £1.00 ($1.455) per share. In addition, the directors of the Company engaged an independent valuer, Intangible Business Limited, to establish a valuation for the shares issued in November 2001 based on US GAAP. This report ascribes a fair value of £0.05 ($0.07) per share. A copy of this report is filed herewith (Exhibit 99.1). The revised fair value of the 15 million shares issued is $1,091,000. The effect of the restatement is to reduce goodwill and additional paid in capital by approximately $20,741,000. The restatement had no effect on the consolidated statement of operations for the year ended December 31, 2001.

        As a result of the above, the Company had not filed its third quarter Form 10-Q (September 30, 2003) and the Company's listing has been moved to the OTC Pink Sheet exchange from the OTC Bulletin Board exchange as the Company is not current in its filings and hence ineligible for the OTC Bulletin Board.

December 31, 2002

Intangible Assets

        The intangible asset relates to the technology (the Stochastic Perception Engine) acquired from Insights for $22,470,000 in 2000. During 2003, the Company reviewed the value attributable to this technology and concluded that, as there had been no further development of the technology except for the Medicsight™ applications and with the sale of Insight in December 2002, the technology should have been fully impaired at December 31, 2002. Therefore, the Company has recorded an impairment charge of $13,482,000 at December 31, 2002.

Goodwill

        The Company has further evaluated the remaining goodwill of $68,178,000 from the acquisition of Insights. As the business of Insights had been transferred to other group companies in 2001 (MS-PLC) and 2002 (Medicsight Finance Ltd) and Insights sold to an independent third party during December 2002, the Company has determined that the goodwill attributable to this acquisition should have been fully impaired at December 31, 2002. Therefore, the Company has recorded an impairment charge of $68,178,000 for the year ended December 31, 2002.

Vendor Guarantee

        The Vendor Guarantee arose from the acquisition of Core Ventures Limited ("Core") and relates to an oral agreement between the Company and Dr Nill, that the proceeds of the sale of Dr Nill's 1,195,000 shares in the Company would be remitted to the Company under the terms of the Vendor Guarantee. These shares were sold in 2003 and the Company received $3,689,000 net of commissions. At December 31, 2001 and December 31, 2002, the fair value attributed to the Vendor Guarantee was based on the weighted average share price. The Company has reviewed the fair value at December 31, 2002 and concluded that it would more be appropriate and better understood if the fair value at December 31, 2002 reflected the funds actually received in 2003 rather than show an impairment in

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Fiscal 2002 of $6,773,000, as reported, and then having to show a reduction in the impairment in Fiscal 2003 of $462,000. Therefore, the impairment in Fiscal 2002 has been revised from $6,773,000 to $6,311,000.

NOTE REGARDING FORWARD LOOKING STATEMENTS

        This Annual Report on Form 10-K, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7, 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 rate of market development and acceptance of medical imaging technology; 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 7 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.

NOTE REGARDING NUMBER OF SHARES AND SHARE PRICES

        On January 27, 2004, the Company amended its Certificate of Incorporation, increasing the number of shares the Company is authorized to issue from 25,000,000 shares to 40,000,000.

        On July 31, 2003, the Company amended its Certificate of Incorporation, reducing the number of shares the Company is authorized to issue from 100,000,000 shares to 25,000,000.

        On December 30, 2002 the Company affected a 1-for-3 reverse split of its Common Stock (the "Split"). Throughout this Annual Report, all references to a number of shares of the Company's Common Stock or the price of the Company's Common Stock have been adjusted proportionately in order to account for the Split.

        Previously, on February 5, 2001, the Company affected a 2-for-1 forward split of its Common Stock.

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PART I

ITEM 1. BUSINESS.

General

        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 innovative medical applications, such as computer-aided detection ("CAD") of disease, derived from our core technology 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. On July 31, 2003, the Company reduced its authorized share capital from 100,000,000 shares to 25,000,000 shares. On January 27, 2004, the Company increased its authorized share capital from 25,000,000 shares to 40,000,000 shares.

        During the year ended December 31, 2003 the Company issued 3,333,333 restricted shares of stock in a $10,000,000 private placement underwritten by Asia IT Investments Limited ("Asia IT"). The Company has successfully undertaken a further $10,562,000 private placement (less commissions of $1,056,000) of restricted stock at $3.00 per share in Fiscal 2004.

