UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-K







x
            Annual
      report under Section 13 or 15(d) of the Securities Exchange Act of
      1934





For the
fiscal year ended: December 31,
2009




o
            Transition
      report under Section 13 or 15(d) of the Securities Exchange Act of
      1934




For the
transition period from to





Commission
file number: 000-52117





ITECH
MEDICAL, INC.


(Exact Name of
registrant as specified in its charter)









Delaware
            
            20-5153331(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            
            (IRS
      Employer
              Identification
      No.)




17011 Beach Blvd.,
      Suite 900, Huntington Beach, CA
            
            92647(Address
      of Principal Executive Offices)
            
            (Zip
      Code)





(714)
841-2670


(Issuer’s
Telephone Number, Including Area Code)





Copies
to:


The
Sourlis Law Firm


Virginia
K. Sourlis, Esq.


214 Broad
Street


Red Bank,
New Jersey 07701


Telephone:
(732) 530-9007


www.SourlisLaw.com





Securities
Registered Pursuant to Section 12(b) of the Act.




Common
      Stock, par value $0.0001 per share
            
            N/A(Title
      of each class)
            
            (Name
      of exchange on which registered)










Securities
registered pursuant to Section 12(g) of the Act: None










Indicate
by check mark if registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.    Yes o   No  x





Indicate
by check mark if registrant is not required to file reports pursuant to Rule 13
or Section 15(d) of the Act.    Yes  o   No  x









Indicate
by check mark 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 x   No o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) 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 a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check one):




Large accelerated filer
            
            o
            
            Accelerated filer
            
            oNon-accelerated
      filer
            
            o  (Do
      not check if a smaller reporting company)
            
            Smaller reporting company
            
            x





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





The
registrant had no revenues for the fiscal year ended December 31,
2009.





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as a specified
date within the past 60 days:  $6,387,576 based on a closing sales
price of $0.39 per share on April 13, 2010.





As of
April 13, 2010 there were 26,691,732 shares of the registrant’s Common Stock
outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE:





None.





Transitional
Small Business Disclosure Format (check one):    Yes 
o    No
x









2





TABLE OF CONTENTS





PagePART IItem 1.
            
            Business
            
            4Item 1A.
            
            Risk Factors
            
            16Item 1B.
            
            Unresolved Staff Comments
            
            21Item 2.
            
            Properties
            
            21Item 3.
            
            Legal Proceedings
            
            21Item 4.
            
            Submission of Matters to a Vote of Security
      Holders
            
            21PART IIItem 5.
            
            Market for Registrant’s Common Equity, Related
      Stockholder Matters, and Issuer Purchases of Equity
      Securities
            
            22Item 6.
            
            N/A
            
            28Item 7.
            
            Management’s Discussion and Analysis of Financial
      Condition and Results of Operation
            
            29Item 7A.
            
            Quantitative and Qualitative Disclosures About
      Market Risk
            
            32Item 8.
            
            Financial Statements and Supplementary
      Data
            
            32Item 9.
            
            Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosure
            
            32Item 9A(T).
            
            Controls and Procedures
            
            32Item
      9B.
            
            Other Information
            
            33PART IIIItem 10.
            
            Directors, Executive Officers and Corporate
      Governance
            
            33Item 11.
            
            Executive Compensation
            
            37Item 12.
            
            Security Ownership of Certain Beneficial Owners
      and Management and Related Stockholder Matters
            
            38Item 13.
            
            Certain Relationships and Related Transactions and
      Director Independence
            
            40Item 14.
            
            Principal Accountant Fees and
      Services
            
            41PART IVItem 15.
            
            Exhibits and Financial Statement
      Schedules
            
            41SIGNATURES
            
            42




3





DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS





Certain
statements made in this Annual Report on Form 10-K are “forward-looking
statements” (within the meaning of the Private Securities Litigation Reform Act
of 1995) regarding the plans and objectives of management for future operations.
Such statements involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements of iTech Medical,
Inc. (the “Company”) to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. The Company’s plans
and objectives are based, in part, on assumptions involving the continued
expansion of business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance the forward-looking
statements included in this Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.





PART
I




As used in this annual report and unless otherwise indicated, the
terms the “Company,” “iTech Medical,” “we,” “us,” and “our” refer to iTech
Medical, Inc., a Delaware corporation.





Item
1. Business





iTech
Medical, Inc. (a development stage company) (the "Company" or “ITM”), a Delaware
corporation formerly known as Impact Medical Solutions, Inc., was incorporated
on October 20, 1997 as a Nevada corporation.  On September 9, 2003,
ITM acquired a patent from MPR Health Systems, Inc., a California corporation; a
patented medical information system called Muscle Pattern Recognition (“MPR”)
with a value of $500,000.  On December 27, 2006, ITM entered into a
Plan and Agreement of Merger (the “reverse merger”) with Freedom 1, Inc., a
Delaware corporation and a “blank check company,” as defined under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), whereby ITM
was the surviving entity.  Since December 2002 and continuing after
the reverse merger, ITM has been involved in the development and pre-market
clinical testing of the MPR System.





MPR is a
non-invasive, proprietary technology platform that objectively discriminates
between normal and abnormal musculoskeletal function. The Company’s MPR System
is a patented clinical tool that analyzes patterns of muscle recruitment - the
engagement of muscles in order to perform specific body
movements.  MPR test results provide detailed physiological
information on muscle function that we believe can assist in the diagnosis and
treatment of back and neck injuries and illness. The results of an MPR
evaluation are presented in a comprehensive report that confirms normal muscle
recruitment patterns or provides clinically relevant information on the nature
and severity of dysfunction at each recorded muscle site.





We
believe that the capabilities of the MPR System are unique and that the system
addresses an unmet market need for an objective, evidence-based test that can be
used by physicians and other health care professionals to better assess and
manage patients with impaired musculoskeletal function. We believe the MPR
System supports the cost-containment and risk management goals of insurers,
workers compensation carriers, self-insured employers and managed care providers
by providing objective information to help control health care costs associated
with back and neck injuries.





Central
to the MPR System is the fact that muscles in the back and the neck function as
an interactive system. In order to determine whether a particular muscle is
functioning within a normal range, it must be examined in concert with all of
the other muscle groups required for the body to make specific
movements.  Muscles also interact in a predictable manner that can be
expressed in a kinesiological relationship. These principles have been
incorporated into the MPR test and form the basis of a unique system that
measures the relationships among muscles in a given movement. By comparing
relationships of muscles, MPR is able to normalize subjects against each
other.




4




The
standardized protocol of movements that make up the MPR test provides the
ability to compare patients to a database of normal subjects.  When
patients replicate the same carefully administered, standardized movements
performed by the subjects in the normalized database, an accurate comparison can
be made.  Using a data analysis system (described in greater detail
below), the comparison of a patient's patterns with those of the "normal"
subjects in our database is the basis of the MPR System.





During
the years ended December 31, 2009 and 2008, we incurred a net loss of $3,413,454
and $1,589,500, respectively, and had $146,477 cash on hand as of December 31,
2009.  We are in the development stage and have not earned any revenue
since our inception.





We
continue to develop and enhance the features and performance of our technology
with the goal of introducing new products based on our core research and
development activities. Three of our five employees and three of our four
independent consultants currently devote at least a portion of their time to our
research and development activities.  We anticipate increasing levels
of resources will be dedicated to research and clinical development in the
implementation of our business strategy within the next 12 months.





As our
business grows, we anticipate hiring additional employees and retaining
additional consultants.





Research
and Development





We
expense our research and developments expenses. Research and development
expenses consisted of costs associated with the design, development, testing,
and enhancement of the MPR System. The primary costs are salaries, consulting
fees and non-recurring software development costs.  Research and
development expenses increased to $316,004 in 2009 from $258,179 in 2008 due to
an increase in the costs associated with our clinical trial.  In
February 2009, we initiated a pilot clinical trial in Salt Lake City, Utah which
we expect to complete during the second half of 2010.





Market
Opportunity




Overview





Back pain
is one of the most common and significant musculoskeletal medical problems in
the world. Back injuries are the leading cause of disability in the United
States for people younger than 45 years of age and have been the most expensive
health care problem for the 20 to 50 year-old age group. Eighty percent (80%) of
adults seek care at some time for low back pain, and approximately one third of
all disability costs in the United States are due to back
disorders.





For most
patients, the cause or causes of persistent back pain remain poorly understood.
Although imaging procedures, including computerized tomography (CT) and magnetic
resonance imaging (MRI), are able to accurately define structural anomalies, the
correlation of these anatomic findings with physiology, back pain, and other
clinical complaints is imprecise.





Back pain
is classified into three categories based on the duration of
symptoms:





·
            Acute back pain is
      arbitrarily defined as pain that has been present for six weeks or
      less.·
            Sub acute back pain has
      a six- to 12-week duration and





·
            Chronic back pain lasts
      longer than 12 weeks.





Acute low
back pain is often recurrent, and most patients with a history of acute episodes
eventually have more chronic symptoms. Also, persons who seek medical attention
for back pain are thought to be at increased risk for chronic pain and
disability. We believe patients in all three groups (acute, sub acute and
chronic) are appropriate candidates for MPR.




5





Key
Market Trends





Several
trends have expanded the market for better solutions to diagnosing back
problems:





·
            increased
      employer and payor aggressiveness in quantifying and seeking ways to
      reduce the economic toll of back injuries, one of the largest segments of
      health care costs;·
            growing
      awareness of the need for objective information in medical-legal injury
      litigation;





·
            need
      for measuring patient treatment effectiveness and managing patients to
      successful outcomes;·
            increased
      health care purchaser and provider attention to injury prevention;
      and





·
            increased
      patient awareness of treatment
alternatives.





We
believe the convergence of these trends has magnified the large business
opportunity to provide clinically proven tools to reduce the costs and improve
the outcomes of patients with back pain.





Target
Markets for MPR





The
target markets for MPR are large and include the following:





·
            Primary
      care physicians, who initially treat the majority of patients with back
      pain;·
            Specialists
      including neurologists, orthopedic surgeons, physical medicine and
      rehabilitation physicians (PM&R) and occupational medicine
      practitioners (occmed);·
            The
      employer market;·
            The
      Workers’ Compensation market;·
            Health
      Maintenance Organizations (HMOs); and·
            Insurance
      companies.




Primary
Care Physicians





Primary
care physicians typically include family practice physicians, internists,
obstetricians, gynecologists, and pediatricians. As back pain is extremely
common, these physicians actually see most of these private patients and often
have extensive experience in treating acute back pain due to muscle
dysfunctions.





Primary
care physicians provide a non-invasive (non-surgical) approach and often utilize
prescription medications to help reduce pain and inflammation, as well as using
the services of physical therapists to assist in maintaining range of motion and
muscle tone. Often, they may order a variety of spinal diagnostic procedures to
more fully investigate the potential causes of persistent back and neck pain and
refer patients to a specialist for further diagnosis and treatment.





Specialists





There are
several areas of specialty medicine that we believe represent target markets for
MPR. They include:





·
            Neurologists - A
      neurologist is a medical doctor who has trained in the diagnosis and
      treatment of nervous system disorders, which include diseases of the
      brain, the spinal cord, the nerves, and the muscles.·
            Orthopedic Surgeons -
      Orthopedic surgeons treat the surgical diseases, conditions and injuries
      of the bones, muscles and joints.





·
            Physical Medicine and
      Rehabilitation - Physical Medicine and Rehabilitation (PM&R),
      also called physiatry, is the branch of medicine that emphasizes the
      prevention, diagnosis and non-surgical treatment of disorders - including
      those of the musculoskeletal system - that may produce temporary or
      permanent impairment.·
            Occupational Medicine -
      Occupational Medicine is concerned with the treatment of patients with
      occupational and environmental illnesses and/or
  injuries.




6


Employers





We
believe employers can directly benefit from reductions in the medical and income
continuation costs due to better diagnosis and treatment of back
problems.





The
second component of this market, and a market segment unto its own, is the use
of MPR as an occupational assessment tool to prevent injuries from occurring in
the first place. For these employers, we believe screening new and veteran
employees to identify those with positive MPR tests could improve job placement
and identify high-risk groups for future injury that may benefit from back
strengthening and flexibility exercises. This use of MPR as a preventative tool
also blends well with the trend towards preventative medicine.





Additionally,
the Company may look at other occupational medicine applications once MPR is
fully tested for the back/neck.





Workers’
Compensation Market





Work-related
back and neck injuries, or musculoskeletal disorders, are caused or aggravated
by the work environment. Work-related back and neck injuries can result in
reduced worker productivity, inability to perform job tasks, work loss, and
temporary or permanent disability.





We
believe that Workers’ Compensation carriers stand to generate savings and
improve their competitive market position through the adoption of the MPR
technology. Although state laws vary, carriers are usually able to dictate or
influence the sources of care for back problems, particularly in the crucial
early period. Increasingly, managed care organizations provide workers’
compensation services through contractual relationships with physician groups.
These organizations have the authority to recommend the incorporation of MPR
into their assessment and treatment protocols.





Health
Maintenance Organizations (HMOs)





HMOs
contract with large medical groups to provide services under both health benefit
and workers’ compensation plans. We believe the use of MPR can reduce the need
for more expensive tests, reduce the number of physician and non-essential
therapy visits, and assist physicians in recommending appropriate rehabilitative
therapy. For this reason, we believe managed care organizations such as HMOs
will be highly motivated to adopt the cost-effective MPR
technology.





Insurance
Companies





We
believe the insurance companies are large targets because their reimbursement
policies and practices have a profound impact on the medical diagnostic
industry; they largely dictate pricing policies, methods of distribution and
growth strategies. Insurance companies are also playing an increasingly
important role as prescribers. We believe MPR has the potential to control
direct medical costs and indirect costs such as lost time, disability claims,
and litigation expenses and therefore we believe that MPR will be well received
by insurers. We also believe they can become a major source of referrals,
particularly in the workers’ compensation market.





MPR has
the potential to serve all of the above markets. Because these markets are
inter-related, we believe marketing simultaneously to all markets will reduce
the sales cycle, sales and marketing costs and increase market penetration in
each segment.





A common
trend in each of the market segments is increased competition based not solely
on price but also on health outcomes. For employers, reduced toll of back
injuries translates directly into higher employee productivity and enhanced
profits. Health care risk-bearing and delivery organizations find that clients
are demanding better health outcomes, which in turn translate into higher
productivity and profitability. National organizations such as the National
Committee for Quality Assurance (NCQA) and the Joint Commission on Accreditation
of Healthcare Organizations (JCAHO) are promoting outcome-oriented standards and
requiring that organizations maintain records and report on outcomes in a
growing range of health domains. In this environment, improved treatment of back
injuries would provide a significant competitive advantage, with demonstrably
improved health and economic outcomes. Given the potential use of MPR in
measuring treatment outcomes, we believe our company is well positioned to
benefit from the current health care environment.




7





Our
Product Offerings




The
MPRSystem


The MPR
System is a clinical tool that performs a biomechanical and mathematical
analysis of muscle function. Test results are based on the simultaneous
measurement of surface electromyography (sEMG) signals produced by specific back
and neck muscles during the execution of distinct body movements (an MPR
Test).  A patient's readings are digitized and processed by a
proprietary data analysis system that generates graphic images of recognizable
muscle activity patterns.  A computer-assisted comparison of a
patient's patterns with those produced by normal subjects is then provided in a
report that forms the basis of the clinical evaluation.





The MPR
System consists of three components:





·           MPR
Data Acquisition Device;




·           MPR
Data Analysis System; and




·           MPR
Report





TheMPR Data Acquisition
Device


The MPR
Data Acquisition Device consists of a commercially available laptop computer
system and a recording system equipped with a set of signal amplifiers. The
amplifiers are attached to customized skin-surface electrodes that pick up the
electrical signals produced by the underlying muscles. The recording system and
signal amplifiers are purchased from one of several suppliers in the market
place.





The Data
Acquisition Device is controlled by proprietary data collection software
developed and owned by ITM.  The software prompts and guides the
Technician (operator) in performing the required data collection tasks; it
assists patient and operator in the execution of body movements by providing
visual and audio prompts; and it provides a real-time graphical display of
muscle activity.  The MPRTechnician
is therefore assisted in completing successfully and reliably the data
collection process, and is further guided in archiving and transmitting the data
for clinical analysis.





The MPRData Analysis
System


The data
collected during each MPRTest
is processed by our computerized Data Analysis System.  Proprietary
analytical software, also developed and owned by ITM, is used to assess the
quality of the MPR data and to derive a number of complex measures which
characterize the patient’s muscle recruitment patterns.  These
measures are then compared to their respective equivalent derivations from a
normative database of non-injured and pain-free subjects.  The results
of the analysis are presented in an MPR Report, which is electronically
transmitted to the referring health care provider.





The
MPR Report


The
MPRReport
provides the health care provider with findings that help to classify the
patient as normal or with a graded level of muscle dysfunction
(abnormal).  The MPRReport
includes graphic, statistical and narrative representations of each muscle
group’s recruitment patterns as compared to normative patterns and provides
critical information about the muscle groups examined.  This
information includes:





Evidence
      of dysfunction:
            Reports
      if muscle recruitment is normal or abnormal and if abnormal, the location
      of the abnormality.Conditions
      of occurrence and
              severity
      of dysfunction:
            Reports
      the severity of the dysfunction as compared to normal, and the motor
      movement(s) in which a dysfunction was observed.  Also reports
      if the dysfunction is due to hyperactivity (muscle
      spasm) or hypoactivity (muscle
      weakness).Patterns
      of abnormal muscle recruitment:
            Provides
      a graphic presentation of the abnormal muscle patterns, including the
      patterns of abnormal muscle
compensation.




8




MPR
- based Clinical Evaluation





The MPR
Report and a health care provider clinical examination would form the basis of
an MPR - based evaluation.  At the discretion of the referring health
care provider, patients may be retested to measure the progress of treatment and
assist in making a decision for discharge. We believe several other critical
questions are implicitly addressed when a patient is retested to ascertain if
additional treatment is advisable. For example:





·
            Is
      the patient's muscle recruitment pattern now within the range of
      normal?·
            If
      not, have the patient’s recruitment patterns improved through
      treatment?





·
            Should
      the payer continue to fund further (or alternative)
    treatment?





These
questions address issues of rehabilitation, short and long term disability, and
the ability of a person to return to work.





Manufacturing
and Service





We use
commercially available data recording equipment and disposable electrodes from
Thought Technology Ltd., an unaffiliated biofeedback and psycho-physiological
instrument manufacturer based in Montreal, Canada.  Thought Technology
maintains all relevant manufacturing facility registrations and Quality System
certifications (ISO 13485) for the sEMG/ECG equipment and disposables used in
the MPRSystem,
and is in full compliance with FDA, Health Canada and European (CE Marking)
requirements.





ITM
currently performs the final assembly of the MPRData
Acquisition Device, which includes software installation, system configuration,
and final system testing.  The MPRsoftware
is produced and released by ITM.  ITM is currently responsible for
first-line service, including software support.  Individual equipment
is serviced by their corresponding manufacturers.





The
MPRData
Analysis System (central application server and related software) is configured,
maintained, and operated by ITM.





Regulatory
Requirements





US
Procedures


The Food
and Drug Administration (FDA) regulates all medical devices manufactured in the
United States.  Within the FDA, the Center for Devices and
Radiological Health (CDRH) is specifically charged with assuring the public that
a device is safe and effective for its intended use.





The level
of regulatory scrutiny is determined in good part by the class of a device.
Device classification, which is risk-based and assessed based on the intended
use of the device, falls into three classes: Class I, II and III, with Class I
devices requiring the least stringent controls and Class III devices requiring
the most stringent controls.  All classes of devices are subject to
General Controls, which include establishment (manufacturing/assembly site)
registration, device listing, labeling, and current Good Manufacturing Practices
(GMP) in compliance with the Quality System Regulation. The FDA does not
actually test devices, but through various committees, it reviews pre-marketing
applications for devices to assure their safety and effectiveness in accordance
with their classification.





For a
Class II device, a manufacturer must first demonstrate that the device is
“substantially equivalent” to a legally marketed device that has already been
classified (known as a “predicate” device). This is accomplished by submitting a
Premarket Notification under Section 510(k) of the Food, Drug, & Cosmetic
Act.  If after the 510(k) review the new device is found to be
“substantially equivalent” to its “predicate” device, the FDA will allow the
sale of the new device.




9





Thought
Technology’s EMG equipment used in the Data Acquisition Device of the MPR System
is a Class II device and has been cleared by the FDA under Section
510(k).  The MPR Data Analysis System has not yet been cleared however
we intend to treat it as a Class II device and have already identified suitable
predicate devices which we believe are substantially equivalent and will support
a new 510(k) submission, expected in 2010.  We anticipate filing
additional performance and marketing claims with the FDA in 2011 after we
complete an independent clinical trial of the MPR System, expected to begin in
the second half of 2010.  We believe the results from this trial will
determine the degree of clinical utility for the MPR test as a diagnostic tool
in its own right along with demonstrating the economic benefits to the health
care system when the MPR System is used in diagnosing and treating patients with
back and neck pain.  (For more information on the
clinical trial, see Major Medical Market)





EU
Procedures





The
regulation of medical devices in the EU is different than in the Unites States
and is guided by three European Commission (EC) Directives.  The main
directive, which covers the vast majority of medical devices - including the MPR
System - is the Medical Devices Directive (MDD).  The MDD, along with
the other two EC Directives, have been enacted into the national laws of each EU
Member State, resulting in a legislative framework comprised of literally dozens
of medical device laws.





Before a
company can sell a medical device within the EU, it must place a CE Mark (CE
Marking) on its product. The CE Mark for medical devices is not a quality mark
nor is it intended for consumers.  It is a legally binding statement
by the manufacturer that their product has met all of the requirements of the
MDD.  Before the CE Mark may be affixed to the MPR System, we must
complete the following:





·
            Compile
      a medical device CE Marking Technical File with evidence of compliance to
      the MDD;


·
            Appoint
      a European Authorized Representative since we have no physical location in
      Europe;


·
            Receive
      a device-specific EC Certificate from a Notified Body,
      and;


·
            Register
      the MPR System with the appropriate Competent Authorities, where
      applicable.





Only
after these CE Marking requirements are satisfied, will we be allowed to place
the CE Marking on the MPR System.





The need
for clinical data in the CE marking process arises from the requirement to
demonstrate that a device is safe, that it performs as intended by the
manufacturer, and that any risks are acceptable when weighed against the
benefits of the device.  The term "clinical data" within the meaning
of the MDD is a broad concept that includes everything from bench testing to
clinical trials in human subjects. As stated in the MDD, the clinical data used
for CE marking may be in one of two forms:





·
            either
      a compilation of the relevant scientific literature currently available on
      the intended purpose of the device and the techniques employed, together
      with, if appropriate, a report containing a critical evaluation of the
      compilation; and


·
            the
      results and conclusions of a specifically designed clinical
      investigation.





The first
option, also referred to as the "literature route," is commonly used by
manufacturers for the CE marking of low- to medium-risk devices like the MPR
System for which safety and performance can be adequately demonstrated by a
combination of nonclinical data and clinical data that already exists on the
device (published or unpublished) or by analogy with published data generated on
an equivalent device.  This is the route we anticipate taking when
pursuing the CE marking for the MPR System, anticipated to occur in the second
half of 2010.





Reimbursement for MPR- CPT
Coding





When
billing insurance companies for services like MPR, health practitioners use
“codes”. Reimbursement claims require the use of two coding systems: one that
identifies the patient's disease or medical condition (the International Classification of
Diseases, 9th Revision, Clinical Modification, or ICD-9-CM, codes) and
another that describes the procedures, services or supplies a practitioner
provides to their patients (the Current Procedural
Terminology, or CPT, codes).




10





CPT
coding was developed by the American Medical Association (AMA) in 1966 in
response to the increasing need for standardized terminology and clarity so that
physicians and other health care providers could describe their work for
purposes of billing health insurers. CPT is also used for administrative
management purposes such as claims processing and developing guidelines for
medical care review.





The
process for requesting a new CPT code is well defined and the AMA has developed
a formal process for evaluating coding suggestions. Requests are sent to the CPT
Editorial Panel and reviewed by appropriate members of the CPT Advisory
Committee. Coding proposals must contain detailed information on the procedure
described, including a clinical vignette of the typical patient and, if a
surgical procedure, an operative report. Copies of peer-reviewed articles
published in U.S. journals describing the safety and effectiveness of the
procedure must also be included.





MPR
has been reimbursed in the past under a general CPT code for “Alternative
Neuromuscular Disorders” (Code #95999). We believe that to obtain broad
acceptance of the MPR System with health care practitioners, it may be important
for us to obtain a more specific CPT code for the test than Code
#95999.





Patents
and Trademarks





Our
technology is protected by the following patent:





Patent
            
            Information
            
            Dates
            
            Status
            
            US
      Serial
            
            ExpirationMuscle
      Pattern Recognition
            
            Full
      application
            
            August,
      2001
            
            Approved
            
            6,280,395
            
            January,
      2020





Our
Muscle Pattern Recognition patent protects the method for determining muscle
dysfunction of a subject; the system for determining muscle
dysfunction of a subject; the computer readable medium having
stored instructions (computer programs) for analyzing the muscle
dysfunction of a subject; a muscle dysfunction evaluation
network(data collection, analysis, reporting and communications links)
for determining muscle dysfunction of subjects; and a muscle dysfunction
report.





We have
not applied for patent protection for the MPR technology in any country other
than the United States, although we anticipate doing so if and when any U.S.
patents are issued.





Sales and
Marketing





Overview





We
believe today’s health care environment in the U.S. is very complex, and the
development and introduction of a new medical device such as MPR involves not
just an FDA approval process, but overcoming significant reimbursement hurdles
and complex commercial challenges associated with training and educating
physicians, patients and payors.





We
believe the traditional delivery of health care, when decision-making was based
on the sole discretion of the treating physicians, has evolved toward a more
financially based, protocol-driven medical care that is now known as
evidence-based medicine. We believe this new healthcare paradigm has created new
and complex relationships between all organizations that populate every point of
the health care compass - integrated insurers, self-insured employers, managed
care organizations, third party administrators, risk managers and physician
networks. We believe complicated new relationships have evolved and must all be
considered as part of the marketing effort of MPR.