        In April 2000, we acquired Radical Technology PLC now known as HTTP Software PLC ("Software") that provided us with a business dedicated to systems integration and software development. In December 2000, we acquired Nightingale Technologies Ltd, now known as HTTP Insights Ltd ("Insights"), which provided us with proprietary technology called a Stochastic Perception Engine (see "Business Strategy" and "Patents and Trademarks" below). A Stochastic Perception Engine processes and classifies unstructured data into meaningful outputs, enabling it to be viewed, interpreted or further manipulated by the user of the application. Similar technologies sit at the core of many of today's major software applications. Our Stochastic Perception Engine is comprised of four principal modules: cluster analysis, statistical modeling, classification and prediction. At that time, the technology had the ability to offer unprecedented processing speed, accuracy and comprehensiveness of results when compared to then existing data classification technologies. Initially we believed that our Stochastic Perception Engine had significant potential uses in a wide variety of fields, including medical image analysis, the design of pharmaceuticals, environmental mapping, handwriting recognition, robotics and surveillance. Following a review of the technology in Fiscal 2003 the Company has concluded that the non-medical applications are of limited use as there has been no development of the core technology in these fields in Fiscal 2002 and Fiscal 2003.

        We have restructured our business to focus solely on the medical imaging applications derived from our core technology. We have concluded the process of incorporating all research, software development, and management and marketing activities related to our medical imaging initiatives into MS-PLC. In November 2001, assets were transferred from our other subsidiaries to MS-PLC, and the costs incurred on the development of the Medicsight™system (our state-of-the-art digital disease detection software system comprising MedicColon™, MedicHeart™, and MedicLung™) were reimbursed and assigned by way of a loan note from MS-PLC to the Company of £3,659,104. This loan note was converted into 57,868,582 ordinary shares of MS-PLC issued to the Company and 15,000,000 ordinary shares of MS-PLC issued, on the Company's behalf, to the former parent of Insights in November 2001.

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        On October 28, 2002, the Company's name was changed from HTTP Technology, Inc. to Medicsight, Inc.

        We maintain our corporate offices at 46 Berkeley Square, London, W1J 5AT, United Kingdom, telephone +44 (0) 207-598-4070, facsimile: +44 (0) 207-598-4071.

Business Strategy

        We are developers of software technology for medical diagnostic applications and provide medical diagnostic services (Computer Aided Detection—"CAD" applications) in differing business models. We have four principal operating subsidiaries: Medicsight PLC ("MS-PLC"), Medicsight Asset Management Limited ("MAM"), Lifesyne UK Limited ("Lifesyne UK") and Medicsight US, Inc ("MS-US") (previously Lifesyne US). HTTP Insights Ltd and HTTP Software PLC, formerly subsidiaries of the Company, were sold to independent third parties during the fourth quarter of 2002.

        MS-PLC.    Our majority-owned subsidiary, MS-PLC, is currently engaged in efforts to commercialize a state-of-the-art digital expert recognition software system for digital data derived from medical imaging hardware. At December 31, 2003, the Company owned 68,677,300 ordinary shares in MS-PLC, constituting 81.51% of the outstanding shares. At December 31, 2002 the Company owned 67,127,300 shares in MS-PLC. The increase is due to MS-PLC issuing 1,550,000 shares to the Company on December 31, 2003 to settle debt of $2,482,000 due by MS-PLC to the Company.

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

        Lifesyne.    Lifesyne is a wholly owned subsidiary of MS-PLC that was established in September 2002 for the purpose of providing a branded operating entity for the United Kingdom and Ireland markets. Lifesyne operates scanning centers in the United Kingdom. As the Company has decided to focus on the delivery of software, no further development of the Lifesyne strategy is envisaged beyond the Company's current scanning requirements. We are now focusing Lifesyne on the rapid acquisition of patient scan data necessary to enable our expert software to refine its characterization capabilities.

        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. MAM will negotiate and acquire equipment and fund leasehold improvements and development, which, in turn, will be leased to the relevant operating entity.

        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.

        It is now widely accepted that the most effective way to achieve early detection of the principal deadly diseases is through radiological scanning. The Medicsight™ system analyzes digital data from the new generation of multi-slice computed tomography ("MSCT") scanners and then provides information to enable the clinician to identify and characterize possible areas of abnormality. We believe that, in the future, the Medicsight™ system will be capable of reliably detecting isolated pulmonary nodules in the lung, calcification of the coronary arteries, polyps in the colon and other abnormalities indicative of disease. The potential advantage of the Medicsight™ system is that it increases precision and reliability

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while also providing scalability that will be cost-effective. The system uses its technology to provide tools to radiologists for the identification of possible abnormalities. The clinician will then apply his/her experience to determine the next steps in medical diagnosis and treatment. We believe that the Medicsight™ system will:

•

enable accurate and reliable scan analysis;



•

provide a service that will be significantly cheaper than at present, as it reduces the burden on radiologists who in current practice account for a significant proportion of the scan cost; and



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allow significant patient volume to be achieved, because the analysis is semi automated and scanning volumes are not then constrained by the finite number of radiologists.