The
Marketing Plan





We
believe there are three broad markets for MPR under which all other target
markets fall. The three markets are the Major Medical market, the Workers’
Compensation market and the Medical/Legal market. Our initial target market for
MPR is the Major Medical market because we believe successfully penetrating this
market will allow us to reach the largest audience of potential users and
referrers of the test.




11





Major
Medical Market





The
target markets for MPR within the medical profession include Neurologists,
Orthopedic Surgeons, Physical Medicine and Rehabilitation Specialists
(Physiatrists), Occupational Medicine Practitioners (OccMed), Primary Care
Physicians (GPs) and Physical Therapists.





For MPR
to be accepted by this market we believe there are three important conditions
that must be met:





1.
            The
      clinical effectiveness of MPR must be demonstrated in independent clinical
      studies and the results must be published in one or more peer-reviewed
      journals;2.
            Medical
      professionals must be certain that they will be reimbursed if they
      prescribe the test; and,





3.
            There
      must be minimal disruption in the way physicians treat their patients when
      introducing MPR into their
practice.




To meet
the first condition, we have started an independent clinical trial of MPR at two
North American sites with plans to expand to four. Patient recruitment to this
trial is currently on hold and will remain so until we obtain further
funding.





Integrated
medical practices (physicians with rehabilitation capability) and independent
rehabilitation hospitals and clinics were approached to participate in our
clinical trial. Site selection was important and was ultimately based on three
criteria:





1. The participating site should be, in
our view, recognized as a leading center for the treatment of back and neck
injuries;


2. Each site must meet certain commitments
regarding patient recruitment; and,


3. Each site must have the potential of
becoming an MPR customer after the trial has been
completed.




We
believe each of the four participating centers also has the potential to serve
as a provider of the technical services (i.e. perform the MPR test) for
potential new customers such as Workers’ Compensation members and local
employers.





We
believe successful completion of the clinical trial will allow us to receive all
necessary regulatory bodies’ clearance for the U.S., Canadian and European
markets. Concomitantly, we believe it will provide all necessary data for the
preparation and submission of independent scientific papers to peer-reviewed
journals and the participation in selected scientific and medical
conferences.





Following
the clinical trial, we intend to use the recognition and influence of our
Medical Advisory Board (MAB) members to assist in the process of MPR methodology
acceptance in the medical community at key scientific and medical
conferences.





We
anticipate target marketing will follow from industry and trade awareness
campaigns to specific executions directed at specific customers and customer
segments. We expect individual physicians and occupational clinic settings
involved in Workers’ Compensation will be an early initiative under our
marketing plan.





The
Workers’ Compensation system is a legally-driven medical delivery system and we
believe that many physicians do not wish to become involved in litigated matters
and defer such cases to those specialists who are familiar with the compensation
laws. It is this latter group of health care providers who take care of the
overwhelming majority of such cases. The specialties of Occupational Medicine,
Orthopedic Surgery, Neurology and Physical Medicine and Rehabilitation
(Physiatry) are the most common care providers to the injured worker. It is to
these groups of providers that we will initially concentrate our efforts.
Through publications in medical journals, presentations at national medical
conferences, lectures at smaller local medical societies and hospitals,
discussions with selected teaching hospitals and universities, and the writings
and endorsements of the members of our MAB members, we believe we can
appropriately present the MPR technology to a wide audience of users. As the
members of a medical community tend to speak freely amongst themselves about
emerging technologies, we believe we can also expect a greater awareness of MPR
from simple doctor-to-doctor word of mouth.




12





We
believe that as the awareness of the MPR technology increases, it will be easier
for a physician to request a test just as he/she can request an x-ray or an MRI.
And because it is only the physician who can institute a rehabilitative
treatment program for an injured patient, he/she can also order follow-up MPR
testing to monitor a patient’s progress during their rehabilitative recovery
phase and assist in bringing that case to closure.





At
approximately the same time, we expect to contact and begin all of the necessary
activity to join with other high-profile providers of healthcare and work with
them as beta-sites to help spread the word and independently demonstrate the
benefits of the MPR technology in the diagnosis and treatment of back and neck
injuries.





Discussions
have already begun with healthcare providers and large key national employers
and insurers. They have all indicated their interest and intention to become
involved with us both as users and buyers of the MPR services upon completion of
the clinical trial and with our FDA clearance, if obtained.





Under
these ‘joint ventures’, we believe that we will soon thereafter generate the
support and data necessary to obtain our own CPT code (reimbursement code), a
key, we believe, to more widely spreading the awareness and utilization of the
MPR technology and a key, we believe, to meeting the second condition in
obtaining acceptance by the medical profession.





Finally,
we believe that it is well-known that health care providers, specifically
medical doctors, use testing and examination methodologies that they have
learned through their years of training and practice and that changing the way
in which they treat their patients is a difficult challenge for companies like
ours. To overcome this challenge (the third condition listed above), we expect
to start contacting medical schools after the completion of the clinical trial
to begin training those specialists that have been identified as the main
prospective users of MPR (i.e. occupational medicine doctors, physiatrists,
neurologists, and orthopedic surgeons). We intend to approach influential
medical schools to start such a program that we believe will allow the MPR
methodology to become a part of the training curriculum for the clinical
evaluation of patients with non-surgical back and /or neck
injuries.





Workers’
Compensation





History
and Overview





In almost
all states, employers are required to purchase insurance for their employees
from a workers' compensation insurance company - also called an insurance
carrier. In some states, larger employers who are clearly solvent are allowed to
self-insure or act as their own insurance company, while smaller companies (with
fewer than three or four employees) are not required to carry workers'
compensation insurance at all. When a worker is injured, his or her claim is
filed with the insurance company - or self-insuring employer - who pays medical
and disability benefits according to a state-approved formula.





The
workers' compensation system provides replacement income, medical expenses and
sometimes vocational rehabilitation benefits (i.e. on the job training,
schooling or job placement assistance). An employee temporarily unable to work
due to work-related injury is often entitled to receive two-thirds of their
average wage up to a fixed ceiling. These payments are tax-free, so they would
fare reasonably well in most states. Many employees are eligible for these
wage-loss replacement benefits as soon as they've lost a few days of work
because of an injury (i.e. back injury) that is covered by workers'
compensation.





Although
state laws vary, insurance carriers are usually able to dictate or influence the
sources of care for back problems, particularly in the crucial early period.
These organizations have the authority to recommend the use of MPR in their
assessment and treatment protocols. We believe Workers' Compensation boards and
self-insured companies stand to generate substantial savings by using MPR
because of the enormous costs involved in lost productivity associated with
employee time away from work.




13





There are
many players involved in the many facets of the implementation of the workers'
compensation system. They include:





·
            the
      medical profession in the broadest definition of 'medical'
    ‘;·
            insurance
      companies;





·
            employers
      and employer organizations;·
            injured
      workers;





·
            labor
      unions and workers' organizations;·
            attorneys
      and their organizations; and





·
            the
      state agencies that regulate and implement the workers’ compensation
      program.




We
believe all of the players are in some way linked to each other under the
workers’ compensation system, and we believe each stakeholder represents a
distinct market for MPR and requires a unique marketing approach. The one common
element, however, that underscores each of these markets is that to be
successful, we believe MPR must gain the acceptance of the medical profession
and the insurance companies.





Insurance
Companies and Medical/Legal Market





Addressing
the needs of the insurance companies will be one of the other prime focuses of
our marketing plan. Their reimbursement policies and practices may have a
profound impact on our methods of distribution, our growth strategy and
ultimately on our revenues because their reimbursement procedures largely
dictate the pricing policies for our product. We believe that by addressing the
needs of the insurance companies, we are also addressing the needs of the
medical professionals who use MPR.  Third party payers can be very
controlling and onerous for physicians to deal with on a day-to-day basis and if
we are successful in establishing clear reimbursement policies for MPR, we
believe physicians will be more likely to use the test because they may be saved
the aggravation of fighting the insurance company over billing and payment for
the test.





When
billing insurance companies for services like MPR, health practitioners use
reimbursement codes. Reimbursement claims require the use of a coding system:
one that identifies the patient's disease or medical condition and another that
describes the procedures, services or supplies a practitioner provides to their
patients (the Current Procedural Terminology, or CPT code).




The
process for requesting a new CPT code is well defined by the American Medical
Association which has developed a formal process for evaluating coding
suggestions for products like MPR. In the past, MPR has been reimbursed under a
general CPT code for “Alternative Neuromuscular Disorders” (Code #95999). 
To obtain broad acceptance of the MPR System with insurance companies and other
third party payers, we believe it may be necessary to obtain a more specific CPT
code for the test than Code #95999.  To help us achieve this goal, we are
working with a leading specialized consulting firm that provides financial and
regulatory services to companies that operate in regulated
industries.





If we are
successful in obtaining a CPT code for MPR, the marketing emphasis with the
insurance companies is likely to shift from proving the safety and effectiveness
of MPR to demonstrating the economic benefits associated with using the test to
identify and treat muscle dysfunction of the back and the neck. We believe this
shift can be accomplished through one or more independent cost/benefit studies
which we plan on beginning after the current clinical trial has been
completed.





We
believe the value of these cost/benefit studies to us is great because insurance
companies are also playing an increasingly important role as prescribers. And
because we believe MPR has the potential to control direct medical costs and
indirect costs such as lost time, disability claims, and litigation expenses, we
believe that MPR will be well received by insurers who have the potential to
become a major source of referrals, particularly in the workers’ compensation
market. The cost of these studies is expected to be less than those associated
with the current clinical trial and may be absorbed by one or more potential
customers.




14




Other
Target Markets





Employers





Most
employers are experience-rated for workers’ compensation. They can directly
benefit from reductions in the medical and income continuation costs due to
better discernment in the diagnosis and treatment of back problems. In addition,
many employers retain significant financial risk for disability and lost wages
as well as health care costs under health benefit plans they purchase on behalf
of their employees and dependents. We believe these employers stand to reduce
their health care costs by using MPR.





Self-insurance,
in the context of workers’ compensation (WC), is a program under which an
employer assumes the risk for the vast majority of its WC liabilities, and
purchases some form of excess, or stop-loss coverage, designed to protect the
employer from catastrophic losses. We will initially focus our sales and
marketing efforts with those employers where we believe the MPR System’s
strengths and economic advantages are most easily recognized and quantified.
Some of these employers include previous users of MPR.





We will
also target specific employers where MPR has the ability to serve as an
occupational health assessment tool that we believe can be used not only to
reduce the overall cost of health care and health care insurance but also as an
assessment tool to prevent back injuries in those employees who may have a
pre-existing condition. Examples of these employers include those companies
working in the automobile manufacturing sector, airlines, ground transportation
and heavy manufacturing.





Health
Care Plan Administrators will also be targeted. These large organizations
provide services to public and private self-insured employers. In their role to
manage private plans, they can influence care strategies and/or treatment
selection criteria, and they may have authority to commit funds for evaluation
and treatment. Most of them have financial incentives to contain costs and limit
payors' exposure related to ongoing treatment and disability.





Other
target markets include firms servicing insurance companies, third-party plan
administrators for self-insured employers, and risk and case management
companies. We plan on targeting the medical care providers that service these
markets such as hospitals, rehabilitation clinics, industrial clinics,
diagnostic centers, physical therapists and MRI imaging centers. We feel this
second group is also an important component of our strategy because, in addition
to its capacity to prescribe MPR, it may serve as a delivery vehicle for the
test.





Health
Maintenance Organizations (HMOs) are expected to be of vital importance to us
due to their leadership role in the cost containment drive and the considerable
market share they enjoy.





We will
also attempt to recruit hospitals, independent clinics and diagnostic centers as
evaluation centers for MPR evaluations. We believe these providers have the
potential to become the delivery system for corporate clients and insurance
companies. They have the ability to service the medical/legal market and may
later become the sites for entry into the medical back pain and physical
medicine market.





We also
believe that the MPR technology can have a significant impact on the cost
containment related to the conservative management of back and neck patients in
the rehabilitation industries. The large increase in the cost of treatments over
the last decade has resulted in more and more reimbursement being based on
capitation. Under the capitation system, health care providers are awarded a
fixed maximum in their fees for services. At this time, we believe there are no
known objective measures that can monitor if a patient needs more treatment or
not. We believe we can provide this objective evidence, and we are planning to
build relationships with major national rehabilitation organizations that we
believe will result in the establishment of best care practices for the delivery
of back and neck rehabilitation protocols.




15





We also
expect to enter into agreements with local and regional medical product
distributors to reinforce the sales and marketing of MPR, and to act as service
providers to their customers and to other strategic partners. We believe that
developing longer sales cycle opportunities will be accomplished through more
comprehensive strategic marketing and foreign and domestic partnerships. We
anticipate that this combination of efforts will establish the product awareness
and acceptance.





Growth
through Partnership





We are in
the process of developing corporate alliances for the development, sales and
marketing of MPR in a number of important markets including North America and
the European Union (EU). Initially, we are targeting strategic alliances with
corporate partners to gain ‘footholds’ in specific markets outside the United
States.





The
second level of partnerships is expected to be with U.S. corporate partners to
gain access to our key domestic markets. Together we hope to encourage pilot
projects with carefully selected customers - employers, workers' compensation
carriers, managed care organizations and physicians groups that deliver
significant services under workers' compensation.





We have
entered into discussions with a European-based company for the sales, marketing
and distribution of MPR in the EU but no agreement has been reached at this
time.  We have also entered into discussions with another company for
a distribution deal in Canada but no agreement has been reached.





Research and
Development





We
continue to develop and enhance the features and performance of our technology
with the goal of introducing new products based on our research and development
activities. Two of our four employees spend 100% of their time on research and
development activities and one other spend a portion of his time on such
activities.  We engage consultants on an as needed basis and pay them
on an hourly basis.  In 2009, we paid our consultants an aggregate of
$13,279 compared to $9,527 in 2008.   We anticipate increasing
our research and development activities upon our obtainment of additional funds,
of which there can be no assurances.





Employees





We have
four full-time employees including one research and development employee, one
medical and clinical employee who devotes a portion of his time to research and
development activities, and two administrative employees. Three of our employees
are members of management. To the best of our knowledge, we are in compliance
with local prevailing wage, contractor licensing and insurance regulations. None
of our employees is represented by any collective bargaining agreement, and our
relationship with our employees is good.





We also
engage independent consultants on an “as needed” basis.  In 2009, we
paid our consultants an aggregate of $31,005, compared to $9,527 in
2008.




Available
Information





Our
website is www.itechmedical.com.On our
website, we make available at no cost our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished as soon as reasonably practicable after we
electronically file such material with, or furnish them to, the United States
Securities and Exchange Commission (“SEC”). These documents are also publicly
available free of charge at the SEC’s website. www.sec.gov.  The
information contained on our website is not a part of this annual report on Form
10-K nor is it incorporated herein.





Item 1A.
      Risk
      Factors.




You should carefully consider the
risks described below before making an investment decision in our securities.
These risk factors are effective as of the date of this Form 10-K and shall be
deemed to be modified or superseded to the extent that a statement contained in
our future filings incorporated herein by reference modifies or replaces such
statement. All of these risks may impair our business operations. The
forward-looking statements in this Form 10-K and in the documents incorporated
herein by reference involve risks and uncertainties and actual results may
differ materially from the results we discuss in the forward-looking statements.
If any of the following risks actually occur, our business, financial condition
or results of operations could be materially adversely
affected.




16





We
are a development stage company with a limited operating history and no
revenues.





As a
development stage company, our operations are subject to all the risks inherent
in launching a new business enterprise, in developing and marketing a new
product or service, and in establishing a name and a business reputation. The
likelihood of our success must be considered in light of problems, expenses,
difficulties and delays frequently encountered in converting prototype designs
into viable production designs, and in achieving market acceptance with a new
type of product or service. We have had no product revenues to date, have
operated at a loss since inception, and will likely sustain operating losses for
an indeterminate time period. There can be no assurance that we will ever
generate material revenues or that we will ever be profitable.





We may need to raise additional
capital in the future, but that capital may not be
available.





During
the years ended December 31, 2009 and 2008, we incurred a net loss of $3,413,454
and $1,589,500, respectively, and had $146,477 cash on hand as of December 31,
2009 and an accumulated deficit of $10,757,603. We are in the development stage
and have not earned any revenue since our inception. Due to the foregoing facts,
our auditors have expressed their doubt as to our ability to continue as a going
concern.  Current funds available to us will not be adequate for us to
complete our clinical program.  Therefore, we will need to raise
additional funds in order to fully implement our business plan. However, there
can be no assurance that we will be successful in raising such additional funds.
Regardless of whether our cash assets prove to be inadequate to meet our
operational needs, we might seek to compensate providers of services by issuance
of stock in lieu of cash.





Our
continued operations therefore will depend upon our ability to raise additional
funds through equity or debt financing. There is no assurance that we will be
able to obtain additional funding when needed, or that such funding, if
available, can be obtained on terms acceptable to us.  If we cannot
obtain needed funds, we may be forced to curtail or cease our activities. We may
encounter difficulty in obtaining these funds and/or credit lines. Moreover,
even if additional financing or credit lines were to become available, it is
possible that the cost of such funds or credit would be high and possibly
prohibitive.





Your
share ownership will be diluted if we issue shares for capital raising
purposes.





A large
portion of our financing to date has been through the issuance of shares or
through equity financing.  There can be no assurances that we will
become self-sufficient.  Therefore, we may continue to issue shares to
further the business, and existing shareholders may suffer a dilutive effect on
the price of their shares as well as a loss of voting power in the
Company.





We
operate in a new and uncertain market.





Until
now, muscle injuries have always been diagnosed and evaluated subjectively by
physicians through physical examination. Accordingly, there is no established
demand for a computer assisted procedure to assist in the diagnosis of such
injuries, and it is difficult to predict if, and when, the procedure will gain
wide acceptance by prescribers. A prerequisite to our success will be our
ability to establish MPR as a standard medical practice for use in the diagnosis
of muscle dysfunction. We believe it will take a minimum of three to five years
for such awareness to be achieved, if it can be achieved at all. Factors that
may affect market acceptance could include resistance to change, concerns over
the lack of track record of the procedure, and the risk for insurance companies
to use the results of the procedure to challenge or overrule the diagnostic or
treatment decisions of a physician.





We may not be able to protect
important intellectual property, and we could incur substantial costs defending
against claims that our products infringe on the proprietary rights of
others.




17





We
currently hold one United States patent on the MPR technology. While we believe
that we have a proprietary position for our product, we believe that our ability
to be successful will be contingent on our ability to protect the MPR
technology, its future developments and its knowhow. There can be no assurance,
however, that this patent will provide substantial protection of the MPR
technology or that its validity will not be challenged. We could incur
substantial costs in prosecuting or defending patent infringement suits or
otherwise protecting our intellectual property rights. While we have attempted
to safeguard and maintain our proprietary rights, we do not know whether we have
been or will be completely successful in doing so.





We
presently have no patent protection of the MPR technology outside the United
States.





We
have only developed a single product which has no sales. The failure of such
product to achieve market acceptance would result in our having to raise
additional funds for research and development for new products.





Since our
incorporation, we have been involved in the research and development of a single
product: the Muscle Pattern Recognition System. The MPR System uses patented
technology to analyze muscle function in the back and neck. To date, we have
achieved no sales of this product and it has yet to achieve market acceptance.
Unless we are able to successfully market its MPR System, we will need to raise
additional funds to engage in the research and development of new products. We
may be unable to raise additional funds on terms acceptable to us, if at all. We
have a limited operating history and will continue to incur costs in launching
our products.


We
may not be able to grow at a rapid pace.





There is
no established demand for the MPR System and we may be unable to create such a
demand. We cannot predict whether or not the MPR System will gain acceptance by
doctors, chiropractors or other health professionals. In the event we are unable
to create such acceptance, we will be unable to achieve significant revenues and
may have to raise additional funds for research and development of additional
products.





Our management controls a substantial
percentage of our stock and therefore has the ability to exercise substantial
control over our affairs.





As of the
date of December 31, 2009, our directors and executive officers owned or
controlled an aggregate of 10,313,333 shares, or approximately 38.64%, of our
outstanding common stock.  Because of the large percentage of stock
held by our directors and executive officers, these persons could influence the
outcome of any matter submitted to a vote of our stockholders and resist any
takeover bids, thereby precluding our stockholders from receiving a premium bid
price on their common stock.





The loss of our executive officers
and certain other key personnel could hurt our
business.





Our
success wholly depends upon the personal efforts and abilities of our executive
officers, Wayne Cockburn, Alan Goldman and Steve Asselin. The loss of or
unavailability of the services of any one of these individuals would have a
material adverse effect on our business prospects and/or potential earning
capacity.





We may not be able to hire and retain
qualified personnel.





Competition
for qualified personnel in the healthcare industry is intense, and we may not be
successful in attracting and retaining such personnel. Failure to attract
qualified personnel could harm the proposed growth of our business. In addition,
companies in our industry whose employees accept positions with competitors
frequently claim that the competitors have engaged in unfair hiring practices.
We may receive such notices in the future as we seek to hire qualified personnel
and such notices may result in material litigation and related disruption to our
operations.





Because we became public by means of
a reverse merger, we may not be able to attract the attention of major brokerage
firms.





There may
be risks associated with our becoming public through a “reverse merger.”
Securities analysts of major brokerage firms may not provide coverage of us
because there is no incentive to brokerage firms to recommend the purchase of
our common stock. We cannot assure you that brokerage firms will ever want to
conduct any secondary offerings on our behalf.




18





The limited prior public market and
trading market may cause possible volatility in our stock
price.





To date,
there has only been a limited public market for our securities and there can be
no assurance that we can attain an active trading market for our securities. Our
common stock trades on the OTC Bulletin Board (“OTCBB”) under the ticker symbol,
IMSU.OB.  The OTCBB is an unorganized, inter-dealer, over-the-counter
market that provides significantly less liquidity than the national securities
exchanges.





Quotes
for securities quoted on the OTCBB are not listed in the financial sections of
newspapers as are those for the national securities exchanges. Moreover, in
recent years, the overall market for securities has experienced extreme price
and volume fluctuations that have particularly affected the market prices of
many smaller companies. The trading price of our common stock is expected to be
subject to significant fluctuations including, but not limited to, the
following:





·
            Quarterly
      variations in operating results and achievement of key business
      metrics;·
            Changes
      in earnings estimates by securities analysts, if
  any;





·
            Any
      differences between reported results and securities analysts’ published or
      unpublished expectations;·
            Announcements
      of new products by us or our
competitors;





·
            Market
      reaction to any acquisitions, joint ventures or strategic investments
      announced by us or our competitors;·
            Demand
      for our products;





·
            Shares
      sold pursuant to Rule 144 or upon exercise of warrants and options;
      and·
            General
      economic or stock market conditions unrelated to our operating
      performance.





These
fluctuations, as well as general economic and market conditions, may have a
material or adverse affect on the market price of our common stock.





The OTCBB is a quotation system, not
an issuer listing service, market or exchange. Therefore, buying and selling
stock on the OTCBB is not as efficient as buying and selling stock through an
exchange. As a result, it may be difficult for you to sell your common stock or
you may not be able to sell your common stock for an optimum trading
price.





The OTCBB
executes trades and quotations using a manual process and cannot guarantee the
market information for securities. In some instances, quote information, or even
firm quotes, may not be available. The OTCBB’s manual execution process may
delay order processing and as a result, a limit order may fail to execute or a
market order may execute at a significantly different price due to intervening
price fluctuations. Trade execution, execution reporting and legal trade
confirmation delivery may be delayed significantly. Consequently, one may not be
able to sell shares of our common stock at the optimum trading
prices.





OTCBB
securities are frequent targets of fraud or market manipulation not only because
of their generally low price, but also because the OTCBB reporting requirements
for these securities are less stringent than for listed or Nasdaq traded
securities, and no exchange requirements are imposed. Dealers may dominate the
market and set prices that are not based on competitive forces. Individuals or
groups may create fraudulent markets and control the sudden, sharp increase of
price and trading volume and the equally sudden collapse of the market price for
shares of our common stock.





When
fewer shares of a security are being traded on the OTCBB, the security’s market
price may become increasingly volatile and price movement may outpace the
ability to deliver accurate quote information. Due to lower trading volumes of
our common stock, there may be a lower likelihood that one's orders for our
common stock will be executed, and current prices may differ significantly from
the price one was quoted by the OTCBB at the time of one's order
entry.





Orders
for OTCBB securities may be canceled or edited like orders for other securities.
All requests to change or cancel an order must be submitted to, received and
processed by the OTCBB. As mentioned earlier in this document, the OTCBB
executes trades using a manual process, which could cause delays in order
processing and reporting, and could hamper one’s ability to cancel or edit one's
order. Consequently, selling shares of our common stock at the optimum trading
prices may be impossible.




19





The
dealer's spread (the difference between the bid and ask prices) may be large and
may result in substantial losses to the seller of our common stock on the OTCBB
if the stock must be sold immediately. Further, purchasers of our common stock
may incur an immediate "paper" loss due to the price spread. Moreover, dealers
may not have a bid price for our common stock on the OTCBB. Due to the foregoing
factors, demand for our common stock on the OTCBB may be decreased or
eliminated.





Our common stock is considered a
“penny stock.” The application of the “penny stock” rules to our common stock
could limit the trading and liquidity of the common stock, adversely affect the
market price of our common stock and increase your transaction costs to sell
those shares.





The
Securities and Exchange Commission has adopted regulations which generally
define a “penny stock” to be any equity security that has a market price (as
defined) of less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. As a result, our shares of common
stock are subject to rules that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
clients and “accredited investors”. For transactions governed by these rules,
the broker-dealer must make a special suitability determination for the purchase
of such securities, must obtain the purchaser's written consent to the
transaction, and must deliver to the purchaser a SEC-mandated, penny stock risk
disclosure document, all prior to the purchase. The broker-dealer must also
disclose the commission payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. Consequently, the
“penny stock” rules may restrict the ability of broker-dealers to sell our
shares of common stock and may affect the ability of investors to sell such
shares of common stock in the secondary market and may affect the price at which
investors can sell such shares.




Investors
should be aware that the market for penny stocks has suffered in recent years
from patterns of fraud and abuse, according to the Commission. Such patterns
include:





·
            Control
      of the market for the security by one or a few broker-dealers that are
      often related to the promoter or issuer;·
            Manipulation
      of prices through prearranged matching of purchases and sales and false
      and misleading press releases;





·
            “Boiler
      room” practices involving high pressure sales tactics and unrealistic
      price projections by inexperienced sales persons;·
            Excessive
      and undisclosed bid-ask differentials and markups by selling
      broker-dealers; and





·
            The
      wholesale dumping of the same securities by promoters and broker-dealers
      after prices have been manipulated to a desired level, along with the
      inevitable collapse of those prices with consequent investor
      losses.





Our
management is aware of the abuses that have occurred historically in the penny
stock market.




Future sales of our common stock
could put downward selling pressure on our common stock, and adversely affect
the per share price. There is a risk that this downward pressure may make it
impossible for an investor to sell shares of common stock at any reasonable
price, if at all.





From time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of common stock by means of ordinary brokerage transactions in the
open market pursuant to Rule 144, promulgated under the Securities Act of 1933
(Securities Act), subject to certain limitations. In general, Rule 144 permits
the unlimited sale of securities by our stockholders that are non-affiliates
that have satisfied a six month holding period and affiliates of our Company may
sell within any three month period a number of securities that does not exceed
1% of our then outstanding shares of common stock. Any substantial sale of our
common stock pursuant to Rule 144 or pursuant to any resale prospectus may have
material adverse effect on the market price of our securities.




20





Limitations on director and officer
liability and our indemnification of officers and directors may discourage
shareholders from bringing suit against a director.





Our
certificate of incorporation and bylaws provide, with certain exceptions as
permitted by governing Delaware law, that a director or officer shall not be
personally liable to us or our shareholders for breach of fiduciary duty as a
director, except for acts or omissions which involve intentional misconduct,
fraud or knowing violation of law, or unlawful payments of dividends. These
provisions may discourage shareholders from bringing suit against a director for
breach of fiduciary duty and may reduce the likelihood of derivative litigation
brought by shareholders on our behalf against a director. In addition, our
certificate of incorporation and bylaws provide for mandatory indemnification of
directors and officers to the fullest extent permitted by Delaware
law.





We
may experience difficulties in the future in complying with Sarbanes-Oxley
Section 404.





In this
Annual Report, we are required to evaluate our internal controls under
Section 404 of the Sarbanes-Oxley Act of 2002. If we fail to maintain the
adequacy of our internal controls, we could be subject to regulatory scrutiny,
civil or criminal penalties and/or stockholder litigation. Any inability to
provide reliable financial reports could harm our business. Section 404 of the
Sarbanes-Oxley Act will require that for the year ending December 31, 2010 that
our independent registered public accounting firm issue an attestation report on
management’s evaluation of our system of internal controls.  The
auditor attestation requirement does not apply to the current fiscal
year.  Furthermore, any failure to implement required new or improved
controls, or difficulties encountered in the implementation of adequate controls
over our financial processes and reporting in the future, could harm our
operating results or cause us to fail to meet our reporting
obligations.





If we
fail to maintain proper and effective internal controls in future periods, it
could adversely affect our operating results, financial condition and our
ability to run our business effectively and could cause investors to lose
confidence in our financial reporting.





Item 1B.
      Unresolved
      Staff Comments.





None.





Item 2. Properties.





We lease
approximately 200 square feet of office space from Premier Business Centers at
17011 Beach Boulevard, Suite 900, Huntington Beach, California, 92647 pursuant
to a month-to-month lease.  We paid an aggregate amount of $26,429
under this lease in 2009, which is subject to adjustments every six months. The
space can house approximately two employees.  We lease approximately
300 square feet of office and clinical space at 5250 Commerce Drive, Suite 200,
Murray, Utah 84107 pursuant to a month-to-month lease.  We paid an
aggregate amount of $30,000 under this lease in 2009.  We leased
approximately 500 square feet at 2020 University Street, Suite 2000, Montreal,
Quebec, H3A 2A5, Canada pursuant to a General Services Agreement with Roy
Bonnell & Associates.  Under the terms of the General Services
Agreement, the lease payments for 2009 are deemed to be paid in full against a
payment of 200,000 shares of common stock to Roy Bonnell &
Associates.





Item 3.
      Legal
      Proceedings.





The
Company is not a party to any legal proceedings and to our knowledge, there are
no legal proceedings pending or threatened with respect to our company. The
Company is not aware of any legal proceedings contemplated by any governmental
authorities involving either us or our property. None of our directors, officers
or affiliates is an adverse party in any legal proceedings involving us, or has
an interest in any proceeding which is adverse to us.




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




None
during the fourth quarter of the 2009 fiscal year covered by this
report.




21





Item 4A.
      Executive
      Officers of the Company.




The
following table sets forth certain information regarding the executive officers
of the Company.





Name
            
            Position
            
            AgeWayne
      D. Cockburn
            
            President
      and Chief Executive Officer
            
            53Alan
      Goldman, MD
            
            Vice
      President, Clinical and Medical Affairs
            
            64Steeve
      Asselin
            
            Vice
      President, Research and Development
            
            47





There are
no family relationships between any of the executive
officers.





Mr. Cockburn
was elected President and Chief Executive Officer in September
2003.




Dr.
Goldman has served as Vice President, Clinical and Medical Affairs for more
than five years.





Mr. Asselin
has served as Vice President, Research and Development for more than five years.





PART
II





Item 5.
      Market
      for Common Equity and Related Stockholder Matters, and Issuer Purchases of
      Equity Securities





Since
September 4, 2007, our common shares have been quoted on the Over-the-Counter
Bulletin Board (OTCBB) administered by the Financial Regulatory Authority
(FINRA), formerly the NASD, under the symbol IMSU.OB, as well as the Pink Sheets
under the symbol IMSU.PK. Stocks traded on the OTCBB and Pink Sheets are usually
thinly traded, highly volatile, and not followed by analysts. Investors in our
common stock may experience a loss or liquidity problem with their share
holdings. The table below gives the range of high low bid information for our
common stock in 2009.  The source of the data is Finance 500, Inc. and
the quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.




Fiscal
      Year 2009
            
            Low Bid
            
            
            High BidFirst
      Quarter 01-1-09 to 03-31-09
            
            $
            0.15
            
            
            $
            0.51Second
      Quarter 4-1-09 to 6-30-09
            
            $
            0.25
            
            
            $
            0.43Third
      Quarter 7-1-09 to 9-30-09
            
            $
            0.17
            
            
            $
            0.36Fourth
      Quarter 10-1-09 to 12-31-09
            
            $
            0.15
            
            
            $
            0.25





The
ability of individual stockholders to trade their shares in a particular state
may be subject to various rules and regulations of that state. A number of
states require that an issuer's securities be registered in their state or
appropriately exempted from registration before the securities are permitted to
trade in that state. Presently, the Company has no plans to register its
securities in any particular state.  Further, the Company's shares are
be subject to the provisions of Section 15(g) and Rule 15g- 9 of the Exchange
Act, commonly referred to as the "penny stock" rule. Section 15(g) sets forth
certain requirements for transactions in penny stocks and Rule 15g-9(d)(1)
incorporates the definition of penny stock as that used in Rule 3a51-1 of the
Exchange Act.





The SEC
generally defines penny stock to be any equity security that has a market price
less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides
that any equity security is considered to be a penny stock unless that security
is: registered and traded on a national securities exchange meeting specified
criteria set by the SEC; authorized for quotation on The NASDAQ Stock Market;
issued by a registered investment company; excluded from the definition on the
basis of price (at least $5.00 per share) or the issuer's net tangible assets;
or exempted from the definition by the SEC. Broker- dealers who sell penny
stocks to persons other than established customers and accredited investors
(generally persons with assets in excess of $1,000,000 or annual income
exceeding $200,000, or $300,000 together with their spouse), are subject to
additional sales practice requirements.




22





For
transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent to clients disclosing recent price information
for the penny stocks held in the account and information on the limited market
in penny stocks. Consequently, these rules may restrict the ability of
broker-dealers to trade and/or maintain a market in the Company's common stock
and may affect the ability of stockholders to sell their shares.





Issuer
Purchases of Equity Securities





The
Company has not purchased any equity securities.





Shares
Held by Affiliates.





Of the
26,691,732  shares issued and outstanding as of December 31, 2009,
10,313,333 are held by affiliates and are therefore “restricted” and can be sold
only in compliance with the resale restrictions of Rule 144 under the Securities
Act. This means that there are 16,378,399 shares that are free
trading.





Holders





As of the
date of this Annual Report, we have 98 holders of record of our Common
Stock.





Description
of Our Securities





Our
authorized capital stock consists of 100,000,000 shares of common capital stock,
$0.0001 par value, of which 26,691,732 shares are considered issued and
outstanding as of our fiscal year-end, December 31, 2009, and 10,000,000 shares
of “blank check” preferred stock, $0.0001 par value, of which none are
outstanding. “Blank check” preferred stock may be issued in any one or more
series, and any series shall be comprised of such number of shares and may have
such voting powers and such designations, preferences and rights as shall be
stated and expressed in resolutions of the Board of Directors of the Company,
without stockholder approval.  To date, the Board has not designated
any series of preferred stock.





Voting Rights





Stockholders
are entitled to one vote on all matters to be voted upon for each share of
common stock held. The shares do not have the right to cumulative voting for
directors, meaning that holders of more than 50 percent of the shares voting for
the election of directors can elect all of the directors if they choose to do
so.





Liquidation
Rights





In the
event of liquidation, dissolution or a winding up of us or our affairs, holders
of common stock would be entitled to receive pro rata all of our remaining
assets that are available and distributable to the shareholders after first
satisfying claims of creditors and anyone else having rights that are superior
to those of the common stockholders (e.g., Preferred Stockholder).





Preemptive
Rights





Stockholders
do NOT have a preemptive right to acquire our unissued shares of common
stock.




23





Dividends
and Dividend Policy





To date,
we have neither declared nor paid any dividends on our common stock nor do we
anticipate that such dividends will be paid in the foreseeable future. Rather,
we intend to retain any earnings to finance the growth and development of our
business. Any payment of cash dividends on our common stock in the future will
be dependent, among other things, upon our earnings, financial condition,
capital requirements and other factors which the board of directors deems
relevant. In addition, restrictive covenants contained in any financing
agreements entered into in the future may preclude us from paying any
dividends.





Securities
Issuances/Recent Sales of Unregistered Securities





Since
2003, we have funded the Company through the issuance of various securities
including borrowings from certain shareholders and related
parties.  All securities have been issued pursuant to exemptions from
registration requirements of the Securities Act of 1933, as amended (the
“Securities Act”), afforded the Company by Section 4(2) promulgated under the
Securities Act in light of the fact that the issuances did not involve a public
offering of securities of the Company.





The
following table sets forth information on loans to the Company,
including  the name of the lender, the lender’s affiliation, the
aggregate principal amount of the issued loan, the maturity date of the loan,
the number and series of warrants granted, and the fair value of the warrants
(1).    All loans carry an annualized interest rate of
10.0%.





Name
            
            Affiliation
            
            Loan
              Amount
            
            Issue
      or
              Renewal
              Date
            
            Maturity
              Date
            
            Warrant
              Series
      (1)
            
            Wts.
              Granted
            
            Fair
      ValueCavandale
      Corporation
            
            Affiliate
            
            CDN$145,000
            
            (2)
            
            November
      1, 2004
            
            A
            
            211,270
            
            $4,225November
      1, 2005
            
            July
      1, 2005
            
            B
            
            100,000
            
            $19,246July
      1, 2005
            
            July
      1, 2006
            
            B
            
            100,000
            
            $16,450July
      1, 2006
            
            July
      1, 2007
            
            B
            
            100,000
            
            $39,095July
      1, 2007
            
            July
      1, 2008
            
            B
            
            100,000
            
            $44,484July
      1, 2008
            
            October
      1, 2008
            
            B
            
            145,000
            
            $27,562October
      1, 2008
            
            January
      1, 2009
            
            B
            
            145,000
            
            $12,642January
      1, 2009
            
            July
      1, 2009
            
            B
            
            290,000
            
            $33,214July
      1, 2009
            
            October
      31, 2009
            
            B
            
            145,000
            
            $13,508October
      31, 2009
            
            January
      31, 2010
            
            B
            
            145,000
            
            $6,765Alan
      Goldman
            
            Officer
            
            $40,000
            
            December
      3, 2007
            
            March
      3, 2008
            
            B
            
            40,000
            
            $14,126March
      3, 2008
            
            June
      3, 2008
            
            B
            
            40,000
            
            $11,920June
      3, 2008
            
            October
      31, 2008
            
            B
            
            40,000
            
            $14,780October
      31, 2008
            
            January
      31, 2009
            
            B
            
            40,000
            
            $1,846January
      1, 2009
            
            April
      30, 2009
            
            B
            
            40,000
            
            $5,211April
      30, 2009
            
            July
      31, 2009
            
            B
            
            40,000
            
            $1,304July
      31, 2009
            
            October
      31, 2010
            
            B
            
            40,000
            
            $1,868October
      31, 2010
            
            January
      31, 2010
            
            B
            
            40,000
            
            $1,866





24





(1)
            Series
      ‘A’ common stock purchase warrants allow holders to purchase shares of
      common stock at $0.50 per share until June 30, 2011.  Series ‘B’
      common stock purchase warrants allow holders to purchase shares of common
      stock at $1.00 per share until December 31, 2011.  The fair
      value of the Series ‘A’ and Series ‘B’ warrants that were granted to the
      lenders has been calculated using the Black-Scholes valuation method based
      on the time of issuance and is reflected as a discount on the loan in the
      accompanying financial statements and has been amortized over the original
      life of the loan as an interest expense.  The following weighted
      average assumptions were used to calculate the warrants issued in
      2009:  term of .21 – 2.54 years, risk-free interest rate of
      0.875% - 1.875%, volatility ranging from 78% - 122% and a weighted fair
      value ranging from $0.0104 -
$0.1339.





(2)
            Various
      days from July to October 2004.





Convertible
Debt





During
2007 and 2008, the Company issued convertible promissory notes totaling $452,991
to fourteen individuals, each of whom qualifies as an “accredited investor”
under Regulation D of the Securities Act.  The notes carried an annual
interest rate of 12%, matured on July 30, 2009 and were convertible into common
shares at a rate of $1.00 per share until December 31, 2009.  The
fourteen note holders were granted a total 684,487 Series B warrants for their
initial loans and for agreeing to extend the maturity date throughout the lives
of the loans.  The value attributed to the warrants in 2009 totaled
$3,693 at the issuance dates and are being amortized to interest expense over
the life of the loans.





On June
30, 2009, all fourteen individuals agreed to convert the outstanding principal
amounts of their loans into common shares at a rate of 3.333 shares of common
stock for each dollar of principle outstanding for a total of 1,509,970 common
shares.





See Note
5 Convertible Debt in the financial statements for the 2007 and 2008 convertible
promissory notes information and the extension of these notes in 2008 and
2009.





Loans from Related
Parties





During
2009, the Company issued three short-term promissory notes totaling $70,000 to
MPR Health Systems, Inc, an affiliate shareholder.  The notes carried
an annual interest rate of 10% and had various maturity dates.  MPR
Health Systems was granted a total 25,000 Series A warrants, 65,000 Series B
warrants and 25,000 Series C warrants for its loans and for agreeing to extend
the maturity date throughout the lives of the loans.  The value
attributed to the warrants in 2009 totaled $7,581 at the issuance dates and were
amortized to interest expense over the life of the loans.





In
September, 2009, MPR Health Systems agreed to convert the outstanding principal
amounts of their loans into common shares at a rate of 3.333 shares of common
stock for each dollar of principal outstanding for a total of 233,334 common
shares.





During
2007 and 2008, the Company borrowed a total of $31,500 from Wayne Cockburn, its
CEO.  The short-term promissory notes carried an annual interest rate
of 10% and had various maturity dates.  Mr. Cockburn was granted a
total 166,000 Series B warrants for his loans and for agreeing to extend the
maturity date throughout the lives of the loans.  The value attributed
to the warrants in 2009 totaled $ 3,633 at the issuance dates and were amortized
to interest expense over the life of the loans.





In
September, 2009, Mr. Cockburn agreed to convert the outstanding principal
amounts of his loans into common shares at a rate of 3.333 shares of common
stock for each dollar of principal outstanding for a total of 105,000 common
shares.




25





During
2007, the Company borrowed a total of $25,000 from George Angelidis, one of its
directors.  The short-term promissory note carried an annual interest
rate of 10% and had a maturity date of July 30, 2009.  Mr. Angelidis
was granted a total 250,000 Series B warrants for his loan and for agreeing to
extend the maturity date throughout the life of the loan.  The value
attributed to the warrants in 2009 totaled $ 4,072 at the issuance dates and
were amortized to interest expense over the life of the loans.





In
September, 2009, Mr. Angelidis agreed to convert the outstanding principal
amount of his loan into common shares at a rate of 3.333 shares of common stock
for each dollar of principal outstanding for a total of 83,333 common
shares.





During
2007, the Company borrowed a total of $40,000 from Alan Goldman, one of its
officers.  The short-term promissory note carries an annual interest
rate of 10% and has a maturity date of January 31, 2010.  Dr. Goldman
has been granted a total 320,000 Series B warrants for his loan and for agreeing
to extend the maturity date throughout the life of the loan.  The
value attributed to the warrants in 2009 totaled $ 10,249 at the issuance dates
and are being amortized to interest expense over the life of the
loans.





In 2004,
the Company borrowed a total of CD$145,000 from Cavandale Corporation, a Company
owned by one of the directors.  The loan carries an annual interest
rate of 10% and has a maturity date of January 31, 2010.  Cavandale
has been granted a total of 211,270 Series A warrants and 1,270,000 Series B
warrants for its loan and for agreeing to extend the maturity date throughout
the life of the loan.  The value attributed to the warrants in 2009
totaled $ 53,487 at the issuance dates and are being amortized to interest
expense over the life of the loans.





During
2007, the Company borrowed a total of $100,000 from Frans Berndsen, one of its
shareholders.  During the second quarter, $65,000 of these loans were
issued and treated as 12% convertible notes payable as described in Note 4 Loans
from related parties.  In September 2007 the Company and Mr. Berndsen
agreed there had been a misunderstanding and a debt restructuring
occurred.  The original $65,000 in loans was restructured to modify
the original terms, as well as for the remaining $35,000 which was received in
the third quarter. The Company negotiated with Mr. Berndsen to convert these
promissory notes totaling $100,000 plus accrued interest of $22,807 and other
accrued liabilities of $45,000 into 984,964 shares of the Company’s common stock
valued at $.30 per share. This transaction resulted in a loss on extinguishment
of debt of $127,682, which is included in general and administrative expenses in
the accompanying statement of operations.  Mr. Berndsen was granted a
total 700,000 Series B warrants for his loan and for agreeing to extend the
maturity date throughout the life of the loan.





See Note
4 Loans from related parties in the financial statements for the notes
information and the extension of these notes in 2008 and 2009.





Other
Loans





During
2008, the Company borrowed a total of $10,000 from Gregory Harrison, an
individual who also loaned the Company $100,000 in the convertible note
program.  This loan, evidenced by a short-term promissory note carried
an annual interest rate of 10% and matured on July 31, 2009.  Mr.
Harrison was granted a total 50,000 Series B warrants for his loan and for
agreeing to extend the maturity date throughout the life of the loan. The value
attributed to the warrants in 2009 totaled $ 1,629 at the issuance dates and are
being amortized to interest expense over the life of the loan.





In
September, 2009, Mr. Harrison agreed to convert the outstanding principal amount
of his loan into common shares at a rate of 3.333 shares of common stock for
each dollar of principle outstanding for a total of 33,333 common
shares.





See Note
6 Other loans payable in the financial statements for the notes information and
the extension of this note in 2008 and 2009.




26





Common Stock
Issued





In March
2009, the Board of Directors authorized a private placement to sell up to
500,000 units of the Company’s common stock and Series A warrants at $.30 per
unit.  Each unit shall be comprised of one share of the Company’s
common stock and one Series A warrant.  The Series A warrants may be
exercised to purchase an equivalent number of common shares at $0.50 per share
and expire June 30, 2011.  On May 22, 2009, the Board of Directors
increased the private placement to sell an additional 166,667 units of the
Company’s common stock and Series A warrants at $.30 per unit.  During
the quarter ended June 30, 2009, the Company sold 666,666 units for gross
proceeds of $200,000 to six non-US purchasers pursuant to Regulation
S.





On April
16, 2009, the Company entered into a one year consulting agreement for strategic
communications services.  Payment terms include issuance of 200,000
shares of the Company’s shares valued at $66,000 (the trading price on the
contract date was $0.33) for services.  See note 7 for additional
information about this contract. The value of the shares was deferred and is
being amortized over the life of the contract.





On May
15, 2009, the Company negotiated a settlement with two of its
creditors.  The creditors agreed to accept 80,000 of the Company’s
common shares valued at $36,000 (the trading price on the date of settlement was
$0.45) to settle $68,000 in accounts payable, resulting in a $32,000 gain on
settlement of debt.  The gain on settlement of debt is included in
general and administrative expenses in the accompanying statement of
operations.





On June
12, 2009, the Board of Directors authorized issuance of 300,000 shares of the
Company’s common shares valued at $129,000 (the trading price on the date of
grant was $0.43) for services.





During
the third quarter of 2009, the Company negotiated a settlement with one of its
creditors.  The creditor agreed to accept 265,000 of the Company’s
common shares valued at $79,500 to settle $79,250 in accounts payable, resulting
in a $250 loss on settlement of debt.  The loss on settlement of debt
is included in general and administrative expenses in the accompanying statement
of operations.





During
the third quarter of 2009, the Company negotiated settlements with holders of
all of its convertible debt, many of its related party loans and its other loan
payable.  Specific details of these transactions are described in
notes 2 through 4 of these financial statements.  Common shares issued
for these transactions totaled 2,949,934:  2,723,911 for principal
amount of debt, 76,023 for accrued interest and 150,000 for consulting
fees.





During
the third quarter of 2009, the Board of Directors authorized a private placement
to sell up to 1,500,000 shares of the Company’s common stock at $.30 per
share.  Each unit shall be comprised of one share of the Company’s
common stock and one Series A warrant.  The Series A warrants may be
exercised to purchase an equivalent number of common shares at $0.50 per share
and expire June 30, 2011.  In 2009, the Company sold 411,667 shares
for gross proceeds of $123,500.





On
December 4, 2009, the Board of Directors authorized a bridge financing to sell
up to 740,000 shares of the Company’s common stock at $.25 per
share.  Each unit shall be comprised of one share of the Company’s
common stock and two Series E warrants.  The Series E warrants are
exercisable at $.30 per share and expire December 31, 2012.  The
Company sold all 740,000 in December 2009 for gross proceeds of
$185,000.





On
December 4, 2009, the Board of Directors granted its CEO 1,800,000 shares to
recognize his service to the Company.  The shares were valued at
$522,000 (the trading price on the date of grant was $0.29) and are included in
general and administrative expenses in the accompanying financial
statements.





On
December 31, 2009, the Company signed a new agreement with one of its
consultants to cancel 240,000 shares of common stock and 300,000 Series C
warrants for the issuance of 300,000 Series A warrants.





Stock
options





In
October 2003, the Company adopted the Stock Option Plan (the "2003 Plan"), which
was also approved by its stockholders in October 2003. The 2003 Plan expired on
December 31, 2007.  The maximum number of shares of common stock that
could be issued pursuant to awards granted under the 2003 Plan was increased on
March 19, 2004 from 2,250,000 to 4,850,000, subject to certain adjustments to
prevent dilution. Any shares of common stock subject to an award, which for any
reason expires or terminates unexercised, are again available for issuance under
the 2003 Plan.  On March 10, 2004, a total of 4,173,600 options were
granted.  The grant price was $0.25, with 2,120,000 options vesting
immediately and the remaining 2,053,600 options vesting on March 10,
2005.  305,000 options were cancelled in 2006, 915,000 options were
cancelled in 2009, and the remaining 2,953,600 options expire on March 10,
2014.  Options under the 2003 Plan were granted under Item 701 of the
Securities Act.




27





In
February 2008, the Company adopted the 2008 Equity Incentive Plan (the “2008
Plan”).  The purpose of the 2008 Plan is to attract, retain, and
motivate certain key employees of the Company by giving them incentives which
are linked directly to increases in the value of the common stock of the
Company.  Each director, officer, employee, or consultant of the
Company is eligible to be considered for the grant of awards under the 2008
Plan. The maximum number of shares of common stock that may be issued pursuant
to awards granted under the 2008 Plan 1,000,000, subject to certain adjustments
to prevent dilution. Any shares of common stock subject to an award, which for
any reason expires or terminates unexercised, are again available for issuance
under the 2008 Plan.  Grants under the 2008 Plan are exercisable at
the market value of the Company's stock on the date of such
grant.  All options under the 2008 Plan are exercisable at times as
determined by the board of directors, not to exceed 10 years from the date of
grant.  No options were granted during 2009.





Securities
Authorized for Issuance under Equity Compensation Plans





As
described above, 2,953,600 shares of our common stock are authorized for
issuance upon the exercise of 2,953,600 outstanding options awards granted under
the 2003 Plan at $0.25 per share.  The 2003 Plan, which was approved
by stockholders in October 2003, expired on December 31, 2007.





In
February 2008, we adopted the 2008 Plan.  Under the 2008 Plan, there
are 1,000,000 shares authorized for issuance as awards.  To date, no
awards have been granted under the 2008 Plan.





We have
not registered the shares issuable upon the exercise of options granted under
our 2003 Plan.