        The step change in technology that increases the potential of the Medicsight™ system is the 16 detector CT scanner. This allows sub-millimeter cross-sectional slices to be captured with increased speed and reduced radiological dose when compared with traditional single slice machines. This can provide over 600 images of the chest instead of 30-60 for single slice scanners. The amount of detail now available, while enabling early detection of smaller nodules and areas of calcification, increases the time required for analysis by radiologists. Therefore, the automation of scan analysis is essential.

        MS-PLC opened Lifesyne's flagship center in Westminster, London in 2003. Due to the Company concentrating on the development of the software products, it has concluded that its development of the Lifesyne™ Scanning Center concept will not be rolled out further. It represents one potential model, which will be available for licensees who see a commercial opportunity to package the concept together with our Medicsight™ software. We are now focusing Lifesyne on the rapid acquisition of patient scan data necessary to enable our expert software to refine its characterization capabilities. As a result, we have reappraised our capacity requirements and have decided to focus product development activity in the flagship center in Westminster, which will act more as a research institution. This means the center at Ravenscourt is currently surplus to our core requirements and the Company is seeking a partner to operate the center as a commercial CT scanning business.

Refining our business strategy

        Our aim is to become a leading developer of CAD software in medical imaging. The Company's strategy is based upon the following priorities:

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Focusing our resources on developing industry leading pattern recognition software in the medical imaging market.



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Targeting commercially valuable applications where the accurate identification and measurement of abnormalities will lead to improved diagnosis and treatment of life threatening diseases.



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Developing an international network of medical specialists to support product development, clinical trials and commercial delivery.



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Creating a third party distribution network in our top 7 target countries, which account for 88% of world healthcare spend.



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Identifying local partners to act as licensees in other countries who have the relevant medical and commercial experience.

Key Achievements during 2003

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European CE and United States FDA 510(k) approvals were secured for Release One versions of Lung, Heart and Colon products. These facilitate disease tracking in symptomatic patients.



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U.S. operations were established in Nashville, Tennessee.

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Beta test sites have been set up at St Marks Hospital and London Chest Hospital, London, Vanderbilt University, United States of America and CHUV University Hospital, Switzerland.



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We have developed a comprehensive clinical trials program, which will involve 23,000 patients over a period of 4 years, at a total cost of more than £5m. Of nine clinical trials in the program, two are underway and a further two are close to securing final regulatory approval.

Medicsight Product Portfolio

        Our products currently target 3 therapeutic areas, Colon, Lung and Heart. In terms of clinical practice and, therefore, market segmentation, the products can be split between diagnostic treatment and screening;

        Diagnostic or "Disease tracking" products; these are products designed for symptomatic patients to track disease progress and monitor treatment effectiveness. The primary applications in this area are Lung nodule tracking and Heart calcium scoring, though the Company believes there will be a growing requirement for polyp tracking in the colon as CT colonography becomes more established.

        "Screening" products; for population screening of asymptomatic patients. There is considerable evidence that the early detection of colon, lung and heart disease leads to increased life expectancy. Computer aided detection ("CAD") CT may provide a cost effective solution in identifying these diseases early enough to significantly alter the economics of population screening programs in these areas.

Business Development planned for 2004

        We have an integrated business development strategy—we aim to drive sales growth from proven products (validated by clinical trials), endorsed by International Advisory Boards, using routes to market (distribution partners), recognized and demanded by the end users (informed by our marketing efforts).

Clinical Trials

        The Company is investing significantly in clinical trials designed to provide data to both train and validate our software. We expect the first of these trials to be completed shortly. Beginning in the third quarter of 2004, we hope to support publication of our trial data in a series of peer reviewed journals. Thereafter, we expect there will be a regular flow of papers to endorse our products in leading industry publications.

Distribution

        The diagnostic products have immediate markets globally; the market potential for our Lung nodule tracker product has been estimated at around $300m in the United States alone. We intend to launch this product in the United States in the second quarter of 2004, targeting leading institutions directly in order to develop key opinion leader support for a subsequent national roll out via third party channels. We have distribution routes into the hospitals involved in both the ACRIN and the ELCAP studies—the two leading lung trials in the United States—and have secured our first product sale into one of these institutions.

        We commenced building relationships with third party distributors at the end of 2003. We have established strong levels of interest amongst both picture archivers ("PACS"), software companies and CT hardware manufacturers. Our aim is to have distribution coverage throughout North America and Europe by the end of 2004.

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        Within the Middle East and Asia, we aim to establish country or region licensees. We are in active negotiations with potential licensees, which we expect to lead to a minimum of 3 licenses being established in 2004.

        Our target is to have CE approval of our first CAD products before the end of 2004 and to have met all the criteria required for FDA approval. Once approved, our intention is for these products to drop into the distribution structure created above.

Marketing

        A full marketing program commences in the second quarter of 2004 to support the distribution and sale of our products, including advertising, direct mail, exhibitions and an integrated PR plan. Our aim is to have 80% awareness within our core customer base—the radiology community across our key target markets—by the end of 2004.

Milestones for 2004

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Strategic partnerships to be signed with leading hospitals in the United States, United Kingdom, Far East in the first half of 2004.



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Commercial launch of disease tracking products in United States, United Kingdom, Middle East and Far East in the second quarter of 2004.



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Commercial launch of first CAD product.



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Completion of first clinical trials.



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Establishment of International Advisory Boards comprising world experts in each therapeutic area.



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Product development partnership to be signed with leading MRI research institute.



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Distribution partnerships to be established in top 7 countries.



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License agreements to be signed covering a minimum of 3 other countries.

International Advisory Board

        The Company established a Medical Board to guide the early development of the Company's software for the pre-symptomatic detection of lung cancer, bowel cancer and coronary heart disease. The Medical Board advised on and monitored product development, clinical targets and scanning operations and formed an important link with medical scientists and clinicians. Chaired by Dr. John Costello, the Medical Board comprised:

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Sir Christopher Paine



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Dr. John Karani



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Dr. Mary Roddie



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Dr. Jamshid Dehmeshki



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Mr. Paul Samuel

        The Medical Board reported to MS-PLC's Board through Dr Costello. Three specialist advisory boards supported the Medical Board with responsibility for the lung, colon and heart products.

        As the Company's strategy evolved, in particular, following 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

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Advisory Boards ("IAB"). The IABs will 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. Mew members will include persons with relevant expertise from the United States, Germany, France, Italy, and Japan. The IABs are co-chaired by Dr. Costello, who reports back to 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:

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



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



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Assist in investor relations on an international basis.



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



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



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

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



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



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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.

        We cannot assure you that the Company will be successful in commercializing the Medicsight™ system, or if such 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 work in the field, but, in our view, such existing systems are overly dependent on human resources to carry out the analysis, as none have the 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.

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        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 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. Approval may be delayed or result in additional costs to the development of 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 have an interest in developing a competitive offering to the Medicsight™ system. These potential 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 versus the Medicsight™ system.

        Other Risks.    The Company's ability to deliver the software could be hindered by such risks as the loss of key personnel, our patents being successfully challenged or our credit facilities reduced or terminated.

Recent Acquisitions/Dispositions

        Software.    On April 21, 2000, the Company acquired through a stock for stock tender offer approximately 76.73% of the outstanding ordinary shares of Radical Technology PLC (subsequently renamed HTTP Software PLC) ("Software"). Through subsequent additional issuances of stock the Company has acquired 99.5% of Software's outstanding common stock in exchange for 850,090 shares of the Company's common stock, which was valued at $12,748,000. The costs incurred in the acquisition of $277,000 are included in the cost of the investment. The acquisition of Software has been accounted for using the purchase method of accounting and, accordingly, the assets acquired and liabilities assumed have been recorded at their fair values as of the date of the acquisition. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed has been assigned to in process research and development, other identifiable intangibles including trademarks, workforce, covenant not to compete, software development costs and existing contracts, and the remaining amount has been recorded as excess of purchase price over net assets acquired on the accompanying balance sheet. The fair values have been based on an independent valuation. The value assigned to in-process research and development, $181,000, was expensed in software development costs written off in Fiscal 2000. The technology and covenant not to compete were impaired in full in Fiscal 2000 as the technology acquired was not to be developed into a commercial product. The trademark, contracts and workforce were fully impaired in Fiscal 2001.

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Software Purchase Price Allocation on acquisition

        Software generated revenue from its systems integration business together with maintenance of its in-house developed systems integration and network software products. In 2001, we decided to focus Software's resources towards working with Insights to develop the core technology of the Stochastic Perception Engine. All Software staff were employed full-time by MS-PLC. Contractual terms between Software and existing customers were fulfilled by September 30, 2002. We sold Software to an independent third party on October 28, 2002 for approximately $1,500. At that time, Software had net assets of approximately $4,500.

        Core Ventures, Ltd.    In September 2000, we acquired Core Ventures Limited ("Core"), a privately held internet venture company, from Troy Limited, a Cayman corporation ("Troy"). Under the agreement, we issued 1,200,000 shares of our Common Stock for 100% of the outstanding stock of Core. Core's principal asset was an interest of less than 1% in Red Cube AG ("Red Cube"), a voice-over-IP telecommunications provider, and warrants to purchase further shares (less than 3%) in Red Cube. The agreement provided, in part, that Dr. Alexander Nill, a principal of Troy, personally guaranteed to us that, as of December 15, 2000, the fair market value of Core's net assets would be not less than $25,000,000, such value to be determined by our independent auditors; and Dr. Nill undertook to pay us, within 10 days following our written demand, any shortfall, in cash or securities. At the time of this transaction, Dr. Nill was one of our directors. He resigned from that position, effective February 27, 2001.