The table
below sets forth information regarding our equity compensation awards issued as
of December 31, 2009:








EQUITY
      COMPENSATION PLAN INFORMATION
              AS
      OF DECEMBER 31, 2009Number
      of securities to be issued upon the exercise of outstanding option,
      warrants and rights
              (a)
            
            
            Weighted
      average exercise price of outstanding options, option, warrants and
      rights
              (b)
            
            
            Number
      of securities remaining available for issuance under equity compensation
      plans (excluding securities reflected in column (a))
              (c)Equity
      compensation plans approved by security holders
            
            
            2,953,600
            
            
            $
            0.25
            
            
            
            0Equity
      compensation plans not approved by securities holders
            
            
            0
            
            
            
            0
            
            
            
            0Total
            
            
            2,953,600
            
            
            $
            0.25
            
            
            
            0





Item 6.
      Selected
      Financial Data.





We are a
smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are
not required to provide the information required under this item.




28





Item 7.
      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation.





The information set forth and
discussed in this Management’s Discussion and Analysis of Financial Condition
and Results of Operations is derived from the Financial Statements of iTech
Medical, Inc. and the related notes thereto which are included as exhibits to
this current report. The following information and discussion should be read in
conjunction with such Financial Statements and notes. Additionally, this
Management’s Discussion and Analysis of Financial Condition and Results of
Operations constitutes forward-looking statements. We encourage you to review
our “Cautionary Note Regarding Forward-Looking Statements” at the front of this
current report, and our “Risk Factors” set forth
above.




Overview





We were
formed on October 20, 1997 to pursue a business combination. We purchased the
assets of MPR Health Systems, Inc. on September 9, 2003, including a patent and
trademark for the Muscle Pattern Recognition (MPR) System. On December 27, 2006,
we entered into a Plan and Agreement of Merger (the “Merger Agreement”) with
Freedom 1, Inc. (“Freedom 1”), a “blank check company,” as defined under the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”).  Since December 2002 and continuing after the Merger, we have
been involved in the development and pre-market clinical testing of the MPR
System.





Plan
of Operations





In the
next 12 months, we anticipate reaching a number of clinical and regulatory
milestones.  They include:





·
            completing
      the current clinical trial of the MPR System at the Utah Spine and Joint
      Center;


·
            initiating
      an outcome study of the MPR System at one or more research sites in North
      America;


·
            obtaining
      the CE Marking for the MPR System in Europe;


·
            obtaining
      commercial approval of the MPR System in Canada, and;


·
            submitting
      an application to have our MPR System cleared for marketing and sales in
      the US.





Strategic
Plan





There are
many challenges that we will encounter as we build our business.  To
meet these challenges, we believe it is important to assemble a team of
experienced healthcare executives and medical opinion leaders to work with us to
carry out the business and marketing plans of the Company.  We also
believe that to be successful in the development and commercialization of the
MPR System, we must not only meet the milestones discussed above, but we must
also:





·
            Develop
      an awareness of MPRwith
      physicians, employers, insurance companies, HMOs and other potential users
      of the MPRSystem;


·
            Develop
      a template for consistent usage patterns of MPR in key reference
      accounts;


·
            Form
      relationships with key strategic partners with access to insurers, self
      insured employers and other health care organizations that could use the
      MPR System;


·
            Establish
      MPRin
      selected key reference accounts in geographic markets throughout the U.S.,
      creating a delivery system to perform the tests as and where needed;
      and,


·
            Form
      corporate alliances for the development, sales and marketing of MPRin
      a number of important foreign
markets.





Current
funds available to us will not be adequate for us to complete these programs.
During the years ended December 31, 2009 and 2008, we incurred a net loss of
$3,413,454 and $1,589,500, respectively, and had $146,477 cash on hand as of
December 31, 2009. We are in the development stage and have not earned any
revenue since our inception.  Therefore, we will need to raise
additional funds in order to fully implement our business plan. However, there
can be no assurance that we will be successful in raising such additional funds
on favorable terms if at all.  Regardless of whether our cash assets
prove to be inadequate to meet our operational needs, we might seek to
compensate providers of services by issuance of stock in lieu of
cash.




29





Our
continued operations therefore will depend upon our ability to raise additional
funds through bank borrowings, equity or debt financing.  Given the
turbulence and volatility in the capital markets, there is no assurance that we
will be able to obtain additional funding when needed, or that such funding, if
available, can be obtained on terms acceptable to us. If we cannot obtain needed
funds, we may be forced to curtail or cease our activities. We may encounter
difficulty in obtaining these funds and/or credit lines. Moreover, even if
additional financing or credit lines were to become available, it is possible
that the cost of such funds or credit would be high and possibly
prohibitive.





We
continue to develop and enhance the features and performance of our technology
with the goal of introducing new products based on our core research and
development activities. Three of our five employees and three of our four
independent consultants currently devote at least a portion of their time to our
research and development activities.  We anticipate increasing levels
of resources will be dedicated to research and clinical development in the
implementation of our business strategy within the next 12 months.





As our
business grows, we anticipate hiring additional employees and retaining
additional consultants.





Critical Accounting
Policies





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. We rely on historical experience and on other assumptions
we believe to be reasonable under the circumstances in making our judgment and
estimates. Actual results could differ from those estimates. We consider our
critical accounting policies to be those that are complex and those that require
significant judgments and estimates, including the following: recognition of
revenue, expensing of software development costs and valuation of our intangible
assets and the determination of the valuation allowance of our deferred income
taxes.





Development Stage
Company





We are a
development stage company as defined in Accounting Standards Codification
("ASC") 915,  Development Stage Entities. We are devoting
substantially all of our present efforts to establish a new business, and our
planned principal operations have not yet commenced. We have not generated any
material revenues throughout our history and our ability to continue in business
is dependent upon obtaining sufficient financing or attaining future profitable
operations.





Patent





Patent
consists of U.S. Patent No. 6,280,395 and legal fees incurred in maintaining the
patent for our product. These costs are amortized over a period of seventeen
years using the straight-line method.





Long Lived
Assets





Long-lived
assets (primarily furniture and equipment and patents) are reviewed annually for
impairment whenever events or changes in circumstances indicate that carrying
amount of an asset may not be recoverable. Impairment is necessary when the
undiscounted cash flows estimated to be generated by the asset are less than the
carrying amount of the asset.





Research and Development
Costs





Costs and
expenses that can be clearly identified as research and development are charged
to expense as incurred in accordance with ASC 730, “Research and
Development”.





Stock-based
Compensation





We have
adopted the provisions of ASC 718 and have measured compensation cost related to
stock options issued to employees at their fair value using the Black-Scholes
method. Stock based compensation issued to persons other than employees is also
reflected in the financial statements at fair value computed using the
Black-Scholes method.




30





Results
of Operations





Year
Ended December 31, 2009 Compared to Year Ended December 31, 2008





Net
Losses; Revenues





We
incurred net losses of $3,413,454 for the year ended December 31, 2009 and
$1,589,500 for the year ended December 31, 2008.  We had no revenues
for the year ended December 31, 2009 and no revenues for the year ended December
31, 2008.





Research
and Development





We
expense our research and developments costs as incurred. Research and
development expenses consisted of costs associated with the design, development,
testing, and enhancement of the MPR System. The primary costs are salaries,
consulting fees and non-recurring software development costs. Research and
development expenses increased marginally to $134,504 in 2009 from $134,327 in
2008.





Medical
and Clinical





Medical
and clinical expenses consisted of costs associated with the preparation for the
clinical trials for the MPR System. The primary costs are salaries, consulting
fees, clinical trial protocol development costs and clinical research
organization costs. Medical and clinical expenses increased to $181,500 in 2009
from $123,852 in 2008. The increase from 2008 to 2009 is primarily due to the
ongoing clinical trial at the Utah Spine and Joint Center.





General
and Administrative Expenses





General
and administrative expenses increased to $2,612,279 in 2009 from $960,683 in
2008 primarily due to an increase of $1,066,009 in common stock issued for
services and interest; an increase of $251,691 in the issuance of warrants for
services, and; an increase of $122,095 in the amortization of loan
discounts.  We expect that we will require approximately $2.0 million
of cash for operating activities in 2010.  This is due primarily to
the work required to complete the MPR analytical software, the completion of the
clinical trial program for the MPR System, and the regulatory filings we expect
to make in North America and Europe before the end of 2010.





Interest
Income and Expense





During
2009 and 2008, we relied on short term borrowings to finance our operating
activities.  The interest expense for the year ended December 31, 2009
increased to $484,255 as compared with $369,775 for the year ended December 31,
2008 primarily due to an increase in short term borrowings.  The
actual “cash” interest accrual for 2009 was $74,898 versus $82,513 for
2008.  The decrease in the interest expense was due to much of the
short-term borrowings converted to common stock in the third
quarter





The
assumptions used to calculate the discounts and beneficial conversion features
vary from year to year.  In 2009, we extended the expiration dates of
our Series A and B warrants to June 30, 2011 and December 31, 2011,
respectively, and $304,540 was subsequently recorded as
interest.  This increase in “non-cash interest” was offset however
because our share price was lower for most of 2009 versus 2008, and the time
frame that the lenders have to exercise the warrants continues to decline, the
amount of the discount also declines and the beneficial conversion feature was
negative and therefore not reported.





The
average borrowing was approximately $27,586 in 2009 and $28,026 in 2008, and
when discounts from warrants and conversion features are taken into account, the
average interest expense for each note was approximately $15,133 in 2009 and
$12,716 in 2008.  The weighted average interest rate for the short
term borrowings outstanding at December 31, 2009 is 11.82% in 2009 and 17.19% in
2008, after taking into account the discounts from warrants and conversion
features.




31





Liquidity and Capital Resources;
Going Concern





We are in
the development stage and have not earned any revenue since our inception. These
factors have caused our auditors to express substantial doubt as to our ability
to continue as a going concern.  During the years ended December 31,
2009 and 2008, we incurred a net loss of $3,413,454 and $1,589,500,
respectively.





At
December 31, 2009 and 2008, we had cash on hand of $146,477 and $34,015,
respectively. We utilized cash of approximately $483,732 in the period ended
December 31, 2009 compared to $368,956 for the same period ended December 31,
2008. The cash used in operating activities in 2009 is higher than 2008 due to
the resumption of our research and clinical programs. We have funded our
operations primarily through private placements of equity securities. In 2009,
we raised gross proceeds of approximately $70,000 from loans from related
parties and $508,500 from the issuance of common stock.





We will
need to raise additional capital to support our projected increases in staffing
and other operating expenses, which we cannot give any assurance we will be able
to accomplish. If we are unable to raise additional capital, it will be
necessary for us to significantly reduce expenses to stay in business. In
addition, any new equity or debt financing which we secure may not be available
to us at prices that would be acceptable. Our failure to reduce expenses or
obtain necessary financing could impair our ability to stay in business. See
“Risk Factors --We
may need to raise additional capital in the future, but that capital may not be
available.”





Item 7A.
      Quantitative
      and Qualitative Disclosures about Market
Risk.





None.





Item 8. Financial
      Statements.





Our
audited financial statements are included after the signature page of this
Annual Report.




Item 9. Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.





None.




Item 9A(T). Controls
      and Procedures.




Disclosure
Controls and Procedures





Under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, our management evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Exchange Act), as of the end of the period covered by this
Annual Report on Form 10-K (the “Evaluation Date”).  Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that, as of the Evaluation Date, our disclosure controls and procedures are
effective to ensure that information required to be disclosed in the reports
that we file or submit under the Securities Exchange Act of 1934 is (i)
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission’s rules and forms and (ii) accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.





Management’s
Report on Internal Control Over Financial Reporting





iTech
Medical’s management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Rule
13a-15(f) under the Exchange Act.  As required by Rule 13a-15(c) under
the Exchange Act, iTech Medical’s management carried out an evaluation, with the
participation of iTech Medical’s Chief Executive Officer and Chief Financial
Officer, of the effectiveness of its internal control over financial reporting
as of the end of the last fiscal year.  The framework on which such
evaluation was based is contained in the report entitled “Internal
Control—Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the “COSO Report”).




32




iTech
Medical’s system of internal control over financial reporting is designed 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.  Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




Based on
its assessment, management has concluded that iTech Medical maintained effective
internal control over financial reporting as of December 31, 2009, based on
criteria in “Internal Control - Integrated Framework”issued by the
COSO.





Change
in Internal Controls





There has
been no change in our internal control over financial reporting that occurred
during our last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting





Attestation
Report of the Registered Public Accounting Firm





This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. We were not required to have, nor have we, engaged our independent
registered public accounting firm to perform an audit of internal control over
financial reporting pursuant to the rules of the Commission that permit us to
provide only management’s report in this annual report.





Item
9B. Other Information





None





PART
III





Item 10. Directors,
      Executive Officers and Corporate
Governance.





The name, initial year of service as a director, age, and
position or office of each member of our board of directors, is as
follows:





Name
            
            Director
      Since
            
            Age
            
            PositionWayne
      D. Cockburn
            
            2003
            
            53
            
            President,
      Chief Executive Officerand
      DirectorDonald
      Paterson(1)(2)(3)
            
            2003
            
            77
            
            Chairman
      of the Boardand
      DirectorGeorge
      Angelidis(4)(5)(6)
            
            2003
            
            64
            
            DirectorCraig
      Lunsman(7)
            
            2007
            
            63
            
            Director





(1)
            Member
      of the Audit Committee since January
2004.





(2)
            Member
      of the Compensation Committee since January
  2004.




33




(3)
            Member
      of the Corporate Governance Committee since January
  2004.





(4)
            Member
      of the Audit Committee and Stock Option Committee since January
      2004.




(5)
            Member
      of the Nominating Committee since January 2004.(6)
            Member
      of the Compensation Committee since January 2004.(7)
            Member
      of the Audit, Compensation and Corporate Governance Committees since
      September 2007.




The
business experience, principal occupations and directorships in publicly-held
companies of the members of our board of directors are set forth
below.





Wayne
Cockburn – President and CEO, Director


Mr.
Cockburn joined iTech Medical in September 2003. Prior to iTech Medical, Mr.
Cockburn was President at MPR Health Systems from January 2002 until September
2003 and Executive Vice President from January 2000 until January 2002. From
January 1995 to December 1999, Mr. Cockburn was Vice President, Business
Development for Lorus Therapeutics, a public biotechnology company. Mr.
Cockburn’s background includes strategic planning, corporate finance, corporate
partnering, corporate governance and mergers and acquisitions. Mr. Cockburn has
served on the board of directors of several private and public companies. Mr.
Cockburn currently serves on the board of directors of MPR Health Systems, Inc.
and Red Juggernaut, Inc.





Donald
W. Paterson - President, Cavandale Corporation


Since May
1986, Mr. Paterson has been President of Cavandale Corporation, a company
principally engaged in providing strategic corporate consulting to emerging
growth companies within the technology and healthcare industries. Prior to
founding Cavandale Corporation, Mr. Paterson was a Director and Vice-President
of Wood Gundy Inc., a Canadian investment bank, from Jan. 1982 to Sep. 1988
where he was directly involved in leading the firm’s activities in financing
Canadian and international high technology companies. Mr. Paterson currently
serves on the board of directors of Angoss Software Corp., Homeservice
Technologies Inc., NewGrowth Corp. and Utility Corp.





George
D. Angelidis – Healthcare Consultant


Mr.
Angelidis is an independent healthcare consultant.  From 1998 until
2008, Mr. Angelidis was the President of Hospital Network, Inc. (HNI), a
partnership initially consisting of 6 Michigan-based hospitals. During his
tenure, Mr. Angelidis expanded HNI to 17 hospitals by adding 11 new hospital
members and structuring a new entity, Hospital Network Healthcare Services
L.L.C. He was directly responsible for the company's mobile MRI, bone density
and TUMT services, mobile Occupational Wellness, and Medical Waste Disinfection
programs. Additionally, the Network provided medical record scanning and
archiving under Mr. Angelidis, and was a regional PACs archiving service, and a
member Telehealth service. Mr. Angelidis also managed three affiliated ventures
for the fifteen healthcare partners.





Prior to
joining Hospital Network, Mr. Angelidis spent eighteen years with Eastman Kodak
Company where his most recent position was Senior Technical Sales Representative
for the Health Sciences Division. Mr. Angelidis spent time with Picker
International in Cleveland, Ohio as their Regional Sales Manager, Manager Group
Accounts and Zone Sales Manager and was responsible for over five hundred
million dollars in annual sales.





Prior to
Picker International, Mr. Angelidis was Vice President of Sales and Manager at
King’s Medical in Hudson, Ohio where he gained experience in capital equipment
programs. Once introduced to mobile services Mr. Angelidis spent five years with
Medical Consultants Imaging, Co. located in Cleveland as Vice President of
Sales, Marketing and Business Development. Medical Consultants Imaging Co. was
the first joint venture partner of Hospital Network in 1986.





Craig
Lunsman, President, William Jamieson Group


Mr.
Lunsman is the Founder and Managing Director of William Jamieson Group, Inc., a
consulting group that provides securities valuation and corporate advisory
services to public and private small cap companies.   Prior to
founding William Jamieson Group in 1993, Mr. Lunsman was a Co- Founder and
Principal in Houlihan Valuation Advisors, Inc., a company specializing in
providing services related to business valuations, fairness opinions and other
valuation and economic issues.  Mr. Lunsman received his BS from the
University of Southern California in 1970 and graduate work for his MBA and has
been involved in providing strategic planning, financing and other corporate
advisory services since that time.  He has served as an Expert Witness
on business valuation and other related financial matters in California and
other states, and has also testified before the Internal Revenue Service
relative to valuation matters.  He has been a member of the American
Society of Appraisers, San Francisco Chapter and has been a published author and
a frequent speaker on issues relating to business valuation.  As an
outside director, Mr. Lunsman acts as Chairman of the Company's Audit Committee
as well as serve on each of the Compensation and Corporate Governance
Committees.




34




Familial
Relationships





There are
no family relationships among the officers and directors.





Audit, Nominating and Compensation
Committees





Donald
Paterson, George Angelidis and Craig Lunsman constitute the Board of Director’s
Audit, Corporate Governance and Compensation Committees.   The
Board does not have an “audit committee financial expert” (as defined in Item
407(d)(5)(ii) to Regulation S-B promulgated under the Exchange Act) serving on
its Audit Committee.  The Board anticipates appointing a financial
expert to its Audit Committee in the near future.





Code
of Ethics





On April
23, 2004, our Board adopted a Code of Ethics which is filed as exhibits to this
Annual Report.





Involvement in Certain Legal
Proceedings





During
the past five years no director or executive officer of the company (i) has been
involved as a general partner or executive officer of any business which has
filed a bankruptcy petition; (ii) has been convicted in any criminal proceeding
nor is subject to any pending criminal proceeding; (iii) has been subjected to
any order, judgment or decree of any court permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any type of
business, securities or banking activities; and (iv) has been found by a court,
the Commission or the Commodities Futures Trading Commission to have violated a
federal or state securities or commodities law.





Information
Concerning Non-Director Executive Officers





The name,
age, position or office, and business experience of each of our non-director
executive officers is as follows:





Name
            
            Age
            
            PositionAlan
      J. Goldman, MD
            
            64
            
            Vice
      President, Clinical and Medical AffairsSteeve
      Asselin
            
            47
            
            Vice
      President, Research and Development





Alan
J. Goldman, M.D. - Vice President, Clinical and Medical Affairs


Dr.
Goldman joined iTech Medical in September 2003. Prior to joining iTech Medical,
Dr. Goldman was a practicing Board Certified neurologist for 32 years and an
Associate Clinical Professor of Neurology at the University of California
(Irvine). Through his practice, Dr. Goldman attained extensive experience with
work-related injuries. He served as a neurology consultant to numerous insurers
and served for four years on the Medical Advisory Board of Blue Cross. Dr.
Goldman serves as an expert witness in Workers’ Compensation and general
liability litigation matters and was recently appointed as a Medical Panel
Chairperson for the State of Utah Labor Commission. His Workers’ Compensation
appointments include Independent Medical Examiner for the State of California in
1990, Qualified Medical Evaluator, State of California in 1991 and Agreed
Medical Evaluator, State of California in 1992. Dr. Goldman is also a member of
the American Academy of Neurology, the California Medical Association, the Utah
Medical Association and a Past-President of the Orange County Neurological
Society.




35





At iTech
Medical, Dr. Goldman is responsible for all the clinical and medical affairs of
the Company. In addition to being a key member of the management team, Dr.
Goldman also serves as Chairman of the Company's Medical Advisory
Board.





Steeve
Asselin - Vice President, Research and Development


Prior to
joining iTech Medical in September 2003, Mr. Asselin was the Director of the
Biomechanics Lab at HealthSouth Inc. from September 2000 to December 2002. Mr.
Asselin was responsible for the development of the Biomechanics Lab at
HealthSouth to enhance and support the clinical programs and services of the
company. From May 1994 until September 1999, Mr. Asselin was Research
Coordinator at Spinex Medical Technologies. From February 1992 until March 1994,
Mr. Asselin was Director, Clinical and Spinoscopy Affairs with a physician group
in Boston, Mass. Prior to that, Mr. Asselin was a Research Assistant at Spinex
Medical Technologies from September 1989 until February 1992. Mr. Asselin is
coauthor of six scientific publications dealing with back injuries and back
function and author and/or coauthor of approximately 30 scientific
abstracts.





Information
Concerning Non-Director, Non-Executive Medical Consultants


The name,
position or office, and business experience of each of our non-director,
non-executive medical consultants are as follows:





Medical
Advisory Board


The
Company has established a Medical Advisory Board (MAB) whose members provide
advice on the clinical, medical and scientific affairs of IMS, and who work with
the Company on new product development. The MAB is chaired by Alan Goldman, MD,
the Company’s Vice President of Clinical and Medical Affairs.





Gunnar
B.J. Andersson, MD, PhD


Dr.
Andersson is the Chairman Emeritus of Orthopedic Surgery at the Rush University
Medical Center in Chicago; past managing partner of Midwest Orthopedic; past
President of the International Society for the Study of the Lumbar Spine and
past Chairman of the American Academy of Orthopedic Surgeons Research
Development Committee.





V.
Reggie Edgerton, PhD


Dr.
Edgerton is Distinguished Professor of the Departments of Physiological
Sciences and Neurobiology at the UCLA Medical Center.  He is also
Project Program Director of studies on neuromuscular plasticity following spinal
cord injury and conducts studies of physiological changes in
microgravity for NASA.





Scott
Haldeman DC, MD, PhD


Dr.
Haldeman is a Clinical Professor of Neurology at the University of California,
Irvine and Adjunct Professor in the Research Division at the UCLA Medical
Center.  Dr. Haldeman is also Chairman of the Research Council of the
World Federation of Chiropractic and a Past-President of the North American
Spine Society.





Steven
L. Wolf, PhD


Dr. Wolf
is a Professor in the Department of Rehabilitation Medicine; a Professor in
Geriatrics in the Department of Medicine, and; Associate Professor in the
Department of Cell Biology at the Emory School of Medicine.  Dr. Wolf is
also a Professor in Health and Elder Care in the Nursing School at Emory and is
on the Advisory Council of the National Center for Medical Rehabilitation
Research (NIH -NICHHD).





Compliance with Section 16(a) of the
Securities Exchange Act of 1934





Section  16(a)
of the Exchange Act requires the Company’s directors and officers, and persons
who beneficially own more than 10% of a registered class of the Company’s equity
securities, to file reports of beneficial ownership and changes in beneficial
ownership of the Company’s securities with the SEC of Forms 3, 4 and 5.
Officers, directors and greater than 10% stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.




36





Item 405
of Regulation S-1 requires every small business issuer that has a class of
equity securities registered pursuant to Section 12 of the Exchange Act to
identify each person who, at any time during the fiscal year, was a director,
officer or beneficial owner of more than 10 percent of any class of equity
securities registered pursuant to Section 12 of the Exchange Act that failed to
file on a timely basis, as disclosed in the above forms as well as other
information.  As of the date hereof, our executive officers and
directors and the stockholders listed in Item 11 who beneficially own more than
10% of our common stock have filed their Forms 3, 4 or 5 with the Securities and
Exchange Commission.  Other than the foregoing, the Company believes
that no other person who, at any time during such fiscal year, was a director,
officer or beneficial owner of more than 10% of the Company’s common stock
failed to comply with all Section 16(a) filing requirements during such fiscal
year.




Item 11.
      Executive
      Compensation.




Summary
Compensation Table





The
following table sets forth certain compensation information, paid and accrued,
for: (i) each person who served as the chief executive officer of iTech Medical
at any time during the year ended December 31, 2009, regardless of compensation
level, and (ii) each of our other executive officers, other than the chief
executive officer, serving as an executive officer at any time during 2009. The
foregoing persons are collectively referred to in this Form 10-K as the “Named
Executive Officers.” Compensation information is shown for fiscal years 2009 and
2008.





Name/Principal
      Position
            
            Year
            
            Salary
              ($)
            
            Bonus
              ($)
            
            Stock
      Awards
              ($)
            
            Option
              Awards
              ($)
            
            Non-Equity
      Incentive Plan Compensation
              ($)
            
            Nonqualified
      Deferred Compensation Earnings
              ($)
            
            All
      Other Compensation
              ($)
            
            Total
              ($)Wayne
      D. CockburnPresident
      and
            
            
            2009
            
            
            164,420
            
            
            —
            
            
            522,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            686,420Chief
      Executive Officer
            
            
            2008
            
            
            90,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            90,000Alan
      J. Goldman, MDVice
      President,
            
            
            2009
            
            
            90,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            90,000Clinical
      and Medical Affairs
            
            
            2008
            
            
            90,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            90,000Steeve
      AsselinVice
      President,
            
            
            2009
            
            
            87,275
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            87,275Research
      and Development
            
            
            2008
            
            
            90,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            90,000




There are
no employment agreements between iTech Medical and any executive officer of
iTech Medical.




Outstanding
Option Awards at Year End





The following table provides certain
information regarding unexercised options to purchase common stock, stock
options that have not vested, and equity-incentive plan awards outstanding at
December 31, 2009, for each Named Executive Officer.