        The acquisition of Core has been accounted for using the purchase method of accounting and, accordingly, the assets acquired and liabilities assumed have been recorded at their fair values as of the date of the acquisition.

        Core Purchase Price Allocation on acquisition

        On December 27, 2000, Dr. Nill executed a Memorandum of Understanding ("MOU") with the Company in which he admitted to substantial liability under the personal guarantee. The MOU stipulated that the net assets of Core were estimated to be $2,540,000 and that the warrants to

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purchase further Red Cube stock held by Core had no value. Dr. Nill acknowledged that he had been served with a formal demand by the Company to honor his obligations to us pursuant to the terms of the personal guarantee. The MOU provided, inter alia, that Troy was to provide a schedule of other assets having a value of not less than $10,900,000, such market value to be determined by our independent auditors as being the fair market value as at the valuation date, which assets Dr. Nill agreed to cause Troy to deliver to us, or as we directed, within 21 days of the date of the MOU. In consideration of our forbearance to immediately sue him to enforce the personal guarantee, Dr Nill, also was to cause to be delivered to us within seven days of the date of the MOU, 616,192 shares of our Common Stock (the equivalent of 924,282 shares pre-splits) endorsed in blank. Dr Nill did not honor his obligations under the MOU and we were unable to obtain effective enforcement, by means of escrow arrangements or otherwise, of the personal guarantee.

        In the fiscal quarter ended September 30, 2001, an agent, NYPPe, LLC, was assigned to dispose of shares owned by Dr. Nill in a secondary private placement. As of December 31, 2001 5,000 of those shares (the equivalent of 15,000 shares pre-reverse split) had been sold, resulting in net proceeds to the Company of $75,000.

        We do not consider that enforcement of the terms of the personal guarantee through legal action with a view to recovering against other assets is likely to provide an effective remedy for us. We reached an oral understanding with Dr Nill that the proceeds from the sale of 1,195,000 of Dr Nill's shares of our Common Stock were to be remitted to us. We reserved our other rights and remedies that may be available to us against Dr Nill. The Company received proceeds net of commission under the guarantee of $3,689,000 from the sale of 1,195,000 shares in Fiscal 2003.

        On March 6, 2002, Core entered into voluntary liquidation proceedings. In accordance with the laws governing companies organized in the British Virgin Islands, Core appointed a liquidator to assess the fair value of its assets.

        Insights.    On December 29, 2000, we acquired all of the issued and outstanding shares of Insights, in a stock-for-stock transaction then valued at approximately $180 million. We received the shares of Insights on that date but, pursuant to the terms of our offer, were not required to pay any consideration for the Insights shares until certain conditions were met. The first of these conditions, that we receive a validation by the Defence Evaluation and Research Agency ("DERA"), an agency of the United Kingdom Ministry of Defence, as to the technical and commercial viability of Insights' proprietary technology, was satisfied on February 22, 2001. As such, we issued the first tranche of contingent consideration of 5,000,000 shares of our Common Stock on that date, valued at approximately $93,000,000 based on a weighted average share price of $18.60 per share. The acquisition of Insights has been accounted for using the purchase method of accounting and, accordingly, the assets acquired and liabilities assumed have been recorded at their fair values as of the date of the acquisition. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed has been assigned to the technology, and the remaining amount has been recorded as excess of purchase price over net assets acquired on the accompanying balance sheet. The fair values have been based on an independent valuation by Empire Valuations, LLC. A copy of the report is filed herewith (Exhibit 99.2). In variance of the conditions precedent set forth in the original purchase agreement, on November 22, 2001 we agreed with the seller of Insights that the obligation to issue the second tranche of contingent consideration would be satisfied by the issuance of new shares in MS-PLC to such seller. On that date, MS-PLC issued 15,000,000 shares in MS-PLC to Nightingale, and Nightingale accepted such shares in satisfaction of our obligation under the original purchase agreement. The second tranche was valued at $1,091,000 (as restated—see "Note Regarding Amendment and Restatement" above) based on the share price of stock being alloted by MS-PLC. Total consideration for the purchase of Insights was approximately $94 million.

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        Insights Purchase Price Allocation on acquisition

        As of the date hereof, there is no public market for the MS-PLC shares. All assets and liabilities of Insights were transferred to Medicsight Finance Ltd ("Finance"), after which Insights was sold to an independent third party on December 6, 2002 for $160.

Employees

        As of March 31, 2004, the Company and its subsidiaries had 67 employees, all of whom are full-time employees. Our employees are not part of a union. We believe that we have an excellent relationship with our employees.

Patents and Trademarks

        Protection of our proprietary technology and our rights over that technology, from copy or unchallenged use, is essential to our future success. Any challenges to, or disputes concerning, our core technology may result in great expense to us, delays in bringing products to market and disruption of our focus on our core activities. They may also result in loss of rights over our technology or the right to operate in particular markets due to adverse legal decisions against us.

        The Company has filed patent applications in the United Kingdom, the United States and under the International Patent Treaty (which has approximately 70 member countries) covering the application of our core technology. However, we have not as yet been granted any patents. In addition, we are in the process of preparing to file patent applications covering our MedicColon™, MedicHeart™, and MedicLung™ products. We cannot provide assurance that any or all of these patents will be granted or that they will not be challenged, or that rights granted to us would actually provide us with advantage over our competitors. Prior art searches have taken place, and the Company believes that we will not infringe any current third party patents.

        We have filed applications to register "Medicsight"™, "Lifesyne"™, MedicColon"™, "MedicHeart"™, and "MedicLung"™ as trademarks in the United Kingdom, the European Community and the United States. These trademarks are essential to the corporate identity that we are seeking to create in connection with the Medicsight™ system.

        Failure to register appropriate patents, copyrights or trademarks in any jurisdiction may impede our ability to create brand awareness in our products, result in expenses in pursuing or our rights with respect to our intellectual property, or result in lost revenues through delays incurred due to intellectual property disputes. Where we may be required to purchase licenses from those with prior rights in any country, we cannot assure you that we will be able to do so at a commercially acceptable cost.

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Research and Development

        Under United States generally accepted accounting principles, until the technology is determined to be feasible, all related research and development expenditures must be expensed rather than capitalized. Once the software is determined as feasible (commercially viable), expenditure may be capitalized. The Company concluded that capitalizing such expenditure was inappropriate, because of the difficulty in allocating costs accurately among the 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.

        The Company's expenditures on research and development comprise of staff and consultants employed in the development of the Medicsight™ system. During the twelve months ended December 31, 2003, December 31, 2002 and December 31, 2001, we expended $2,498,000, $1,239,000 and $1,266,000 respectively for research and development for the Medicsight™ system. We cannot predict the amount of additional expenditures that will be necessary prior to achieving commercialization of our products.

Major Customers

        In Fiscal 2003, the Company's gross revenues from operations were derived solely from the Company's Lifesyne™ scanning operations.

        During Fiscal 2002, the Company had two customers that represented 98.8% of the Company's revenues. The customers are Commonwealth Secretariat, which accounted for 67.1% of sales, and Texaco Ltd., which accounted for 31.7% of sales. These revenues were derived from providing software maintenance services through Software. Software was sold on October 28, 2002.

        In Fiscal 2001 major customers of the Company were Commonwealth Secretariat, which accounted for 29.8% of sales, Eidos Interactive, which accounted for 25.8% of sales, and Texaco, which accounted for 22.7% of sales.

Governmental Regulation

        The Medicsight™ system analyzes digital data from medical scanners, such as CTs, MRIs and CAT scans, and provides improved analysis to enable the clinician to identify areas of possible abnormality. The Medicsight™ system will be subject to governmental regulation in the United Kingdom, Europe and the United States. We are not currently certain of the level of regulation that will be applied to the Medicsight™ system in any specific location. The level of governmental regulation in the jurisdictions we engage, or expect to engage, in business may vary. Any such regulation could delay the commercial introduction of the Medicsight™ system and could significantly increase our costs of operations.

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General

        Our address is 46 Berkeley Square, London W1J 5AT, United Kingdom. Our telephone number is 011-44-207-598-4070. Our Internet address is http://www.medicsight.com. Information on our website is not deemed to be a part of this Annual Report.

ITEM 2. PROPERTIES.

        We maintain our corporate offices at 46 Berkeley Square, London W1J 5AT, United Kingdom. The office is comprised of 9,642 square feet. We do not have a formal, written lease for these offices. Up until June 30, 2003, rent was paid quarterly in advance to a property management company, Berkeley Square Ventures Limited, which in turn collects the rent for International Cellulose Company Limited ("ICCL"), the entity that holds the lease on the property. Subsequent to June 30, 2003, rent was paid directly to ICCL. In November 2001 ICCL was acquired by STG (Holdings) PLC ("STG"), a major shareholder of the Company.

        We operate two Lifesyne™ scanning centers in London, one located at Ravenscourt Hospital, part of the Hammersmith Hospitals NHS Trust ("NHS Trust"), and our flagship center in Westminster. The Company has negotiated a lease covering Ravenscourt, which is currently unsigned. The property currently occupied is adequate for the current needs of the Company.

ITEM 3. LEGAL PROCEEDINGS.