Outstanding
      Equity Awards At Fiscal Year-EndOption
      Awards
            
            Stock
      AwardsName
            
            Number
      of Securities Underlying Unexercised Options
              (#)
              Exercisable
            
            Number
      of Securities Underlying Unexercised Options
              (#)
              Unexercisable
            
            Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned Options (#)
            
            Option
      Exercise Price ($)
            
            Option
      Expiration Date
            
            Number
      of Shares or Units of Stock That Have Not Vested (#)
            
            Market
      Value of Shares or Units of Stock That Have Not Vested ($)
            
            Equity
      Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
      That Have Not Vested (#)
            
            Equity
      Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
      Other Rights That Have Not Vested ($)Wayne
      Cockburn
            
            
            1,060,200
            
            
            0
            
            
            0
            
            $
            0.25
            
            
            3/10/14
            
            
            0
            
            
            n/a
            
            
            0
            
            
            0Alan
      Goldman
            
            
            511,200
            
            
            0
            
            
            0
            
            $
            0.25
            
            
            3/10/14
            
            
            0
            
            
            n/a
            
            
            0
            
            
            0Steeve
      Asselin
            
            
            412,200
            
            
            0
            
            
            0
            
            $
            0.25
            
            
            3/10/14
            
            
            0
            
            
            n/a
            
            
            0
            
            
            0




37




Director
Compensation





The
following table sets forth the compensation paid to our directors for our fiscal
year ended December 31, 2009, excluding iTech Medical’s Chief Executive Officer
Wayne D. Cockburn, whose compensation is set forth in the Summary Compensation
Table for Named Executive Officer, set forth above.





Director
      CompensationName
            
            Fees
      Earned or Paid in Cash
              ($)
            
            Stock
      Awards
              ($)
            
            Option
      Awards
              ($)
            
            Non-Equity
      Incentive Plan Compensation ($)
            
            Nonqualified
      Deferred Compensation Earnings
              ($)
            
            All
      Other Compensation ($)
            
            Total
              ($)George
      Angelidis (1)
            
            
            0
            
            0
            
            
            0
            
            0
            
            
            0
            
            0
            
            
            0Craig
      Lunsman (2)
            
            
            0
            
            0
            
            
            0
            
            0
            
            
            0
            
            0
            
            
            0Donald
      Paterson (3)
            
            
            0
            
            0
            
            
            0
            
            0
            
            
            0
            
            0
            
            
            0





(1)
            At
      December 31, 2009, Mr. Angelidis had exercisable options to purchase
      280,000 shares of our common stock at $0.25 per share.  These
      options were granted in March 2004.





(2)
            At
      December 31, 2009, Mr. Lunsman had exercisable options to purchase 100,000
      shares of our common stock at $0.25 per share.  These options
      were granted in March 2004.




(3)
            At
      December 31, 2009, Mr. Paterson had exercisable options to purchase
      310,000 shares of our common stock at $0.25 per share.  These
      options were granted in March 2004.





Item 12. Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholders Matters.




The
following table sets forth, as of April 8, 2010, certain information concerning
the beneficial ownership of common stock by (i) each person known by the Company
to be the owner of more than 5% of the outstanding Common Stock, (ii) each
director, (iii) each Named Executive Officer, and (iv) all directors and
executive officers as a group. In general, “beneficial ownership” includes those
shares a shareholder has the power to vote or the power to transfer, and stock
options and other rights to acquire Common Stock that are exercisable currently
or become exercisable within 60 days. Except as indicated otherwise, the persons
named in the table below have sole voting and investment power with respect to
all shares shown as beneficially owned by them. The calculation of the
percentage owned is based on 26,691,732 shares of Common Stock outstanding.
Unless otherwise stated, the address of each of the directors and executive
officers listed below is c/o iTech Medical, Inc., 17011 Beach Boulevard, Suite
900, Huntington Beach, California, 92647.




38




Name
      of Beneficial Owner
            
            Amount
      and Nature of
              Beneficial
      OwnershipAmount
      and Nature of Beneficial Ownership
            
            
            Percent
      of ClassWayne
      Cockburn
              23
      Valley Trail
              Newmarket,
      Ontario
              Canada   L3Y
      4V8
            
            
            9,925,000
            (1)
            
            
            37.18
            %MPR
      Health Systems, Inc.
              23
      Valley Trail
              Newmarket,
      Ontario
              Canada   L3Y
      4V8
            
            
            8,000,000
            
            
            
            29.97
            %George
      Angelidis
              6380
      Brogan Hill Kalamazoo, Michigan 49009
            
            
            183,333
            
            
            
            0.69
            %Craig
      Lunsman
              154
      Lombard Street
              Suite
      60
              San
      Francisco, California
              94111
            
            
            105,000
            
            
            
            0.39
            %Donald
      Paterson
              24
      Elgin Avenue
              Toronto,
      Ontario.
              Canada   M5R
      1G6
            
            
            8,100,000
            (2)(3)
            
            
            30.35
            %Vespa
      Family Entities
              1075
      Old Mohawk Road
              Ancaster  Ontario
              Canada   L9G
      3K9
            
            
            2,100,000
            
            
            
            7.87
            %All
      Officers and Directors as a Group (6 people)
            
            
            12,413,333
            (4)
            
            
            46.51
            %





(1)
            Includes
      8,000,000 shares held by MPR Health Systems, Inc. Mr. Cockburn may be
      deemed to share voting and investment power with respect to these shares
      by virtue of being a director and the chief executive officer of that
      corporation.


(2)
            Includes
      8,000,000 shares held by MPR Health Systems, Inc.; Mr. Paterson may be
      deemed to share voting and investment power with respect to these shares
      by virtue of being a director of that corporation.


(3)
            Includes
      100,000 shares of common stock held by Cavandale
      Corporation.  Mr. Paterson is President and sole owner of
      Cavandale Corporation.


(4)
            Includes
      securities in footnotes (1), (2) and (3). 8,000,000 shares held by MPR
      Health Systems, Inc. counted once for aggregate number of shares owned as
      a group.




39




Changes in Control.There are
no arrangements which may result in a change of control of the
Company.


Our
Certificate of Incorporation authorizes 10,000,000 shares of “blank check”
preferred stock, $0.0001 par value. “Blank check” preferred stock may be issued
in any one or more series, and any series shall be comprised of such number of
shares and may have such voting powers and such designations, preferences and
rights as shall be stated and expressed in resolutions of the Board of Directors
of the Company.  Accordingly, under our Certificate of Incorporation,
the Board is authorized to designate one or more classes of preferred stock
which could be issued to effect a change in control. To date, the Board has not
designated any series of preferred stock.





Item 13. Certain
      Relationships and Related Transactions and Directors
    Independence.





During
2009, the Company issued three short-term promissory notes totaling $70,000 to
MPR Health Systems, Inc, an affiliate shareholder.  The notes carried
an annual interest rate of 10% and had various maturity dates.  MPR
Health Systems was granted a total 25,000 Series A warrants, 65,000 Series B
warrants and 25,000 Series C warrants for its loans and for agreeing to extend
the maturity date throughout the lives of the loans.  In September,
2009, MPR Health Systems agreed to convert the outstanding principal amounts of
their loans into common shares at a rate of 3.333 shares of common stock for
each dollar of principle outstanding for a total of 233,334 common
shares.





During
2007 and 2008, the Company borrowed a total of $31,500 from Wayne Cockburn, its
CEO.  The short-term promissory notes carried an annual interest rate
of 10% and had various maturity dates.  Mr. Cockburn was granted a
total 166,000 Series B warrants for his loans and for agreeing to extend the
maturity date throughout the lives of the loans.  In September, 2009,
Mr. Cockburn agreed to convert the outstanding principal amounts of his loans
into common shares at a rate of 3.333 shares of common stock for each dollar of
principle outstanding for a total of 105,000 common shares.





During
2007, the Company borrowed a total of $25,000 from George Angelidis, one of its
directors.  The short-term promissory note carried an annual interest
rate of 10% and had a maturity date of July 30, 2009.  Mr. Angelidis
was granted a total 250,000 Series B warrants for his loan and for agreeing to
extend the maturity date throughout the life of the loan.  In
September, 2009, Mr. Angelidis agreed to convert the outstanding principal
amount of his loan into common shares at a rate of 3.333 shares of common stock
for each dollar of principle outstanding for a total of 83,333 common
shares.





During
2007, the Company borrowed a total of $40,000 from Alan Goldman, one of its
officers.  The short-term promissory note carries an annual interest
rate of 10% and has a maturity date of January 31, 2010.  Dr. Goldman
has been granted a total 320,000 Series B warrants for his loan and for agreeing
to extend the maturity date throughout the life of the loan.





In 2004,
the Company borrowed a total of CD$145,000 from Cavandale Corporation, a Company
owned by one of the directors.  The loan carries an annual interest
rate of 10% and has a maturity date of January 31, 2010.  Cavandale
has been granted a total of 211,270 Series A warrants and 1,270,000 Series B
warrants for its loan and for agreeing to extend the maturity date throughout
the life of the loan.





During
2007, the Company borrowed a total of $100,000 from Frans Berndsen, one of its
shareholders.  During the second quarter, $65,000 of these loans were
issued and treated as 12% convertible notes payable as described in Note 4 Loans
from related parties.  In September 2007 the Company and Mr. Berndsen
agreed there had been a misunderstanding and a debt restructuring
occurred.  The original $65,000 in loans was restructured to modify
the original terms, as well as for the remaining $35,000 which was received in
the third quarter. The Company negotiated with Mr. Berndsen to convert these
promissory notes totaling $100,000 plus accrued interest of $22,807 and other
accrued liabilities of $45,000 into 984,964 shares of the Company’s common stock
valued at $.30 per share. This transaction resulted in a loss on extinguishment
of debt of $127,682, which is included in general and administrative expenses in
the accompanying statement of operations.  Mr. Berndsen was granted a
total 700,000 Series B warrants for his loan and for agreeing to extend the
maturity date throughout the life of the loan.





In 2003,
the Company purchased a patent from MPR Health Systems, Inc. for 8,000,000
shares of the Company’s common stock and a 5-year $100,000 Demand Promissory
Note (the “Note”). The Note bears interest at 2% and is due and payable on
November 30, 2010.  There was a balance of $34,613 outstanding as of
December 31, 2009.




40





Item 14. Principal
      Accountant Fees and Service.




Our
independent registered public auditors are Farber Hass Hurley
LLP.  Their office is located at 888 W. Ventura Blvd. Suite A,
Camarillo, CA 93010.





Audit
Fees





The
aggregate fees billed by the Company’s auditors for professional services
rendered in connection with the audit of the Company's annual consolidated
financial statements and quarterly reviews for the fiscal years ended December
31, 2008 and 2009 were approximately $63,000 and $61,000,
respectively.





Audit-Related
Fees





The
Company’s auditors did not bill any additional fees for assurance and related
services that are reasonably related to the performance of the audit or review
of the Company's financial statements.





Tax
Fees




The
aggregate fees billed by the Company's auditors for 
professional  services for tax compliance, tax advice, and tax planning
were $0 for each of the fiscal years ended December 31, 2008 and
2009.





All
Other Fees





The 
aggregate fees billed by the Company's auditors for all other non-audit
services, such as attending meetings and other miscellaneous financial
consulting, for each of the fiscal years ended December 31, 2008 and 2009 were
$0.





Pre-Approval
Policies and Procedures





The
Company’s audit committee currently has a policy in place that requires its
review and pre-approval of all audit and permissible non-audit services provided
by its independent auditors. These services requiring pre-approval by the audit
committee may include audit services, audit related services, tax services and
other services.





PART
IV





Item 15.
      Exhibits.





Exhibit No.
            
            Description3.2
      (1)
            
            Bylaws
      of iTech Medical, Inc.10.3(1)
            
            Code
      of Ethics31.1(2)
            
            Certification
      of the Company’s Principal Executive Officer and Principal Financial and
      Accounting Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002,
      with respect to the registrant’s Annual Report on Form 10-K for the year
      ended December 31, 2009.32.1(2)
            
            Certification
      of the Company’s Principal Executive Officer and Principal Financial and
      Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes Oxley Act of
  2002.





(1)
            Filed
      as an exhibit to the Registrant’s Current Report on Form 8-K filed with
      the Commission on December 29, 2006 and incorporated by reference
      herein.





(2)
            Not
      deemed to be "filed" for purposes of Section 18 of
      the Exchange Act, or otherwise subject to the liability of that
      section.




41





iTech
Medical, Inc.


(Formerly
known as Impact Medical Solutions, Inc)


Financial Statements


For the
fiscal year ended December 31, 2009




Contents




Index
      to Financial Statements
            
            
            F-1Report
      of Farber Hass Hurley LLP, a PCAOB Registered Accounting
    Firm
            
            
            F-2Audited
      Financial StatementsBalance
      Sheets
            
            
            F-3Statements
      of Operations
            
            
            F-4Statements
      of Cash Flows
            
            
            F-5Statements
      of Changes in Stockholders’ Equity
            
            
            F-6Notes
      to Financial Statements
            
            
            F-8




F-1





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Shareholders and Board of Directors of iTech Medical, Inc. (Formerly known as
Impact Medical Solutions, Inc)





We have
audited the accompanying balance sheet of iTech Medical, Inc. (Formerly known as
Impact Medical Solutions, Inc), a development stage company (the "Company") as
of December 31, 2009 and December 31, 2008, and the related statements of
operations, shareholders' equity (deficit), and cash flows for each of the years
ended December 31, 2009, 2008 and 2007 and October 20, 1997 (date of inception)
to December 31, 2009.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company has determined that it is not required to have, nor were we engaged to
perform, an audit of its internal control over financial
reporting.  Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of iTech Medical, Inc. (Formerly known
as Impact Medical Solutions, Inc)as of December 31, 2009, and the results of its
operations and its cash flows for each of the years ended December 31, 2009,
2008 and 2007, and October 20, 1997 (date of inception) to December 31, 2009, in
conformity with accounting principles generally accepted in the United States of
America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 1 to the
financial statements, Company has not recognized any revenue since inception and
has a shareholders deficit of $(1,419,436). These factors raise substantial
doubt about its ability to continue as a going concern.  The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.




/s/
Farber Hass Hurley, LLP


April 14,
2010


Camarillo,
California




F-2


iTech
Medical, Inc.


(Formerly
known as Impact Medical Solutions, Inc.)


(A
Development Stage Company)


Balance
Sheets




December
      31,2009
              
              
              2008ASSETSCurrent
      assetsCash
              
              $
              146,477
              
              
              $
              34,015Prepaid
      expenses
              
              
              4,219
              
              
              
              5,218Total
      current assets
              
              
              150,696
              
              
              
              39,233Furniture
      and equipment, net of accumulated depreciation of$52,257
      and $58,119 at December 31, 2009 and 2008, respectively
              
              
              7,549
              
              
              
              17,270Patent,
      net of accumulated amortization of $186,276 and $156,864at
      December 31, 2009 and 2008, respectively
              
              
              313,724
              
              
              
              343,136$
              471,969
              
              
              $
              399,639LIABILITIES
      AND SHAREHOLDERS' DEFICITCurrent
      liabilitiesLoans
      from related parties, net of unamortized discount of $2,908
      and$3,258
      at December 31, 2009 and 2008, respectively
              
              $
              175,306
              
              
              $
              311,896Convertible
      debt, net of unamortized discount of $4,267 at December 31,
      2008
              
              
              -
              
              
              
              448,724Other
      loan payable, net of unamortized discount of $116 at December 31,
      2008
              
              
              -
              
              
              
              9,884Note
      payable
              
              
              34,613
              
              
              
              34,613Accounts
      payable
              
              
              337,160
              
              
              
              279,282Accrued
      interest
              
              
              213,156
              
              
              
              153,229Accrued
      vacation
              
              
              83,170
              
              
              
              64,133Accrued
      salaries, bonuses and other payroll related items
              
              
              1,010,500
              
              
              
              589,600Director
      compensation
              
              
              37,500
              
              
              
              -Other
      accrued liabilities
              
              
              -
              
              
              
              30,000Total
      current liabilities
              
              
              1,891,405
              
              
              
              1,921,361Commitments
      and contingencies
              
              
              -
              
              
              
              -Shareholders'
      deficitPreferred
      stock, 10,000,000 shares authorized, $.0001 par value,no
      shares issued and outstanding
              
              
              -
              
              
              
              -Common
      stock, 100,000,000 shares authorized, $.0001 par value,26,691,733
      and 18,768,466 shares issued and outstandingat
      December 31, 2009 and 2008, respectively
              
              
              2,669
              
              
              
              1,877Additional
      paid-in capital
              
              
              9,593,824
              
              
              
              6,432,631Deferred
      option and warrant costs
              
              
              (258,326
              )
              
              
              (612,081
              )Deficit
      accumulated during the development stage
              
              
              (10,757,603
              )
              
              
              (7,344,149
              )Total
      shareholders' deficit
              
              
              (1,419,436
              )
              
              
              (1,521,722
              )$
              471,969
              
              
              $
              399,639


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




F-3




iTech Medical, Inc.


(Formerly
known as Impact Medical Solutions, Inc.)


(A
Development Stage Company)


Statements
of Operations




Cumulativefrom
      inception(October
      20,1997)
      toYear
      ended December 31,
              
              
              December
      31,2009
              
              
              2008
              
              
              2007
              
              
              2009Costs
      and expenses:Research
      and development
              
              $
              134,504
              
              
              $
              134,327
              
              
              $
              151,217
              
              
              $
              1,006,556Medical
      and clinical
              
              
              181,500
              
              
              
              123,852
              
              
              
              105,767
              
              
              
              1,411,065General
      and administrative
              
              
              2,612,279
              
              
              
              960,683
              
              
              
              666,632
              
              
              
              6,844,266Operating
      loss
              
              
              (2,928,283
              )
              
              
              (1,218,862
              )
              
              
              (923,616
              )
              
              
              (9,261,887
              )Other
      income (expense):Interest
      expense
              
              
              (484,255
              )
              
              
              (369,775
              )
              
              
              (338,294
              )
              
              
              (1,488,856
              )Interest
      income
              
              
              43
              
              
              
              -
              
              
              
              15
              
              
              
              333(484,212
              )
              
              
              (369,775
              )
              
              
              (338,279
              )
              
              
              (1,488,523
              )Loss
      before provision for taxes
              
              
              (3,412,495
              )
              
              
              (1,588,637
              )
              
              
              (1,261,895
              )
              
              
              (10,750,410
              )Provision
      for taxes
              
              
              959
              
              
              
              863
              
              
              
              1,594
              
              
              
              7,193Net
      loss
              
              $
              (3,413,454
              )
              
              $
              (1,589,500
              )
              
              $
              (1,263,489
              )
              
              $
              (10,757,603
              )Basic
      and diluted net loss per share
              
              $
              (0.16
              )
              
              $
              (0.09
              )
              
              $
              (0.08
              )Basic
      and diluted weighted averagenumber
      of common sharesoutstanding
              
              
              21,690,964
              
              
              
              16,833,629
              
              
              
              15,996,205Maximum
      number of common shares (not included in denominator of diluted loss per
      sharecalculation
      due to their anti-dilutive nature) attributable to exercise
      of:Outstanding
      options
              
              
              2,953,600
              
              
              
              3,868,600
              
              
              
              3,868,600Outstanding
      warrants (Series A-E)
              
              
              14,710,463
              
              
              
              10,852,382
              
              
              
              7,945,636




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




F-4





iTech
Medical, Inc.


(Formerly
known as Impact Medical Solutions, Inc.)


(A
Development Stage Company)


Statements
of Cash Flow




Cumulativefrom
      inception(October
      20,1997)
      toYear
      ended December 31,
                                
                                
                                December
      31,2009
                                
                                
                                2008
                                
                                
                                2007
                                
                                
                                2009Cash
      flows from operating activities:Net
      loss
                                
                                $
                                (3,413,454
                                )
                                
                                $
                                (1,589,500
                                )
                                
                                $
                                (1,263,489
                                )
                                
                                $
                                (10,757,603
                                )Adjustments
      to reconcile net loss to net cashused
      by operating activities:Depreciation
      and amortization
                                
                                
                                39,785
                                
                                
                                
                                43,827
                                
                                
                                
                                43,970
                                
                                
                                
                                255,064Loss
      on disposal of assets
                                
                                
                                1,215
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,215Loss
      on extinguishment of debt
                                
                                
                                95,932
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                95,932Amortization
      of loan discount
                                
                                
                                409,357
                                
                                
                                
                                287,262
                                
                                
                                
                                290,227
                                
                                
                                
                                1,232,256Issuance
      of common stock for services & interest
                                
                                
                                1,506,268
                                
                                
                                
                                440,259
                                
                                
                                
                                81,464
                                
                                
                                
                                2,138,151Issuance
      of stock options and warrants for services
                                
                                
                                310,924
                                
                                
                                
                                59,233
                                
                                
                                
                                64,119
                                
                                
                                
                                1,490,761Decrease
      (increase) in prepaid expenses
                                
                                
                                999
                                
                                
                                
                                21,468
                                
                                
                                
                                (21,677
                                )
                                
                                
                                (4,219
                                )Increase
      (decrease) in accounts payable
                                
                                
                                57,878
                                
                                
                                
                                9,407
                                
                                
                                
                                103,402
                                
                                
                                
                                337,160Increase
      (decrease) in accrued expenses
                                
                                
                                507,364
                                
                                
                                
                                359,088
                                
                                
                                
                                171,474
                                
                                
                                
                                1,344,326Net
      cash used by operating activities
                                
                                
                                (483,732
                                )
                                
                                
                                (368,956
                                )
                                
                                
                                (530,510
                                )
                                
                                
                                (3,866,957
                                )Cash
      flows from investing activities:Capital
      expenditures
                                
                                
                                (1,867
                                )
                                
                                
                                (4,514
                                )
                                
                                
                                (564
                                )
                                
                                
                                (77,552
                                )Net
      cash used by investing activities
                                
                                
                                (1,867
                                )
                                
                                
                                (4,514
                                )
                                
                                
                                (564
                                )
                                
                                
                                (77,552
                                )Cash
      flows from financing activities:Proceeds
      from loans from related parties
                                
                                
                                70,000
                                
                                
                                
                                21,500
                                
                                
                                
                                175,000
                                
                                
                                
                                411,500Proceeds
      from convertible debt
                                
                                
                                -
                                
                                
                                
                                120,000
                                
                                
                                
                                332,991
                                
                                
                                
                                452,991Proceeds
      from loans from others
                                
                                
                                -
                                
                                
                                
                                10,000
                                
                                
                                
                                -
                                
                                
                                
                                10,000Payments
      on note payable
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (65,387
                                )Issuance
      of common stock, net of costs
                                
                                
                                508,500
                                
                                
                                
                                270,000
                                
                                
                                
                                -
                                
                                
                                
                                3,288,668Net
      cash provided by financing activities
                                
                                
                                578,500
                                
                                
                                
                                421,500
                                
                                
                                
                                507,991
                                
                                
                                
                                4,097,772Effect
      of exchange rate changes
                                
                                
                                19,561
                                
                                
                                
                                (29,159
                                )
                                
                                
                                27,320
                                
                                
                                
                                (6,786
                                )Net
      increase (decrease) in cash
                                
                                
                                112,462
                                
                                
                                
                                18,871
                                
                                
                                
                                4,237
                                
                                
                                
                                146,477Cash,
      beginning of period
                                
                                
                                34,015
                                
                                
                                
                                15,144
                                
                                
                                
                                10,907
                                
                                
                                
                                -Cash,
      end of period
                                
                                $
                                146,477
                                
                                
                                $
                                34,015
                                
                                
                                $
                                15,144
                                
                                
                                $
                                146,477Non-cash
      investing and financing activities:Issuance
      of common stock & note payable for patent
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                500,000Issuance
      of warrants with debt
                                
                                $
                                100,085
                                
                                
                                $
                                212,546
                                
                                
                                $
                                353,036
                                
                                
                                $
                                930,624Conversion
      of debt to equity
                                
                                $
                                689,491
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                689,491





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




F-5


iTech
Medical, Inc.


(Formerly
known as Impact Medical Solutions, Inc.)