        On January 23, 2002, Chess Ventures LLC ("Chess") commenced a lawsuit against us in the Chancery Court of Delaware, seeking an order to compel us to remove restrictive legends from share certificates owned by Chess so that Chess could sell the shares represented by these certificates pursuant to Rule 144 under the Securities Act of 1933 ("Rule 144"). Chess also claimed money damages due to our failure to remove the legends. We filed a defense and counterclaim to this claim and subsequently instructed our transfer agent to remove the restrictive legends on all applicable certificates (including those held by Chess) should proper requests be made by the holders thereof in accordance with Rule 144. On June 4, 2002, we entered into a Settlement Agreement with Chess in which we agreed to pay a nominal sum to Chess. Neither party made any admission of liability, and each party fully released any claims it may have had against the other party. The lawsuit was subsequently dismissed.

        In addition to the above, we have been served with a Notice of Sequestration in a proceeding brought in the Court of Chancery of the State of Delaware by a Turks and Caicos company against two shareholders of the Company. The Company responded to the Notice of Sequestration on January 17, 2003 and does not expect that any further action by the Company will be required.

        The Company is involved with various legal actions and claims arising in the ordinary course of business. Management believes that the outcome of any such litigation and claims will not have a material effect on the Company's financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

        On January 27, 2004, the Company amended its Certificate of Incorporation to increase the number of shares the Company is authorized to issue from 25,000,000 shares to 40,000,000 shares. This amendment was approved by a majority of the stockholders of the Company.

        On July 31, 2003, an amendment to our Certificate of Incorporation, reducing the number of shares the Company is authorized to issue from 100,000,000 shares to 25,000,000 shares was approved by a majority of the shareholders of the Company.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information

        The shares of our Common Stock are quoted on the OTC, maintained by the National Association of Securities Dealers, Inc. The Common Stock is trading under the symbol "MSHT".

        The following table sets forth the range of high and low bid information for Medicsight, Inc Common Stock for each quarter within the last two fiscal years, after giving effect to the Split.

        These over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.

        As of March 31, 2004, there were 831 holders of record of the Company's Common Stock.

Dividends

        The Company has never declared or paid cash dividends on the Common Stock. The Company currently intends to retain earnings, if any, to support its growth strategy and does not anticipate paying cash dividends in the foreseeable future. Payment of future dividends, if any, will be at the discretion of the Company's Board of Directors after taking into account various factors, including the Company's financial condition, operating results, current and anticipated cash needs and plans for expansion.

Securities Authorized for Issuance Under Equity Compensation Plans

        On March 20, 2003, the Company's majority-owned subsidiary, MS-PLC, approved the Medicsight PLC Share Option Plan. The Plan provides for the issuance of up to 4,000,000 shares of MS-PLC common stock. On April 30, 2003, 2,828,600 options to shares were issued under the Plan.

        The term of the stock options granted expire 10 years after the grant date. The exercise price of the options and the market price of MS-PLC's common stock at the date of grant was $1.65 (options were granted at UK Sterling £1.00 and the exchange rate on the date of grant was $1.65:£1.00). Under provisions of APB 25, no compensation expense has been recorded.

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        The following table summarizes Stock Option and activity:

Recent Sales of Unregistered Securities

        Swap.    On December 23, 2002 the Company entered into a share swap with General Nominees and Asia IT Nominees whereby the Company issued 1,866,666 shares to General Nominees (1,674,894 shares) and Asia IT Nominees (191,772 shares) in exchange for 7,000,000 MS-PLC shares held by General Nominees (6,280,852 shares) and Asia IT Nominees (719,148 shares) respectively. Such shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933.

        Reg S Placements.    On July 1, 2003, the Company entered into an agreement with Asia IT to underwrite a private placement to raise $10,000,000 through the sale of shares of Common Stock at a price of $3.00 per share pursuant to an exemption from registration under Regulation S promulgated under the Securities Act of 1933. The placement was completed in December 2003. In consideration for such underwriting, Asia IT received commission at the rate of 10% of funds raised from third parties. Asia IT received $937,000 in commission, which included receiving 211,140 shares of Common Stock valued at $3.00 per share.

        On December 31, 2003, the Company entered into a further agreement with Asia IT to underwrite a private placement to raise $10,562,000 through the sale of shares of Common Stock at a price of $3.00 per share pursuant to an exemption from registration under Regulation S promulgated under the Securities Act of 1933. The placement was completed in February 2004. In consideration for such underwriting, Asia IT received commission at the rate of 10% of funds raised from third parties. Asia IT received $1,056,000 in commission, which included receiving 170,000 shares of Common Stock valued at $3.00 per share.

ITEM 6. SELECTED FINANCIAL DATA.

        The selected financial data set forth below have been derived from the consolidated financial statements of the Company and the related notes thereto. The statement of operations data for the period from inception (October 18, 1999) to December 31, 1999 and four years ended December 31, 2003 and the balance sheet data as of December 31, 2003, 2002, 2001, 2000 and 1999 are derived from the consolidated financial statements of the Company which have been audited by Amper, Politziner & Mattia, P.C., independent auditors (consolidated financial statements as at December 31, 2003, 2002 and 2001) and Arthur Andersen, independent auditors (consolidated financial statements as at December 31, 2000 and 1999). The following selected financial data should be read in conjunction with the Company's consolidated financial statements and the related notes thereto and "Management's Discussion and Analysis and Results of Operations", which are included elsewhere herein.

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(all figures in $ thousands except per share data)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

        Except for historical information, the material contained in this Management's Discussion and Analysis and Results of Operations is forward-looking. The Company's actual results could differ materially from the results discussed in the forward-looking statements, which include certain risks and uncertainties. These risks and uncertainties include the rate of market development and acceptance of medical imaging technology, the unpredictability of the Company's sales cycle, the limited revenues and significant operating losses generated to date, and the possibility of significant ongoing capital requirements. The Company's main operating currency is UK sterling (£).

        The Company has identified a number of 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 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 numerous regulatory requirements in both the United States and Europe covering not just approval for the use of the Medicsight™ system but also retention of personal medical records and regulations concerning the use of radiation.

        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 have an interest in developing a competitive offering to the Medicsight™ system. 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 versus the Medicsight™ system.

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

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        We have restructured our business to focus more closely on the medical imaging applications derived from our original core technology. We have concluded the process of incorporating all research, software development and management and marketing activities related to our medical imaging initiatives into MS-PLC. In November 2001, assets were transferred from our other subsidiaries to MS-PLC, and the costs incurred on the development of the Medicsight™ system (our state-of-the-art digital expert recognition software system for digital data derived from medical imaging hardware) were reimbursed and assigned by way of a loan note from MS-PLC to the Company in the amount of £3,659,104. This loan note was converted into 57,868,582 ordinary shares of MS-PLC issued to the Company and 15,000,000 ordinary shares of MS-PLC issued, on the Company's behalf to the former parent of Insights in November 2001.

RESULTS OF OPERATIONS

Fiscal Year Ended December 31, 2003 vs. Fiscal Year Ended December 31, 2002

        Revenues.    For Fiscal 2003 the Company's gross revenues from operations were $276,000. For Fiscal 2002, the Company's gross revenues from operations were $82,000. The Company's revenue in Fiscal 2003 was derived from the Company's Lifesyne™ scanning operations. The Company's revenues in Fiscal 2002 were delivered principally from software maintenance. Revenues from software maintenance ceased in Fiscal 2002, as the company that provided these services was sold to an independent third party on October 28, 2002.

        During Fiscal 2002 the Company had two customers that represented 98.8% of its revenues. The customers were Commonwealth Secretariat, which accounted for 67.1% of sales, and Texaco Ltd., which accounted for 31.7% of sales.

        Research and Development.    The Company's research and development expenses for Fiscal 2003 were $2,498,000 as compared to $1,239,000 for Fiscal 2002. The Company's research and development costs were comprised of staff and consultancy costs expensed on the development of the Medicsight™ system. The Company expenses all research and development costs. The Company has concluded that capitalizing such expenditure was inappropriate because of the difficulty in assigning costs accurately to the various software products and versions being developed in that technical and development staff are moved from product to product and version to version on a regular basis.

        Selling, General and Administrative Expenses.    The Company's selling, general and administrative expenses for Fiscal 2003 were $10,279,000 as compared to $10,619,000 for Fiscal 2002. Professional fees, including consulting services, were $1,116,000 in Fiscal 2003 as compared to $1,565,000 in Fiscal 2002. Salaries, directors' and sub-contractors' compensation was $6,111,000 in Fiscal 2003 and $3,988,000 in Fiscal 2002. The increase is due to increases in staff numbers and sub-contractors (including medical board members and radiologists) as the Company expands. Other charges include service charges and rates for property leasing of $443,000 in Fiscal 2003 and $422,000 in Fiscal 2002, and rent of $909,000 in Fiscal 2003 and $455,000 in Fiscal 2002. The rent increase was due to the opening of the Westminster site. In Fiscal 2003 the Company incurred costs of $1,299,000 related to marketing and public relations and $492,000 relating to the clinical trials, whereas no such costs were incurred in Fiscal 2002. Amortization of intangibles in Fiscal 2003 was $nil as compared to $4,494,000 in Fiscal 2002.

        Depreciation and Amortization Expense.    Effective January 1, 2002, with the adoption of SFAS No. 142, goodwill will no longer be amortized. Prior to January 1, 2002, goodwill was amortized on a straight-line basis over 5 years.

        During Fiscal 2000, the Company acquired an intangible asset from Nightingale consisting of technology valued at $22,470,000. Under SFAS No.142, this is considered an intangible asset with a definite life of 5 years. Therefore, the value of the asset is amortized on a straight-line basis over this <