(A
Development Stage Company)


Statements
of Changes in Shareholders’ Equity (Deficit)


From
Inception (October 20, 1997) to December 31, 2009




DeficitDeferred
      Share,
                
                
                Accumulated
                
                
                TotalCommon
      Stock
                
                
                Additional
                
                
                Option
      &
                
                
                During
      the
                
                
                Shareholders'Number
                
                
                
                
                
                Paid-in
                
                
                Warrant
                
                
                Development
                
                
                Equityof
      Shares
                
                
                Total
                
                
                Capital
                
                
                Cost
                
                
                Stage
                
                
                (Deficit)Initial
      capitalization
                
                
                3,000,000
                
                
                $
                1,500
                
                
                $
                1,250
                
                
                $
                -
                
                
                $
                -
                
                
                $
                2,750Net
      loss for 1997
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (2,750
                )
                
                
                (2,750
                )Balance,
      December 31, 1997
                
                
                3,000,000
                
                
                
                1,500
                
                
                
                1,250
                
                
                
                -
                
                
                
                (2,750
                )
                
                
                -Net
      loss for 1998
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Balance,
      December 31, 1998
                
                
                3,000,000
                
                
                
                1,500
                
                
                
                1,250
                
                
                
                -
                
                
                
                (2,750
                )
                
                
                -Net
      loss for 1999
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Balance,
      December 31, 1999
                
                
                3,000,000
                
                
                
                1,500
                
                
                
                1,250
                
                
                
                -
                
                
                
                (2,750
                )
                
                
                -Net
      loss for 2000
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Balance,
      December 31, 2000
                
                
                3,000,000
                
                
                
                1,500
                
                
                
                1,250
                
                
                
                -
                
                
                
                (2,750
                )
                
                
                -Net
      loss for 2001
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Balance,
      December 31, 2001
                
                
                3,000,000
                
                
                
                1,500
                
                
                
                1,250
                
                
                
                -
                
                
                
                (2,750
                )
                
                
                -Net
      loss for 2002
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Balance,
      December 31, 2002
                
                
                3,000,000
                
                
                
                1,500
                
                
                
                1,250
                
                
                
                -
                
                
                
                (2,750
                )
                
                
                -Net
      loss for 2003
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (181,023
                )
                
                
                (181,023
                )Shares
      issued for patent
                
                
                8,000,000
                
                
                
                4,000
                
                
                
                396,000
                
                
                
                -
                
                
                
                -
                
                
                
                400,000Shares
      issued for cash net of share issue costs of $86,096
                
                
                2,086,000
                
                
                
                1,043
                
                
                
                434,361
                
                
                
                -
                
                
                
                -
                
                
                
                435,404Balance,
      December 31, 2003
                
                
                13,086,000
                
                
                
                6,543
                
                
                
                831,611
                
                
                
                -
                
                
                
                (183,773
                )
                
                
                654,381Net
      loss for 2004
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (733,248
                )
                
                
                (733,248
                )Stock
      option costs
                
                
                -
                
                
                
                -
                
                
                
                5,009
                
                
                
                -
                
                
                
                -
                
                
                
                5,009Warrants
      issued with loans payable
                
                
                -
                
                
                
                -
                
                
                
                4,225
                
                
                
                -
                
                
                
                -
                
                
                
                4,225Shares
      issued for cash net of share issue costs of $17,602
                
                
                895,000
                
                
                
                448
                
                
                
                561,950
                
                
                
                -
                
                
                
                -
                
                
                
                562,398Balance,
      December 31, 2004
                
                
                13,981,000
                
                
                
                6,991
                
                
                
                1,402,795
                
                
                
                -
                
                
                
                (917,021
                )
                
                
                492,765Net
      loss for 2005
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,496,992
                )
                
                
                (1,496,992
                )Stock
      warrant costs
                
                
                -
                
                
                
                -
                
                
                
                238,892
                
                
                
                (199,946
                )
                
                
                -
                
                
                
                38,946Amortization
      of stock warrant costs
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                85,273
                
                
                
                -
                
                
                
                85,273Warrants
      issued with loans payable
                
                
                -
                
                
                
                -
                
                
                
                16,450
                
                
                
                -
                
                
                
                -
                
                
                
                16,450Shares
      issued for services
                
                
                60,160
                
                
                
                30
                
                
                
                60,130
                
                
                
                -
                
                
                
                -
                
                
                
                60,160Shares
      issued for cash net of share issue costs of $52,689
                
                
                1,045,000
                
                
                
                522
                
                
                
                991,789
                
                
                
                -
                
                
                
                -
                
                
                
                992,311Balance,
      December 31, 2005
                
                
                15,086,160
                
                
                $
                7,543
                
                
                $
                2,710,056
                
                
                $
                (114,673
                )
                
                $
                (2,414,013
                )
                
                $
                188,913


(continued)




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




F-6


iTech
Medical, Inc.


(Formerly
known as Impact Medical Solutions, Inc.)


(A
Development Stage Company)


Statements
of Changes in Shareholders’ Equity (Deficit)


From
Inception (October 20, 1997) to December 31, 2009




Deferred
      Share,
              
              
              Accumulated
              
              
              TotalCommon
      Stock
              
              
              Additional
              
              
              Option
      &
              
              
              During
      the
              
              
              Shareholders'Number
              
              
              
              
              
              Paid-in
              
              
              Warrant
              
              
              Development
              
              
              Equityof
      Shares
              
              
              Total
              
              
              Capital
              
              
              Cost
              
              
              Stage
              
              
              (Deficit)Balance,
      December 31, 2005
              
              
              15,086,160
              
              
              $
              7,543
              
              
              $
              2,710,056
              
              
              $
              (114,673
              )
              
              $
              (2,414,013
              )
              
              $
              188,913Shares
      issued for cash
              
              
              517,305
              
              
              
              259
              
              
              
              517,046
              
              
              
              -
              
              
              
              -
              
              
              
              517,305Shares
      issued for services
              
              
              50,000
              
              
              
              25
              
              
              
              49,975
              
              
              
              -
              
              
              
              -
              
              
              
              50,000Impact
      shares converted to Freedom 1 at 1 to 1
              
              
              -
              
              
              
              (6,262
              )
              
              
              6,262
              
              
              
              -
              
              
              
              -
              
              
              
              -Shares
      issued upon merger
              
              
              200,000
              
              
              
              20
              
              
              
              (20
              )
              
              
              -
              
              
              
              -
              
              
              
              -Value
      of warrants issued
              
              
              -
              
              
              
              -
              
              
              
              1,101,523
              
              
              
              (430,046
              )
              
              
              -
              
              
              
              671,477Amortization
      of stock warrant costs
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              500,062
              
              
              
              -
              
              
              
              500,062Net
      loss for 2006
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,077,147
              )
              
              
              (2,077,147
              )Balance,
      December 31, 2006
              
              
              15,853,465
              
              
              
              1,585
              
              
              
              4,384,842
              
              
              
              (44,657
              )
              
              
              (4,491,160
              )
              
              
              (149,390
              )Shares
      issued for services
              
              
              625,000
              
              
              
              63
              
              
              
              454,937
              
              
              
              (455,000
              )
              
              
              -
              
              
              
              -Value
      of warrants issued
              
              
              -
              
              
              
              -
              
              
              
              386,399
              
              
              
              (33,363
              )
              
              
              -
              
              
              
              353,036Amortization
      of share, option and warrant cost
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              145,583
              
              
              
              -
              
              
              
              145,583Net
      loss for 2007
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,263,489
              )
              
              
              (1,263,489
              )Balance,
      December 31, 2007
              
              
              16,478,465
              
              
              
              1,648
              
              
              
              5,226,178
              
              
              
              (387,437
              )
              
              
              (5,754,649
              )
              
              
              (914,260
              )Shares
      issued for cash, net of issuance costs of $30,000
              
              
              400,001
              
              
              
              40
              
              
              
              269,960
              
              
              
              -
              
              
              
              -
              
              
              
              270,000Settlement
      of liability
              
              
              100,000
              
              
              
              10
              
              
              
              69,990
              
              
              
              
              
              
              
              
              
              
              
              70,000Shares
      issued for services
              
              
              1,790,000
              
              
              
              179
              
              
              
              468,321
              
              
              
              (356,000
              )
              
              
              -
              
              
              
              112,500Value
      of warrants issued
              
              
              -
              
              
              
              -
              
              
              
              398,182
              
              
              
              (185,636
              )
              
              
              -
              
              
              
              212,546Amortization
      of share, option and warrant cost
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              316,992
              
              
              
              -
              
              
              
              316,992Net
      loss for 2008
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,589,500
              )
              
              
              (1,589,500
              )Balance,
      December 31, 2008
              
              
              18,768,466
              
              
              
              1,877
              
              
              
              6,432,631
              
              
              
              (612,081
              )
              
              
              (7,344,149
              )
              
              
              (1,521,722
              )Shares
      issued for services and interest
              
              
              3,621,023
              
              
              
              362
              
              
              
              1,207,162
              
              
              
              (373,216
              )
              
              
              -
              
              
              
              834,308Value
      of warrants issued
              
              
              -
              
              
              
              -
              
              
              
              628,788
              
              
              
              (450
              )
              
              
              -
              
              
              
              628,338Shares
      issued for cash
              
              
              1,818,333
              
              
              
              182
              
              
              
              508,318
              
              
              
              -
              
              
              
              -
              
              
              
              508,500Shares
      issued upon conversion of debt
              
              
              2,723,911
              
              
              
              272
              
              
              
              816,901
              
              
              
              -
              
              
              
              -
              
              
              
              817,173Amortization
      of share, option and warrant cost
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              727,421
              
              
              
              -
              
              
              
              727,421Cancellation
      of shares
              
              
              (240,000
              )
              
              
              (24
              )
              
              
              24
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      loss for 2009
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,413,454
              )
              
              
              (3,413,454
              )Balance,
      December 31, 2009
              
              
              26,691,733
              
              
              $
              2,669
              
              
              $
              9,593,824
              
              
              $
              (258,326
              )
              
              $
              (10,757,603
              )
              
              $
              (1,419,436
              )




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




F-7


iTech
Medical, Inc.


(Formerly
known as Impact Medical Solutions, Inc.)


(A
Development Stage Company)


Notes to
Financial Statements


December 31,
2009





1.
            Organization and
      summary of significant accounting
  policies





Organization and Line of
Business




iTech
Medical, Inc., formerly known as Impact Medical Solutions, (a development stage
company) (the "Company" or “IMS”), a Nevada corporation, was incorporated on
October 20, 1997.  On September 9, 2003, IMS acquired a patent from
MPR Health Systems, Inc., a California corporation; a patented medical
information system called Muscle Pattern Recognition (“MPR”) with a value of
$500,000.  Since inception, iTech Medical has been involved in the
development and pre-market clinical testing of the MPR system.





Merger of iTech Medical,
Inc. into Freedom 1, Inc.




On
December 27, 2006, Freedom 1, Inc., a Delaware corporation (“Freedom 1”),
entered into a Plan and Agreement of Merger (the “Merger Agreement”) with iTech
Medical, a privately held Nevada corporation (“iTech Medical”), pursuant to
which iTech Medical purchased 1 share of Freedom 1 for $1.00, and Freedom 1
became a wholly owned subsidiary of iTech Medical (the
“Sale”).  Following the Sale, Freedom 1 effected a short-form
parent-subsidiary merger pursuant to the Merger Agreement of iTech Medical with
and into Freedom 1, pursuant to which the separate existence of iTech Medical
terminated and Freedom 1 changed its name to “iTech Medical, Inc.”





Concurrently
with the merger, stockholders of iTech Medical received 1 share of Freedom 1’s
common stock for each issued and outstanding share of iTech Medical’s common
stock.  As a result, at closing Freedom 1 issued 15,653,465 shares of
its common stock to the stockholders of iTech Medical, representing 100% of
Freedom 1’s outstanding common stock immediately following the
Merger.  In addition, 200,000 shares of the Company’s stock were
issued to the former shareholder of Freedom 1.





Common
stock options and warrants exercisable into 11,010,241 shares of iTech Medical
before the merger are exercisable into the same number of shares of IMS after
the merger.





Development Stage
Company




The
Company is a development stage company as defined in Accounting Standards
Codification (“ASC”) 915,Development Stage Entities. The Company is devoting substantially all of
its present efforts to establish a new business, and its planned principal
operations have not yet commenced.  The Company has not generated any
material revenues throughout its history. The Company's ability to continue in
business is dependent upon obtaining sufficient financing or attaining future
profitable operations.





F-8




1.
            Organization and
      summary of significant accounting policies
    (continued)





Going
Concern




The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States that contemplate
continuation of the Company as a going concern.  However, during the
years ended December 31, 2009, 2008 and 2007, the Company incurred a net loss of
$3,413,454, $1,589,500, and $1,263,489, respectively, and is in the development
stage at December 31, 2009. The Company has not earned any revenue since
inception.  These factors raise substantial doubt about the Company’s
ability to continue as a going concern.





Recovery
of the Company's assets is dependent upon future events, the outcome of which is
indeterminable. In addition, successful completion of the Company's clinical
development program and its transition to the attainment of profitable
operations is dependent upon obtaining adequate financing to fulfill its
development activities and achieving a level of sales adequate to support the
Company's cost structure. In view of these matters, realization of a major
portion of the assets in the accompanying balance sheets is dependent upon the
Company's ability to meet its financing requirements and the success of its
plans to sell its products.  On March 19, 2010, the Company entered
into a financing agreement with a European investor for $2.2 million of equity
financing over the next 12 months.  The investor has the option to
provide another $1.0 million of equity financing during the following six months
(See Note 11, Subsequent events).  The Company is attempting to raise
approximately $2,000,000 in additional funds over the next year through private
placements.  However, there can be no assurance that the Company will
be successful in raising such additional funds.  The Company may also
seek to compensate providers of services by issuance of stock in lieu of
cash.





Cash and cash equivalents,
other cash flow statement supplemental information and concentration of
risk




The
Company considers all liquid investments with a maturity of three months or less
from the date of purchase that are readily convertible into cash to be cash
equivalents.  Balances in bank accounts may, from time to time, exceed
insured limits.  The Company believes that its loss exposure is
limited due to quality of the financial institutions that hold its
deposits.





Income
taxes of $959, $863, and $1,594 were paid in 2009, 2008 and 2007,
respectively.  No interest payments were made in 2009, 2008 and
2007.





Use of
estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect certain reported amounts and
disclosures.  Accordingly, actual results could differ from those
estimates.





Furniture and
Equipment




Furniture
and equipment are stated at cost. Depreciation and amortization are computed
using the straight-line method over the estimated useful lives of the related
assets, which is 5 years.





Expenditures
for maintenance and repairs are charged to operations as incurred while renewals
and betterments are capitalized. When furniture and equipment are retired or
disposed of, the related costs and accumulated depreciation are eliminated from
the accounts, and any gain or loss on such disposition is reflected in
operations.





F-9





1.
            Organization and
      summary of significant accounting policies
    (continued)





Patent




Patent
consists of U.S. Patent No. 6,280,395 and legal fees incurred in maintaining the
patent for the Company's product. These costs are amortized over a period of
seventeen years using the straight-line method.





Long-lived
assets




Long-lived
assets (primarily furniture and equipment and patents) are reviewed annually for
impairment whenever events or changes in circumstances indicate that carrying
amount of an asset may not be recoverable.  Impairment is necessary
when the undiscounted cash flows estimated to be generated by the asset are less
than the carrying amount of the asset.





Research and Development
Costs




Costs and
expenses that can be clearly identified as research and development are charged
to expense as incurred in accordance with ASC 730, Research and
Development.





Income
Taxes




The
Company accounts for income taxes under the liability method required by ASC
740, Income Taxes,
which requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns.  Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each period end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. The provision for
income taxes represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities. Tax returns are subject to
examination by taxing authorities and the returns for years 2005 – 2008 are
still open.





Share-based
payments




Compensation
costs for all share-based awards to employees are measured based on the grant
date fair value of those awards and recognized over the period during which the
employee is required to perform service in exchange for the award (generally
over the vesting period of the award). The Company has no awards with market or
performance conditions. Excess tax benefits are recognized as an addition to
additional paid-in-capital.





Share-based
compensation expense recognized during the period is based on the value of the
portion of share-based payment awards that is ultimately expected to vest during
the period. Forfeitures are estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. Based on the Company’s historical experience, the Company expects no
forfeitures.





The
Company had no share-based compensation expenses for the years ended December
31, 2009, 2008 and 2007.





F-10




1.
            Organization and
      summary of significant accounting policies
    (continued)





Share-based payments
(continued)




Since the
Company has a net operating loss carryforward as of December 31, 2009, no excess
tax benefits for the tax deductions related to share-based awards were
recognized in the statement of operations.  Additionally, no
incremental tax benefits were recognized from stock options exercised in the
years ended December 31, 2009, 2008 and 2007 which would have resulted in a
reclassification to reduce net cash provided by operating activities with an
offsetting increase in net cash provided by financing activities.





Fair Value of Financial
Instruments




The
Company measures its financial assets and liabilities in accordance with
accounting principles generally accepted in the United States. For certain of
the Company's financial instruments, including cash, accounts payable and
accrued expenses, the carrying amounts approximate fair value due to their short
maturities. The amounts shown for convertible debt, note payable, loans from
related parties and other loans also approximate fair value because current
interest rates offered to the Company for notes payable of similar maturities
are substantially the same.





Valuation
Hierarchy




ASC 820
establishes a three-level valuation hierarchy for the use of fair value
measurements based upon the transparency of inputs to the valuation of an asset
or liability as of the measurement date:





Level 1.     Inputs to the valuation methodology
are quoted prices (unadjusted) for identical assets or liabilities in active
markets. Level 1 assets and liabilities include debt and equity securities
and derivative financial instruments actively traded on exchanges, as well as
U.S. Treasury securities and U.S. Government and agency mortgage-backed
securities that are actively traded in highly liquid over the counter
markets.





Level 2.     Observable inputs other than
Level 1 prices such as quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets or liabilities in
markets that are not active, and inputs that are observable or can be
corroborated, either directly or indirectly, for substantially the full term of
the financial instrument. Level 2 assets and liabilities include debt
instruments that are traded less frequently than exchange traded securities and
derivative instruments whose model inputs are observable in the market or can be
corroborated by market observable data. Examples in this category are certain
variable and fixed rate non-agency mortgage-backed securities, corporate debt
securities and derivative contracts.





Level 3.     Inputs to the valuation methodology
are unobservable but significant to the fair value measurement. Examples in this
category include interests in certain securitized financial assets, certain
private equity investments, and derivative contracts that are highly structured
or long-dated.





F-11




1.
            Organization and
      summary of significant accounting policies
    (continued)





Fair Value of Financial
Instruments – (continued)




Determination
of Fair Value




During
2009, the Company issued warrants with notes payable and for the extension of
loan due dates.  These warrants were valued at fair value using the
Black-Scholes method, a level 3 input.  Further details of the
assumptions used in the Black-Scholes calculation may be found in Note
8.





Net Loss Per
Share




Basic
loss per common share is computed by dividing net loss by the weighted-average
number of shares of common stock outstanding during the
period.  Diluted loss per share is computed similar to basic loss per
share except that the denominator is increased to include dilutive options,
warrants and other potential common stock outstanding during the
period.  None of the outstanding options or warrants were included in
the computation of loss per share because they were anti-dilutive.





Recent accounting
pronouncements




In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No.161, “Disclosures about Derivative
Instruments and Hedging Activities an amendment of FASB statement No.133” (ASC
815).  This standard requires enhanced disclosures about an entity's
derivative and hedging activities and thereby improves the transparency of
financial reporting. The standard is effective for fiscal years, and interim
periods within those fiscal years, beginning after November 15, 2008, with early
application encouraged. As such, the Company adopted these provisions at the
beginning of the fiscal year ending December 31, 2009 and adoption had no impact
on these financial statements.





In May
2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No. 60" (ASC 460). This
standard interprets and amends existing accounting pronouncements to clarify
their application to the financial guarantee insurance contracts included within
the scope of that Statement. The standard is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and all interim
periods within those fiscal years. As such, the Company adopted these provisions
at the beginning of the fiscal year ended December 31, 2009 and adoption had no
impact on these financial statements.





In May
2009, the FASB issued SFAS No. 165, "Subsequent Events" (ASC 450). This standard
establishes principles and requirements for subsequent events, and is effective
for interim or annual financial periods ending after June 15, 2009. As such, the
Company adopted this standard in the second quarter with no significant effect
on the Company's consolidated financial statements.





F-12




1.
            Organization and
      summary of significant accounting policies
    (continued)





Recent accounting
pronouncements (continued)




In June
2009, the FASB issued SFAS No. 166 "Accounting for Transfers of Financial
Assets-an amendment of FASB Statement No. 140"(ASC 860). This standard improves
the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial statements about a
transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor's continuing
involvement, if any, in transferred financial assets. The standard is effective
as of the beginning of each reporting entity's first annual reporting period
that begins after November 15, 2009, for interim periods within that first
annual reporting period and for interim and annual reporting periods thereafter.
As such, the Company is required to adopt this standard in the year ended
December 31, 2010. The Company is evaluating the impact the adoption of this
standard will have on its consolidated financial statements.





In June
2009, the FASB issued SFAS No. 167 "Amendments to FASB Interpretation No. 46(R)"
(ASC 810). This standard improves financial reporting by enterprises involved
with variable interest entities and is effective as of the beginning of each
reporting entity's first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. As such, the Company is
required to adopt this standard in the year ended December 31, 2010. The Company
is evaluating the impact the adoption of this standard will have on its
consolidated financial statements.





In June
2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles" (ASC 105). This
standard establishes the FASB Accounting Standards Codification as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with GAAP, and is effective for financial statements issued for
interim and annual periods ending after September 15, 2009. As such, the Company
adopted this standard in the third quarter with no material effect on its
financial statements






F-13




1.
            Organization and
      summary of significant accounting policies
    (continued)




In June
2009, the FASB amended its guidance on accounting for variable interest entities
("VIE"). Among other things, the new guidance requires a qualitative rather than
a quantitative analysis to determine the primary beneficiary of a VIE; requires
continuous assessments of whether an enterprise is the primary beneficiary of a
VIE; enhances disclosures about an enterprise's involvement with a VIE; and
amends certain guidance for determining whether an entity is a VIE. Under the
new guidance, a VIE must be consolidated if the enterprise has both (a) the
power to direct the activities of the VIE that most significantly impact the
entity's economic performance, and (b) the obligation to absorb losses or
the right to receive benefits from the VIE that could potentially be significant
to the VIE. The requirements of the amended accounting guidance are effective
for interim and annual periods beginning after November 15, 2009 and early
adoption is prohibited. The Company believes that the adoption of this guidance
does have an impact on the Company's financial statements in connection with its
relationship with an entity named Salus Research Inc. (“Salus”), a Canadian
entity owned by a Company Officer and two members of the Company’s Board of
Directors. See footnote 11 to these financial statements for additional
information.




In
October 2009, the FASB issued Accounting Standards Update ("ASU")
No. 2009-13, "Multiple-Deliverable Revenue Arrangements a consensus of the
FASB Emerging Issues Task Force," ("ASU 2009-13"). This update provides
amendments to the criteria of ASC 605, "Revenue Recognition," for
separating consideration in multiple-deliverable arrangements. The amendments to
this update establish a selling price hierarchy for determining the selling
price of a deliverable. This Accounting Standards Update will be applied on a
prospective basis for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010, with earlier
application permitted. Alternatively, an entity can elect to adopt this standard
on a retrospective basis. The Company is currently evaluating the potential
impact this standard may have on its financial position and results of
operations upon adoption.




In
January 2010, the FASB issued ASU 2010-06, an update that improves the
requirements related to Fair Value Measurements and Disclosures Subtopic 820-10
of the FASB Accounting Standards Codification originally issued as FASB
Statement 157. This update requires disclosures about transfers between
Level 1, Level 2 and Level 3 assets and the disaggregated
activity in the roll forward for level 3 Fair Value measurements. These new
disclosures are effective for fiscal years beginning after December 15,
2010 and for interim periods within those fiscal years. The Company does not
expect the adoption of ASU 2010-06 to have a material impact on its
financial statements.




On
August 27, 2008, the SEC announced that it will issue for comment a
proposed roadmap regarding the potential use by U.S. issuers of financial
statements prepared in accordance with International Financial Reporting
Standards ("IFRS"). IFRS is a comprehensive series of accounting standards
published by the International Accounting Standards Board. Under the proposed
roadmap, the Company could be required in fiscal 2014 to prepare financial
statements in accordance with IFRS, and the SEC will make a determination in
2011 regarding the mandatory adoption of IFRS. The Company has not yet assessed
the impact that this potential change would have on its financial
statements.





F-14




2.
            Furniture and
      equipment





2009
              
              
              2008
              
              
              2007Furniture
      and equipment
              
              $
              59,806
              
              
              $
              75,389
              
              
              $
              70,875Less
      accumulated depreciation
              
              
              (52,257
              )
              
              
              (58,119
              )
              
              
              (43,704
              )$
              7,549
              
              
              $
              17,270
              
              
              $
              27,171Depreciation
      expense
              
              $
              10,373
              
              
              $
              14,415
              
              
              $
              14,558


3.
            Patents





2009
              
              
              2008
              
              
              2007PatentsGross
      carrying amount
              
              $
              500,000
              
              
              $
              500,000
              
              
              $
              500,000Accumulated
      amortization
              
              $
              186,276
              
              
              $
              156,864
              
              
              $
              127,452Amortization
      expense
              
              $
              29,412
              
              
              $
              29,412
              
              
              $
              29,412


Amortization
of patents is expected to be $29,412 in each of the next five
years.





4.
            Loans from related
      parties





On
September 17, 2009, the Company borrowed a total of $25,000 from MPR Health
Systems, Inc. (MPR).  This loan, evidenced by a short-term promissory
note issued on September 17, 2009, bears interest at 10% per annum and matures
on January 1, 2010.  MPR was also granted 25,000 Series A common stock
purchase warrants to purchase 25,000 shares of common stock at $.50 per share
until June 30, 2011.  The fair value of the warrants using the
Black-Scholes valuation method totaled $2,536 and was reflected as a discount on
the loans and was amortized through the end of September when MPR agreed to
convert the principal amount of this loan into common shares at a rate of $.30
per share for a total of 83,333 shares.





On April
2, 2009, the Company borrowed a total of $20,000 from MPR Health Systems,
Inc.  This loan, evidenced by a short-term promissory note issued on
April 2, 2009, bears interest at 10% per annum and matured on July 2,
2009.  MPR was also granted 20,000 Series B common stock purchase
warrants to purchase 20,000 shares of common stock at $1.00 per share until
December 31, 2011.  The fair value of the warrants using the
Black-Scholes valuation method totaled $208 and was reflected as a discount on
the loans and was amortized over the life of the loan as interest
expense.  On July 2, 2009, the maturity date of the $20,000 promissory
note to MPR was extended to October 31, 2009.  MPR was granted an
additional 20,000 Series B common stock purchase warrants to purchase 20,000
shares of common stock at $1.00 per share until December 31,
2011.  The fair value of the warrants using the Black-Scholes
valuation method totaled $2,677 and was reflected as a discount on the loan and
amortized over the extended life of the loan as interest expense.  In
September 2009, MPR agreed to convert the principal amount of this note into
common shares at a rate of $0.30 per share for a total of 66,667
shares.









F-15




4.
            Loans from related
      parties (continued)




matures
on May 20, 2009.  MPR was also granted 25,000 Series C common stock
purchase warrants to purchase 25,000 shares of common stock at $1.25 per share
until September 1, 2011.  The fair value of the warrants using the
Black-Scholes valuation method totaled $3,127 and was reflected as a discount on
the loans and was amortized over the extended life of the loans as interest
expense.  On May 20, 2009, the maturity date of the $25,000 promissory
note to MPR was extended to August 20, 2009.  MPR was granted 25,000
Series B common stock purchase warrants to purchase 25,000 shares of common
stock at $1.00 per share until December 31, 2011.  The fair value of
the warrants using the Black-Scholes valuation method totaled $1,710 and was
reflected as a discount on the loan and was amortized over the extended life of
the loan as interest expense. In September 2009, MPR agreed to convert the
principal amount of this note into common shares at a rate of $0.30 per share
for a total of 83,334 shares.





During
2008, the Company borrowed a total of $1,500 from Wayne Cockburn, its
CEO.  This loan, evidenced by a short-term promissory note issued on
June 17, 2008, bears interest at 10% per annum and matured on September 17,
2008.  Mr. Cockburn was also granted 1,500 Series B common stock
purchase warrants to purchase 1,500 shares of common stock at $1.00 per share
until December 31, 2009.  The fair value of the warrants using the
Black-Scholes valuation method totaled $470 at the time of issuance, and was
reflected as a discount on the loan in the accompanying financial statements and
was amortized over the life of the loan as interest expense.  On
September 17, 2008, the maturity date of the $1,500 promissory note to Mr.
Cockburn was extended to December 17, 2008.  Mr. Cockburn was granted
an additional 1,500 Series B common stock purchase warrants to purchase 1,500
shares of common stock at $1.00 per share until December 31, 2009 for the
extension.  The fair value of the warrants using the Black-Scholes
valuation method totaled $144 at the time of issuance, and was reflected as a
discount on the loan in the accompanying financial statements and was amortized
over the life of the loan as interest expense.  On December 17, 2008,
the maturity date of the $1,500 promissory note to Mr. Cockburn was extended to
April 30, 2009.  Mr. Cockburn was granted an additional 1,500 Series B
common stock purchase warrants to purchase 1,500 shares of common stock at $1.00
per share until December 31, 2011 for the extension.  The fair value
of the warrants using the Black-Scholes valuation method totaled $77 at the time
of issuance, and was reflected as a discount on the loan in the accompanying
financial statements and was amortized over the life of the loan as interest
expense.  On April 30, 2009, the maturity date of the $1,500
promissory note to Mr. Cockburn was extended to July 29, 2009.  Mr.
Cockburn was granted an additional 1,500 Series B common stock purchase warrants
to purchase 1,500 shares of common stock at $1.00 per share until December 31,
2011 for the extension.  The fair value of the warrants using the
Black-Scholes valuation method totaled $49 at the time of issuance, and is
reflected as a discount on the loan in the accompanying financial statements and
is being amortized over the life of the loan as interest expense.  In
September 2009, Mr. Cockburn agreed to convert the principal amount of this note
into common shares at a rate of $0.30 per share for a total of 5,000
shares.




F-16




4.
              Loans from related
      parties (continued)
  During
2008, the Company borrowed a total of $10,000 from Wayne Cockburn, its
CEO.  This loan, evidenced by a short-term promissory note issued on
June 2, 2008, bears interest at 10% per annum and matured on September 2,
2008.  Mr. Cockburn was also granted 10,000 Series B common stock
purchase warrants to purchase 10,000 shares of common stock at $1.00 per share
until December 31, 2009.  The fair value of the warrants using the
Black-Scholes valuation method totaled $3,695 at the time of issuance, and was
reflected as a discount on the loan in the accompanying financial statements and
was amortized over the life of the loan as interest expense.  On
September 2, 2008, the maturity date of the $10,000 promissory note to Mr.
Cockburn was extended to December 2, 2008.  Mr.
Cockburn was granted an additional 10,000 Series B common stock purchase
warrants to purchase 10,000 shares of common stock at $1.00 per share until
December 31, 2009 for the extension.  The fair value of the warrants
using the Black-Scholes valuation method totaled $2,582 at the time of issuance,
and was reflected as a discount on the loan in the accompanying financial
statements and was amortized over the life of the loan as interest
expense.  On December 2, 2008, the maturity date of the $10,000
promissory note to Mr. Cockburn was extended to April 30, 2009.  Mr.
Cockburn was granted an additional 10,000 Series B common stock purchase
warrants to purchase 10,000 shares of common stock at $1.00 per share until
December 31, 2011 for the extension.  The fair value of the warrants
using the Black-Scholes valuation method totaled $389 at the time of issuance,
and was reflected as a discount on the loan in the accompanying financial
statements and was amortized over the life of the loan as interest
expense.  On April 30, 2009, the maturity date of the $10,000
promissory note to Mr. Cockburn was extended to July 29, 2009.  Mr.
Cockburn was granted an additional 10,000 Series B common stock purchase
warrants to purchase 10,000 shares of common stock at $1.00 per share until
December 31, 2011 for the extension.  The fair value of the warrants
using the Black-Scholes valuation method totaled $326 at the time of issuance,
and is reflected as a discount on the loan in the accompanying financial
statements and is being amortized over the life of the loan as interest
expense.  In September 2009, Mr. Cockburn agreed to convert the
principal amount of this note into common shares at a rate of $0.30 per share
for a total of 33,333 shares.





During
2008, the Company borrowed a total of $10,000 from Wayne Cockburn, its
CEO.  This loan, evidenced by a short-term promissory note issued on
April 1, 2008, bears interest at 10% per annum and matured on July 1,
2008.  Mr. Cockburn was also granted 10,000 Series B common stock
purchase warrants to purchase 10,000 shares of common stock at $1.00 per share
until December 31, 2009.  The fair value of the warrants using the
Black-Scholes valuation method totaled $2,879 at the time of issuance, and was
reflected as a discount on the loan in the accompanying financial statements and
was amortized over the life of the loan as interest expense.  On July
1, 2008, the maturity date of the $10,000 promissory note to Mr. Cockburn was
extended to October 31, 2008.  Mr. Cockburn was granted an additional
10,000 Series B common stock purchase warrants to purchase 10,000 shares of
common stock at $1.00 per share until December 31, 2009 for the
extension.  The fair value of the warrants using the Black-Scholes
valuation method totaled $1,901 at the time of issuance, and was reflected as a
discount on the loan in the accompanying financial statements and was amortized
over the life of the loan as interest expense. On October 31, 2008, the maturity
date of the $10,000 promissory note to Mr. Cockburn was extended to January 31,
2009.  Mr. Cockburn was granted an additional 10,000 Series B common
stock purchase warrants to purchase 10,000 shares of common stock at $1.00 per
share until December 31, 2009 for the extension.  The fair value of
the warrants using the Black-Scholes valuation method totaled $462 at the time
of issuance, and is reflected as a discount on the loan in the accompanying
financial statements and is being amortized over the life of the loan as
interest expense.  On January 31, 2009, this loan was extended to
April 30, 2009 and Mr. Cockburn was granted 10,000 Series B warrants for
extending the due date.  The fair value of the warrants using the
Black-Scholes valuation method totaled $1,303 at the time of issuance, and was
reflected as a discount on the loan and was amortized over the extended life of
the loan as interest expense.  On April 30, 2009, the maturity date of
the $10,000 promissory note to Mr. Cockburn was extended to July 29,
2009.  Mr. Cockburn was granted an additional 10,000 Series B common
stock purchase warrants to purchase 10,000 shares of common stock at $1.00 per
share until December 31, 2011 for the extension.  The fair value of
the warrants using the Black-Scholes valuation method totaled $326 at the time
of issuance, and is reflected as a discount on the loan in the accompanying
financial statements and is being amortized over the life of the loan as
interest expense.  In September 2009, Mr. Cockburn agreed to convert
the principal amount of this note into common shares at a rate of $0.30 per
share for a total of 33,333 shares.




F-17




4.
            Loans from related
      parties (continued)




During
2007, the Company borrowed a total of $40,000 from Alan Goldman, one of its
officers.  This loan, evidenced by a short-term promissory note issued
on December 3, 2007, bears interest at 10% per annum and matured on March 3,
2008.  Mr. Goldman was also granted 40,000 Series B common stock
purchase warrants to purchase 40,000 shares of common stock at $1.00 per share
until December 31, 2009.  The fair value of the warrants using the
Black-Scholes valuation method totaled $14,126 at the time of issuance, and was
reflected as a discount on the loan in the accompanying financial statements and
was amortized over the life of the loan as interest expense.  On March
3, 2008, the maturity date of the $40,000 promissory note to Mr. Alan Goldman
was extended to June 3, 2008.  Mr. Goldman was granted an additional
40,000 Series B common stock purchase warrants to purchase 40,000 shares of
common stock at $1.00 per share until December 31, 2009 for the
extension.  The fair value of the warrants using the Black-Scholes
valuation method totaled $11,920 at the time of issuance, and was reflected as a
discount on the loan in the accompanying financial statements and was amortized
over the life of the loan as interest expense.  On June 3, 2008, the
maturity date of the $40,000 promissory note to Mr. Alan Goldman was extended to
October 31, 2008.  Mr. Goldman was granted an additional 40,000 Series
B common stock purchase warrants to purchase 40,000 shares of common stock at
$1.00 per share until December 31, 2009 for the extension.  The fair
value of the warrants using the Black-Scholes valuation method totaled $14,780
at the time of issuance, and was reflected as a discount on the loan in the
accompanying financial statements and was amortized over the life of the loan as
interest expense.  On October 31, 2008, the maturity date of the
$40,000 promissory note to Mr. Alan Goldman was extended to January 31,
2009.  Mr. Goldman was granted an additional 40,000 Series B common
stock purchase warrants to purchase 40,000 shares of common stock at $1.00 per
share until December 31, 2009 for the extension.  The fair value of
the warrants using the Black-Scholes valuation method totaled $1,846 at the time
of issuance, and is reflected as a discount on the loan in the accompanying
financial statements and is being amortized over the life of the loan as
interest expense.  On January 31, 2009, this loan was extended to
April 30, 2009 and Mr. Goldman was granted 40,000 Series B warrants for
extending the due date.  The fair value of the warrants using the
Black-Scholes valuation method totaled $5,211 and was reflected as a discount on
the loan and was amortized over the extended life of the loan as interest
expense.  On April 30, 2009, this loan was extended to July 30, 2009
and Mr. Goldman was granted 40,000 Series B warrants for extending the due
date.  The fair value of the warrants using the Black-Scholes
valuation method totaled $1,304 and was reflected as a discount on the loan and
was amortized over the extended life of the loan as interest
expense.  On July 30, 2009, this loan was extended to October 31, 2009
and Mr. Goldman was granted 40,000 Series B warrants for extending the due
date.  The fair value of the warrants using the Black-Scholes
valuation method totaled $1,868 and was reflected as a discount on the loan and
was amortized over the extended life of the loan as interest
expense.  On October 31, 2009, this loan was extended to January 31,
2010 and Mr. Goldman was granted 40,000 Series B warrants for extending the due
date.  The fair value of the warrants using the Black-Scholes
valuation method totaled $1,866 and is reflected as a discount on the loan and
is being amortized over the extended life of the loan as interest
expense.





F-18




4.
            Loans from related
      parties (continued)





During
2007, the Company borrowed a total of $10,000 from Wayne Cockburn, its
CEO.  This loan, evidenced by a short-term promissory note issued on
October 26, 2007, bears interest at 10% per annum and matured on January 26,
2008.  Mr. Cockburn was also granted 10,000 Series B common stock
purchase warrants to purchase 10,000 shares of common stock at $1.00 per share
until December 31, 2009.  The fair value of the warrants using the
Black-Scholes valuation method totaled $3,148 at the time of issuance, and was
reflected as a discount on the loan in the accompanying financial statements and
was amortized over the life of the loan as interest expense.  On
January 26, 2008 the maturity date of the promissory note was extended to April
30, 2008.  Mr. Cockburn was granted an additional 10,000 Series B
common stock purchase warrants to purchase 10,000 shares of common stock at
$1.00 per share until December 31, 2009 for the extension.  The fair
value of the warrants using the Black-Scholes valuation method totaled $1,901 at
the time of issuance, and was reflected as a discount on the loan and was
amortized over the extended life of the loan as interest expense.  On
April 30, 2008 the maturity date of the promissory note was extended to July 1,
2008.  Mr. Cockburn was granted an additional 10,000 Series B common
stock purchase warrants to purchase 10,000 shares of common stock at $1.00 per
share until December 31, 2009 for the extension.  The fair value of
the warrants using the Black-Scholes valuation method totaled $1,167 at the time
of issuance, and was reflected as a discount on the loan and was amortized over
the extended life of the loan as interest expense.  On July 1, 2008,
the maturity date of the $10,000 promissory note to Mr. Cockburn was extended to
October 31, 2008.  Mr. Cockburn was granted an additional 10,000
Series B common stock purchase warrants to purchase 10,000 shares of common
stock at $1.00 per share until December 31, 2009 for the
extension.  The fair value of the warrants using the Black-Scholes
valuation method totaled $1,901 at the time of issuance, and was reflected as a
discount on the loan in the accompanying financial statements and was amortized
over the life of the loan as interest expense.  On October 31, 2008,
the maturity date of the $10,000 promissory note to Mr. Cockburn was extended to
January 31, 2009.  Mr. Cockburn was granted an additional 10,000
Series B common stock purchase warrants to purchase 10,000 shares of common
stock at $1.00 per share until December 31, 2009 for the
extension.  The fair value of the warrants using the Black-Scholes
valuation method totaled $462 at the time of issuance, and was reflected as a
discount on the loan in the accompanying financial statements and was amortized
over the life of the loan as interest expense.  On January 31, 2009,
this loan was extended to April 30, 2009 and Mr. Cockburn was granted 10,000
Series B warrants for extending the due date.  The fair value of the
warrants using the Black-Scholes valuation method totaled $1,303 and was
reflected as a discount on the loan and was amortized over the extended life of
the loan as interest expense.  On April 30, 2009, the maturity date of
the $10,000 promissory note to Mr. Cockburn was extended to July 29,
2009.  Mr. Cockburn was granted an additional 10,000 Series B common
stock purchase warrants to purchase 10,000 shares of common stock at $1.00 per
share until December 31, 2011 for the extension.  The fair value of
the warrants using the Black-Scholes valuation method totaled $326 at the time
of issuance, and is reflected as a discount on the loan in the accompanying
financial statements and is being amortized over the life of the loan as
interest expense.  In September 2009, Mr. Cockburn agreed to convert
the principal amount of this note into common shares at a rate of $0.30 per
share for a total of 33,334 shares.





F-19




4.
            Loans from related
      parties (continued)





During
2007, the Company borrowed a total of $100,000 from Frans Berndsen, one of its
shareholders.  During the second quarter, $65,000 of these loans were
issued and treated as 12% convertible notes payable as described in note
5.  As such, the shareholder was granted one Series B warrant for
every $2.00 loaned for a total of 32,500 Series B common stock purchase warrants
to purchase 32,500 shares of common stock at $1.00 per share until December 31,
2009, and a total debt discount of $23,599 was recorded to be amortized over the
life of the loan.  On September 27, 2007 the Company and the lender
agreed there had been a misunderstanding and a debt restructuring
occurred.  The original $65,000 in loans were restructured to modify
the original terms, as well as for the remaining $35,000 which was received in
the third quarter and for which 17,500 Series B warrants had been
issued.  These loans, evidenced by short-term promissory notes issued
on May 31, 2007, June 8, 2007 and July 17, 2007, bear interest at 10% per annum
and matured on September 27, 2007.  The 50,000 Series B warrants
previously issued were cancelled and in connection with the short-term
promissory notes, the shareholder was granted 100,000 Series B common stock
purchase warrants to purchase 100,000 shares of common stock at $1.00 per share
until December 31, 2009.  The fair value of the warrants using the
Black-Scholes valuation method totaled $44,154 at the time of issuance, and was
reflected as a discount on the loan in the accompanying financial statements and
was amortized over the original life of the loan as interest
expense.  The future cash payments of the new loan exceed the carrying
value of the loan as of the restructuring date, so no gain was
recorded.  On September 27, 2007 the maturity date of the promissory
note was extended to December 27, 2007.  The shareholder was granted
an additional 100,000 Series B common stock purchase warrants to purchase
100,000 shares of common stock at $1.00 per share until December 31, 2009 for
the extension.  The fair value of the warrants using the Black-Scholes
valuation method totaled $18,023 at the time of issuance, and was reflected as a
discount on the loan in the accompanying financial statements and was amortized
over the extended life of the loan as interest expense.  On December
27, 2007, the maturity date of the promissory note was extended to March 31,
2008.  Mr. Berndsen was granted an additional 100,000 Series B common
stock purchase warrants to purchase 100,000 shares of common stock at $1.00 per
share until December 31, 2009 for the extension.  The fair value of
the warrants using the Black-Scholes valuation method totaled $34,624 at the
time of issuance, and was reflected as a discount on the loan and was amortized
over the extended life of the loan as interest expense.  On March 31,
2008, the maturity date of the promissory note was extended to July 1,
2008.  Mr. Berndsen was granted an additional 100,000 Series B common
stock purchase warrants to purchase 100,000 shares of common stock at $1.00 per
share until December 31, 2009 for the extension.  The fair value of
the warrants using the Black-Scholes valuation method totaled $28,793 at the
time of issuance, and was reflected as a discount on the loan and was amortized
over the extended life of the loan as interest expense.  On July 1,
2008, the maturity date of the $100,000 promissory note to Mr. Berndsen was
extended to October 31, 2008.  Mr. Berndsen was granted an additional
100,000 Series B common stock purchase warrants to purchase 100,000 shares of
common stock at $1.00 per share until December 31, 2009 for the
extension.  The fair value of the warrants using the Black-Scholes
valuation method totaled $19,008 at the time of issuance, and was reflected as a
discount on the loan in the accompanying financial statements and was amortized
over the life of the loan as interest expense.  On October 31, 2008,
the maturity date of the $100,000 promissory note to Mr. Berndsen was extended
to January 31, 2009.  Mr. Berndsen was granted an additional 100,000
Series B common stock purchase warrants to purchase 100,000 shares of common
stock at $1.00 per share until December 31, 2009 for the
extension.  The fair value of the warrants using the Black-Scholes
valuation method totaled $4,616 at the time of issuance, and was reflected as a
discount on the loan in the accompanying financial statements and was amortized
over the life of the loan as interest expense.  On January 31, 2009,
this loan was extended to April 30, 2009 and Mr. Berndsen was granted 100,000
Series B warrants for extending the due date.  The fair value of the
warrants using the Black-Scholes valuation method totaled $13,028 and is
reflected as a discount on the loan and is being amortized over the extended
life of the loan as interest expense. The Company negotiated with Mr. Berndsen
to convert these promissory notes totaling $100,000 plus accrued interest of
$22,807 and other accrued liabilities of $45,000 into 984,964 shares of the
Company’s common stock valued at $.30 per share. This transaction resulted in a
loss on extinguishment of debt of $127,682, which is included in general and
administrative expenses in the accompanying statement of
operations.





F-20




4.
            Loans from related
      parties (continued)





During
2007, the Company borrowed $25,000 from George Angelidis, one of its
directors.  This loan, evidenced by a short-term promissory note
issued on March 21, 2007, bears interest at 10% per annum and matured on June 1,
2007.  Mr. Angelidis was also granted 25,000 Series B common stock
purchase warrants to purchase 25,000 shares of common stock at $1.00 per share
until December 31, 2009.  The fair value of the warrants using the
Black-Scholes valuation method totaled $11,291 at the time of issuance, and was
reflected as a discount on the loan in the accompanying financial statements and
was amortized over the original life of the loan as interest
expense.  On June 1, 2007 the maturity date of the promissory note was
extended to August 1, 2007.  Mr. Angelidis was granted an additional
25,000 Series B common stock purchase warrants to purchase 25,000 shares of
common stock at $1.00 per share until December 31, 2009 for the
extension.  The fair value of the warrants using the Black-Scholes
valuation method totaled $11,121 at the time of issuance, and was reflected as a
discount on the loan in the accompanying financial statements and was amortized
over the extended life of the loan as interest expense.  On August 1,
2007 the maturity date of the promissory note was extended to December 31,
2007.  Mr. Angelidis was granted an additional 50,000 Series B common
stock purchase warrants to purchase 50,000 shares of common stock at $1.00 per
share until December 31, 2009 for the extension.  The fair value of
the warrants using the Black-Scholes valuation method totaled $22,320 at the
time of issuance, and was reflected as a discount on the loan in the
accompanying financial statements and was amortized over the extended life of
the loan as interest expense.  Effective January 1, 2008, the maturity
date of the promissory note was extended to March 31, 2008.  Mr.
Angelidis was granted an additional 25,000 Series B common stock purchase
warrants to purchase 25,000 shares of common stock at $1.00 per share until
December 31, 2009 for the extension.  The fair value of the warrants
using the Black-Scholes valuation method totaled $8,656 at the time of issuance,
and was reflected as a discount on the loan and amortized over the extended life
of the loan as interest expense.  On March 31, 2008, the maturity date
of the promissory note was extended to July 1, 2008.  Mr. Angelidis
was granted an additional 25,000 Series B common stock purchase warrants to
purchase 25,000 shares of common stock at $1.00 per share until December 31,
2009 for the extension.  The fair value of the warrants using the
Black-Scholes valuation method totaled $7,198 at the time of issuance, and was
reflected as a discount on the loan and amortized over the extended life of the
loan as interest expense. On July 1, 2008, the maturity date of the $25,000
promissory note to Mr. Angelidis was extended to October 31,
2008.  Mr. Angelidis was granted an additional 25,000 Series B common
stock purchase warrants to purchase 25,000 shares of common stock at $1.00 per
share until December 31, 2009 for the extension.  The fair value of
the warrants using the Black-Scholes valuation method totaled $4,752 at the time
of issuance, and was reflected as a discount on the loan in the accompanying
financial statements and was amortized over the life of the loan as interest
expense.  On October 31, 2008, the maturity date of the $25,000
promissory note to Mr. Angelidis was extended to January 31,
2009.  Mr. Angelidis was granted an additional 25,000 Series B common
stock purchase warrants to purchase 25,000 shares of common stock at $1.00 per
share until December 31, 2009 for the extension.  The fair value of
the warrants using the Black-Scholes valuation method totaled $1,154 at the time
of issuance, and was reflected as a discount on the loan in the accompanying
financial statements and was amortized over the life of the loan as interest
expense. On January 31, 2009, this loan was extended to April 30, 2009 and Mr.
Angelidis was granted 25,000 Series B warrants for extending the due
date.  The fair value of the warrants using the Black-Scholes
valuation method totaled $3,257 and was reflected as a discount on the loans and
was amortized over the extended life of the loans as interest expense. On April
30, 2009, the maturity date of the $25,000 promissory note to Mr. Angelidis was
extended to July 29, 2009.  Mr. Angelidis was granted an additional
25,000 Series B common stock purchase warrants to purchase 25,000 shares of
common stock at $1.00 per share until December 31, 2011 for the
extension.  The fair value of the warrants using the Black-Scholes
valuation method totaled $815 at the time of issuance, and is reflected as a
discount on the loan in the accompanying financial statements and is being
amortized over the life of the loan as interest expense.  In September
2009, Mr. Angelidis agreed to convert the principal amount of this note into
common shares at a rate of $0.30 per share for a total of 83,333
shares.





F-21




4.
            Loans from related
      parties (continued)





In 2004,
the Company borrowed a total of CD$145,000 from Cavandale Corporation, a Company
owned by one of the directors.  The loans bear interest at 10% and
matured November 1, 2004.  Cavandale was also granted 211,270 Series A
warrants at $.50 per share.  The fair value of the warrants using the
Black-Scholes valuation method totaled $4,225 at the time of issuance, and was
reflected as a discount on the loans, and amortized over the life of the loan as
interest expense.  In February 2005, the due date of the loans was
extended to July 1, 2005 in exchange for 100,000 Series B
warrants.  The fair value of the warrants using the Black-Scholes
valuation method totaled $19,246 at the time of issuance, and was reflected as a
discount on the loans and amortized over the extended life of the loan as
interest expense.  In August 2005, the due date of the loans was
extended to July 1, 2006 in exchange for 100,000 Series B
warrants.  The fair value of the warrants using the Black-Scholes
valuation method totaled $16,450 at the time of issuance, and was reflected as a
discount on the loans in the accompanying financial statements and amortized
over the extended life of the loan as interest expense.  In July 2006,
the due date of the loans was extended to July 1, 2007 in exchange for 100,000
Series B warrants.  The fair value of the warrants using the
Black-Scholes valuation method totaled $39,095 at the time of issuance, and was
reflected as a discount on the loans in the accompanying financial statements
and amortized over the extended life of the loan as interest
expense.  In July 2007, the due date of the loans was extended to July
1, 2008.  Cavandale was granted an additional 100,000 Series B common
stock purchase warrants to purchase 100,000 shares of common stock at $1.00 per
share until December 31, 2009 for the extension.  The fair value of
the warrants using the Black-Scholes valuation method totaled $44,484 at the
time of issuance, and was reflected as a discount on the loan in the
accompanying financial statements and was amortized over the extended life of the loan
as interest expense.  On July 1, 2008, the due date of the loans was
extended to October 1, 2008.  Cavandale was granted an additional
145,000 Series B common stock purchase warrants to purchase 145,000 shares of
common stock at $1.00 per share until December 31, 2009 for the
extension.  The fair value of the warrants using the Black-Scholes
valuation method totaled $27,562 at the time of issuance, and was reflected as a
discount on the loan in the accompanying financial statements and was amortized
over the extended life of the loan as interest expense.  On October 1,
2008, the due date of the loans was extended to January 1,
2009.  Cavandale was granted an additional 145,000 Series B common
stock purchase warrants to purchase 145,000 shares of common stock at $1.00 per
share until December 31, 2009 for the extension.  The fair value of
the warrants using the Black-Scholes valuation method totaled $12,642 at the
time of issuance, and was reflected as a discount on the loan in the
accompanying financial statements and was amortized over the extended life of
the loan as interest expense.  On January 1, 2009, this loan was
extended to July 1, 2009 and Cavandale was granted 290,000 Series B warrants for
extending the due date.  The fair value of the warrants using the
Black-Scholes valuation method totaled $33,214 and was reflected as a discount
on the loans and was amortized over the extended life of the loans as interest
expense.  On July 1, 2009, this loan was extended to October 31, 2009
and Cavandale was granted 145,000 Series B warrants for extending the due
date.  The fair value of the warrants using the Black-Scholes
valuation method totaled $13,508 and was reflected as a discount on the loans
and was amortized over the extended life of the loans as interest
expense.  On October 31, 2009, this loan was extended to January 31,
2010 and Cavandale was granted 145,000 Series B warrants for extending the due
date.  The fair value of the warrants using the Black-Scholes
valuation method totaled $6,765 and is reflected as a discount on the loans and
is being amortized over the extended life of the loans as interest
expense.




F-22





5.
            Convertible
      debt





On
December 22, 2008, the Company issued a convertible promissory note totaling
$50,000 to an individual who qualifies as an accredited investor under
Regulation D of the Securities Act of 1933, as amended.  The note
bears interest at 12%, matures on April 30, 2009 and is convertible into common
shares at a rate of $1.00 per share.  The note holder was also granted
one Series B warrant for every $2.00 loaned, for a total of 25,000 Series B
warrants.  In accordance with emerging Issues Task Force Issue 00-27,
Application of Issue No. 98-5 to Certain Convertible Instruments (“EITF 00-27”),
the Company recognized the value attributable to the warrants in the amount of
$1,283 to additional paid-in capital and a discount against the convertible
promissory notes.  The debt discount is being amortized to interest
expense over the life of the loan.  The Company valued the warrants in
accordance with EITF 00-27 using the Black-Scholes valuation method and the
following weighted average assumptions:  term of 1 year, risk-free
interest rate of 1.125%, volatility of 85% and a weighted fair value of
$.0513.





On
January 4, 2008, the Company issued a convertible promissory note totaling
$70,000 to an individual who qualifies as an accredited investor under
Regulation D of the Securities Act of 1933, as amended.  The note
bears interest at 12%, matured on January 25, 2008 and is convertible into
common shares at a rate of $1.00 per share.  The note holder was also
granted one Series B warrant for every $2.00 loaned, for a total of 35,000
Series B warrants.  In accordance with EITF 00-27, the Company
recognized the value attributable to the warrants in the amount of $7,424 to
additional paid-in capital and a discount against the convertible promissory
notes.  The debt discount was amortized to interest expense over the
life of the loan.  The Company valued the warrants in accordance with
EITF 00-27 using the Black-Scholes valuation method and the following weighted
average assumptions: term of 1.92 years, risk-free interest rate of 3.25%;
volatility of 84% and a weighted fair value of $.2121.





During
2007, the Company issued convertible promissory notes totaling $332,991 to
eleven individuals (after restructuring), each of whom qualifies as an
accredited investor under Regulation D of the Securities Act of 1933, as
amended.  The notes bear interest at 12%, matured on January 25, 2008
and are convertible into common shares at a rate of $1.00 per
share.  The note holders were also granted one Series B common stock
purchase warrant for every $2.00 loaned, for a total of 166,496 Series B
warrants.  In accordance with guidance issued by the Financial
Accounting Standards Board and the Emerging Issues Task Force regarding
Accounting for Convertible Securities with a Beneficial Conversion Feature or
Contingently Adjustable Conversion Ratios, the company recognized an embedded
beneficial conversion feature present in the convertible promissory
notes.  The Company recognized and measured an aggregate of $72,511 of
the proceeds, which is equal to the intrinsic value of embedded beneficial
conversion feature, to additional paid-in capital and a discount against the
convertible promissory notes. In accordance with EITF 00-27, the Company
recognized the value attributable to the warrants in the amount of $78,248 to
additional paid-in capital and a discount against the convertible promissory
notes.  The Company valued the warrants in accordance with EITF 00-27
using the Black-Scholes valuation method and the following assumptions: term of
2-2.92 years, risk-free interest rate of 3.25% - 4.875%; volatility of 63-83%
and a weighted fair value of $.3190- $.4533.  The total debt discount
of $149,745 was amortized to interest expense over the life of the
loan.





During
the quarter ended September 30, 2007, $65,000 of this debt was
restructured.  See note 4.





On
January 25, 2008, the due date of the convertible loans issued to that time was
extended to April 30, 2008 in exchange for 100,748 Series B
warrants.  The fair value of the warrants using the Black-Scholes
valuation method totaled $19,150 at the time of issuance, and was reflected as a
discount on the loan and was amortized over the extended life of the loan as
interest expense.





On April
30, 2008, the due date of the convertible loans issued to that time was extended
to October 31, 2008 in exchange for 100,748 Series B warrants.  The
fair value of the warrants using the Black-Scholes valuation method totaled
$11,758 at the time of issuance, and was reflected as a discount on the loan and
was amortized over the extended life of the loan as interest
expense.





F-23




5.
              Convertible debt
      (continued)





On
October 31, 2008, the due date of the convertible loans issued to that time was
extended to April 30, 2009 in exchange for 100,748 Series B
warrants.  The fair value of the warrants using the Black-Scholes
valuation method totaled $4,650 at the time of issuance, and was reflected as a
discount on the loan and was amortized over the extended life of the loan as
interest expense.





On April
30, 2009, the due date of the convertible loans was extended to July 30, 2009.
In exchange for extending the due date, the convertible note holders were
granted 113,248 Series B warrants.  The fair value of the warrants
using the Black-Scholes valuation method totaled $3,693 was be reflected as a
discount on the loan and will be amortized over the extended life of the loan as
interest expense beginning May 1, 2009.





On
September 2, 2009, the Board passed a resolution to convert only the principal
amount of these loans into common shares at a rate of $0.30 per share for a
total of 1,509,970 shares.  Interest has been accrued on these loans
and is included in the caption “accrued interest” in the accompanying financial
statements.





6.
            Other loan
      payable





On April
22, 2008, the Company borrowed a total of $10,000 from Gregory Harrison, an
individual who has also loaned the Company $100,000 in the convertible note
program.  This loan, evidenced by a short-term promissory note issued
on April 22, 2008, bears interest at 10% per annum and matures on July 22,
2008.  Mr. Harrison was also granted 10,000 Series B common stock
purchase warrants to purchase 10,000 shares of common stock at $1.00 per share
until December 31, 2009.  The fair value of the warrants using the
Black-Scholes valuation method totaled $3,346 at the time of issuance, and was
reflected as a discount on the loan and was amortized over the life of the loan
as interest expense.  On July 22, 2008, the maturity date of the
$10,000 promissory note to Mr. Harrison was extended to October 1,
2008.  Mr. Harrison was granted an additional 10,000 Series B common
stock purchase warrants to purchase 10,000 shares of common stock at $1.00 per
share until December 31, 2009 for the extension.  The fair value of
the warrants using the Black-Scholes valuation method totaled $2,503 at the time
of issuance, and was reflected as a discount on the loan in the accompanying
financial statements and was amortized over the life of the loan as interest
expense.  On October 1, 2008, the maturity date of the $10,000
promissory note to Mr. Harrison was extended to January 31, 2009.  Mr.
Harrison was granted an additional 10,000 Series B common stock purchase
warrants to purchase 10,000 shares of common stock at $1.00 per share until
December 31, 2009 for the extension.  The fair value of the warrants
using the Black-Scholes valuation method totaled $462 at the time of issuance,
and was reflected as a discount on the loan in the accompanying financial
statements and was amortized over the life of the loan as interest expense. On
January 31, 2009, this loan was extended to April 30, 2009 and Mr. Harrison was
granted 10,000 Series B warrants for extending the due date.  The fair
value of the warrants using the Black-Scholes valuation method totaled $1,303
and was reflected as a discount on the loans and was amortized over the extended
life of the loans as interest expense.  On April 30, 2009 this loan
was extended to July 30, 2009. In exchange for extending the due date, Mr.
Harrison was granted 10,000 Series B warrants.  The fair value of the
warrants using the Black-Scholes valuation method totaled $326 at the time of
issuance and is reflected as a discount on the loan and is being amortized over
the extended life of the loan as interest expense beginning May 1,
2009.  In September 2009, Mr. Harrison agreed to convert the principal
amount of this note into common shares at a rate of $0.30 per share for a total
of 33,333 shares.





F-24




7.
            Note
      payable





In 2003,
the Company purchased a patent from MPR Health Systems, Inc. for 8,000,000
shares of the Company’s common stock and a 5-year $100,000 Demand Promissory
Note (the “Note”). The Note bears interest at 2% and was due and payable on
August 23, 2008.  On August 23, 2008, the due date of the note was
extended to January 31, 2009 with the same terms.  On January 31, 2009
the due date of the note was extended to April 30, 2009 with the same terms, and
on April 30, 2009 the due date of the note was extended to July 30, 2009 with
the same terms.  On July 30, 2009 the due date of the note was
extended to November 30, 2009 with the same terms.  On November 30,
2009 the due date of the note was extended to November 30, 2010 with the same
terms.





8.
            Shareholders’
      equity





Stock
splits




In April
2000, the Board of Directors approved a 7 for 1 stock split.  In March
2003, the Board approved a 3 for 7 reverse stock split.  Per-share
amounts in the accompanying financial statements have been adjusted for these
splits.





Preferred
stock




Preferred
stock may be issued in any one or more series, and any series shall be comprised
of such number of shares and may have such voting powers and such designations,
preferences and rights as shall be stated and expressed in resolutions of the
Board of Directors of the Company.  To date, the Board has not
designated any series of preferred stock.





Common stock
issuances




In 1997,
the Company issued 3,000,000 shares of common stock for $2,750.





In 2003,
the Company sold 2,086,000 shares of common stock for $.25 per share or a total
of $521,500 in connection with a private placement.  Costs relating to
these shares totaled $86,096.  A Series A Warrant was issued with each
share sold.  Holders of the Series A Warrants are entitled to purchase
additional shares of common stock at $0.50 per common share prior to June 30,
2011.





During
2003, the Company also issued 8,000,000 shares of common stock and a $100,000
Promissory Note for a patent of MPR Health Systems, Inc.





F-25




8.
            Shareholders’ equity
      (continued)





Common stock issuances
(continued)




Between
January and June of 2004, the Company sold 420,000 shares of common stock for
$.25 per share, for a total of $105,000 in a private placement.  A
Series A Warrant was issued with each share sold.  Holders of the
Series A Warrants are entitled to purchase additional shares of common stock at
$0.50 per common share prior to June 30, 2011.  Between September and
November of 2004, the Company sold 475,000 shares for $1.00 per share or a total
of $475,000 in a private placement.  A Series B Warrant was issued
with each share sold.  Holders of the Series B Warrants are entitled
to purchase additional shares of common stock at $1.00 per common share prior to
December 31, 2011.  Costs relating to shares sold in 2004 totaled
$17,602.





During
2005, the Company sold 1,045,000 shares for $1.00 per share or a total of
$1,045,000 in a private placement.  A Series B Warrant was issued with
each share sold.  Holders of the Series B Warrants are entitled to
purchase additional shares of common stock at $1.00 per common share prior to
December 31, 2011.  Costs relating to shares sold in 2005 totaled
$52,689.





During
April and May 2005, the Company issued a total of 60,160 shares to two vendors
for services.  The services were valued at $1.00 per
share.





During
2006, the Company sold 517,305 shares for $1.00 per share or a total of $517,305
in a private placement.  A Series B Warrant was issued with each share
sold.  Holders of the Series B Warrants are entitled to purchase
additional shares of common stock at $1.00 per common share prior to December
31, 2011.





In
September 2006, the Company issued a total of 50,000 shares to an individual to
settle a dispute.  The shares were valued at $1.00 per
share.





In
December 2006, the Company issued a total of 200,000 shares to the former
shareholder of Freedom 1 as part of the merger agreement described in Note
1.





During
2007, the Company issued a total of 625,000 shares to three vendors for
consulting services.  The services were valued at $.71 - $1.00 per
share for a total of $455,000, and the value of the services is being amortized
over the period of the consulting agreements.





On June
12, 2008, the Board authorized a private placement of 1,000,000 units of common
stock and Series C and D purchase warrants.  The unit price is $0.75
and each unit is comprised of one share of common stock, one Series C warrant
and one half Series D warrant.  In addition, for each Series D warrant
exercised, the holder will receive an additional Series C warrant.  In
June and July 2008, the Company sold 400,001 units of its private placement for
gross proceeds of $300,000 less issuance costs of $30,000.





F-26




8.
            Shareholders’ equity
      (continued)





Common stock issuances
(continued)




In July
2008, the Company negotiated a settlement with one of its
creditors.  The creditor agreed to take $75,000 cash and 100,000 of
the Company’s common shares valued at $70,000 (the trading price on the date of
settlement was $.70) to settle a $117,400 account payable, resulting in a
$27,600 loss on settlement of debt.  The loss on settlement of debt is
included in general and administrative expenses in the accompanying statement of
operations.





In August
2008, the Company entered into a consulting contract for the period August 5,
2008 to December 31, 2008.  Payment for the consulting services will
be 30,000 shares of the Company’s common stock.  At September 30,
2008, the consultant had not begun work, so the commencement of the contract was
re-negotiated from August 5, 2008 to December 1, 2008.  This contract
was ultimately cancelled and no shares were issued.





On August
1, 2008, the Company entered into a one year consulting
contract.  Payment for consulting services will be 240,000 shares of
the Company’s common stock and 300,000 Series C common stock purchase
warrants.  At September 30, 2008, the consultant had not begun work,
so the commencement of the contract was re-negotiated from August 1, 2008 to
December 1, 2008.  The services were valued at $.40 per share for the
common stock and $31,472 for the entire amount of the warrants (using the
Black-Scholes method) for a total of $127,472, and the value of the services is
being amortized over the period of the consulting agreement.





In
December 2008, the Company issued a total of 1,300,000 shares of the Company’s
common stock to two consultants and a related party for consulting
services.  Under the terms of the consulting agreements, the vendors
had the ability to earn an additional 1,000,000 shares upon reaching a certain
milestone defined in the agreements.  All shares pursuant to the
consulting agreements were subject to resale restrictions under Rules 504 and
505, Regulation D of the Securities Act of 1933.  In February 2009 the
agreements were amended whereby the 1,000,000 additional shares were issued
immediately to the vendors; however the resale restrictions were amended to
reflect Regulation S of the Securities Act of 1933 (Rules Governing offers and
Sales Made Outside the United States Without Registration). The 1,300,000
shares, issued in December 2008 under Regulation D, were returned to the Company
to be held until April 30, 2009.  If a certain milestone is not met by
April 30, 2009, the vendors have agreed to have the shares cancelled and
returned to the Company.  If the milestone is met, the shares will be
returned to the vendors.  On June 12, 2009, the Board of Directors
cancelled 500,000 shares of the original 1,300,000 shares issued, and on June
30, 2009 the consulting agreements were further amended to state that the
remaining 800,000 shares from the original issuance would be held by the Company
until a certain milestone is met.  If that milestone is not achieved
by November 30, 2009, the vendors have agreed to have the shares cancelled and
returned to the Company.  On November 30, 2009, the vendors had
partially met the milestone and the Company agreed to allow the vendors to keep
the shares.





On
December 13, 2008, the Board granted 250,000 shares of the Company’s common
stock to Mr. Frans Berndsen, a related party, for services
rendered.  The services were valued at $.45 per share for a total of
$112,500 and was expensed to general and administrative expenses in the
accompanying statement of operations.





F-27




8.
            Shareholders’ equity
      (continued)





Common stock issuances
(continued)




On
February 3, 2009 the Company issued 500,000 shares of its common stock in
exchange for a two year promissory note with 3974715 Canada Ltd.  The
note bears interest at 5% per annum, with quarterly payments beginning July 1,
2009.  On June 29, 2009 the Company and 3974715 Canada Ltd. agreed to
cancel the 500,000 shares and related promissory note.





In June
2008, the Company entered into a two year consulting agreement with a related
party.  Payment on this contract was 500,000 Series C warrant to
purchase 500,000 shares of the Company’s common stock.  In March 2009,
this contract was extended for an additional year in exchange for 250,000 shares
of common stock.





In March
2009, the Board of Directors authorized a private placement to sell up to
500,000 units of the Company’s common stock and Series A warrants at $.30 per
unit.  Each unit shall be comprised of one share of the Company’s
common stock and one Series A warrant.  The Series A warrants may be
exercised to purchase an equivalent number of common shares at $0.50 per share
and expire June 30, 2011.  On May 22, 2009, the Board of Directors
increased the private placement to sell an additional 166,667 units of the
Company’s common stock and Series A warrants at $.30 per unit.  During
the quarter ended June 30, 2009, the Company sold 666,666 units for gross
proceeds of $200,000 to six non-US purchasers pursuant to Regulation
S.





On April
16, 2009, the Company entered into a one year consulting agreement for strategic
communications services.  Payment terms include issuance of 200,000
shares of the Company’s shares valued at $66,000 (the trading price on the
contract date was $0.33) for services.  See note 7 for additional
information about this contract. The value of the shares was deferred and is
being amortized over the life of the contract.





On May
15, 2009, the Company negotiated a settlement with two of its
creditors.  The creditors agreed to accept 80,000 of the Company’s
common shares valued at $36,000 (the trading price on the date of settlement was
$0.45) to settle $68,000 in accounts payable, resulting in a $32,000 gain on
settlement of debt.  The gain on settlement of debt is included in
general and administrative expenses in the accompanying statement of
operations.





On June
12, 2009, the Board of Directors authorized issuance of 300,000 shares of the
Company’s common shares valued at $129,000 (the trading price on the date of
grant was $0.43) for services.





During
the third quarter of 2009, the Company negotiated a settlement with one of its
creditors.  The creditor agreed to accept 265,000 of the Company’s
common shares valued at $79,500 to settle $79,250 in accounts payable, resulting
in a $250 loss on settlement of debt.  The loss on settlement of debt
is included in general and administrative expenses in the accompanying statement
of operations.





F-28




8.
            Shareholders’ equity
      (continued)





Common stock issuances
(continued)




During
the third quarter of 2009, the Company negotiated settlements with holders of
all of its convertible debt, many of its related party loans and its other loan
payable.  Specific details of these transactions are described in
notes 2 through 4 of these financial statements.  Common shares issued
for these transactions totaled 2,949,934:  2,723,911 for principal
amount of debt, 76,023 for accrued interest and 150,000 for consulting
fees.





During
the third quarter of 2009, the Board of Directors authorized a private placement
to sell up to 1,500,000 shares of the Company’s common stock at $.30 per
share.  Each unit shall be comprised of one share of the Company’s
common stock and one Series A warrant.  The Series A warrants may be
exercised to purchase an equivalent number of common shares at $0.50 per share
and expire June 30, 2011.  In 2009, the Company sold 411,667 shares
for gross proceeds of $123,500.





On
December 4, 2009, the Board of Directors authorized a bridge financing to sell
up to 740,000 shares of the Company’s common stock at $.25 per
share.  Each unit shall be comprised of one share of the Company’s
common stock and two Series E warrants.  The Series E warrants are
exercisable at $.30 per share and expire December 31, 2012.  The
Company sold all 740,000 in December 2009 for gross proceeds of
$185,000.





On
December 4, 2009, the Board of Directors granted its CEO 1,800,000 shares to
recognize his service to the Company.  The shares were valued at
$522,000 (the trading price on the date of grant was $0.29) and are included in
general and administrative expenses in the accompanying financial
statements.





On
December 31, 2009, the Company signed a new agreement with one of its
consultants to cancel 240,000 shares of common stock and 300,000 Series C
warrants for the issuance of 300,000 Series A warrants.





Warrants




During
2003, the Company issued 2,086,000 Series A common stock purchase warrants in
connection with a private placement.





During
2004, the Company issued 420,000 Series A common stock purchase warrants and
475,000 Series B common stock purchase warrants in connection with private
placements.





In
addition, the Company issued 211,270 Series A common stock purchase warrants
along with loans payable from July to October 2004.  See note
4.





The
Company also issued 250,000 Series A common stock purchase warrants to an
individual for corporate finance consulting services in July 2004.





During
2005, the Company issued 1,045,000 Series B common stock purchase warrants in
connection with private placements.





In
addition, the Company issued 100,000 Series B common stock purchase warrants in
February 2005 and 100,000 in August 2005 to extend the due date of loans payable
to July 2005.  See note 4.




F-29




8.
            Shareholders’ equity
      (continued)





Warrants
(continued)




Other
2005 issuances include 1,100,000 Series B common stock purchase warrants in
connection with three, two year consulting agreements and 41,250 Series B common
stock purchase warrants as share issuance costs.  The warrants issued
for consulting fees were valued at $238,892 using the Black-Scholes method and
are being amortized over the life of the consulting agreement.  The
warrants issued as share issuance costs were valued at $7,939.





The
following weighted average assumptions were used to calculate the warrants
issued in 2005: term of 2.5 years, risk-free interest rate of 3.255%; volatility
of 25% and a weighted fair value of $.0011.





Between
January and July 2006, the Company issued 517,305 Series B common stock purchase
warrants in connection with private placements.





In
September 2006, the Company extended the expiration dates of both the Series A
and Series B common stock purchase warrants.  The Series A expiration
date was extended from September 9, 2008 to June 30, 2009 and the Series B
expiration date was extended from July 31, 2007 to December 31,
2009.





As a
result of the due date extensions, the 250,000 Series A and 1,100,000 Series B
warrants issued for consulting fees were re-valued at $580,324 and the resulting
expense is included in general and administrative expenses in the accompanying
statement of operations.  In addition, the 211,270 Series A and
200,000 Series B warrants issued to extend the loan due date were re-valued at
$205,187 and the resulting expense is included in interest expense in the
accompanying statement of operations.





The
following weighted average assumptions were used to calculate the warrants
re-valued in 2006: term of 2.75 - 3.25 years, risk-free interest rate of 4.625%;
volatility of 49% and a weighted fair value of $.39 - $.60.





Other
2006 Series B common stock purchase warrant issuances include 100,000 warrants
issued in July to extend the due date of loans payable (see note 4), 50,000
issued to settle a dispute and 658,316 issued for consulting
fees.  The 100,000 shares were valued at $39,095, as described in note
4.  The remaining warrants were valued at a total of $276,917 and
expensed as general and administrative expenses in the accompanying statements
of operations.





The
following weighted average assumptions were used to calculate the warrants
issued in 2006: term of 3.25 years, risk-free interest rate of 4.625%;
volatility of 49% and a weighted fair value of $.39.





During
2007, the Company issued 550,000 Series B warrants in connection with loans to
related parties or the extension of due dates for those loans.  See
note 4.  In addition, the Company issued 166,496 Series B warrants in
connection with convertible debt.  See note 5.





F-30




8.
            Shareholders’ equity
      (continued)





Warrants
(continued)




Other
2007 Series B common stock purchase warrant issuances include 75,000 issued for
consulting fees.  These warrants were valued at a total of $33,363 and
were expensed as general and administrative expenses in the accompanying
statements of operations.





The
following weighted average assumptions were used to calculated the warrants
issued in 2007:  term of 2 – 2.92 years, risk-free interest rate of
3.25% - 4.875%, volatility ranging from 66% - 83% and a weighted fair value
ranging from $.1802 - $.4533.





During
2008, the Company issued 944,500 Series B warrants in connection with loans or
the extension of due dates for loans.  See note 4.  In
addition, the Company issued 362,244 Series B warrants in connection with
convertible debt or the extension of due dates for convertible
debt.  See note 5.





The
following weighted average assumptions were used to calculate the warrants
issued in 2008:  term of 1-2 years, risk-free interest rate of 1.125%
- 3.25%, volatility ranging from 70% - 94% and a weighted fair value ranging
from $.0389 - $.3695.





During
2008, the Board passed resolutions to authorize 1,500,000 Series C warrants and
500,000 Series D warrants.  The Series C warrants may be used to
purchase an equivalent number of common shares at $1.25 per share and expire
September 1, 2011, while the Series D warrants may be used to purchase an
equivalent number of common shares at $0.95 per share and expire on September 1,
2010.





During
2008, the Company issued 1,000,000 Series C common stock purchase warrants for
three consulting contracts to be provided over the next two
years.  These warrants were valued at a total of $185,636 and were
classified as deferred warrants on the accompanying balance sheet and are being
amortized to general and administrative expenses over the lives of the
contracts.  The following weighted average assumptions were used to
calculate the Series C warrants issued: term of 2.75 - 3.25 years, risk-free
interest rate of 1.25% - 2.625%; volatility of 72% – 85% and a weighted fair
value of $.1049 - $.2202.





During
2008, the Company issued 400,001 Series C common stock purchase warrants and
200,001 Series D warrants in connection with the private placement described
above.





On June
29, 2009, the Company extended the expiration dates of both the Series A and
Series B common stock purchase warrants.  The Series A expiration date
was extended from June 30, 2009 to June 30, 2011 and the Series B expiration
date was extended from December 31, 2009 to December 31, 2011.





F-31




8.
            Shareholders’ equity
      (continued)





Warrants
(continued)




As a
result of the due date extensions, the 300,000 Series A and 1,883,316 Series B
warrants issued for consulting fees were re-valued at $211,058 and the resulting
expense is included in general and administrative expenses in the accompanying
statement of operations.  In addition, the 211,270 Series A and
3,072,988 Series B warrants issued for loans or convertible debt and the
extension of loan due dates were re-valued at $304,540 and the resulting expense
is included in interest expense in the accompanying statement of
operations.  The following weighted average assumptions were used to
calculate the extension date for the Series A and Series B
warrants:  term of 2 to 2.5 years; risk-free interest rate of 1.875%;
volatility of 85% to 93%; and a weighted fair value of $.08926 to
$.1432.





During
2009, the Company issued 1,078,333 Series A common stock purchase warrants in
connection with a private placement.





Other
2009 Series A common stock purchase warrant issuances include 25,000 issued in
connection with debt (see note 4) and 350,000 issued for consulting
fees.  The 350,000 warrants issued for consulting fees were valued at
$13,105 and are being expensed as general and administrative expenses in the
accompanying statements of operations.





During
2009, the Company issued 1,139,748 Series B common stock purchase warrants in
connection with debt and the extension of due dates for loans.  The
Company also issued 25,000 Series C common stock purchase warrants in connection
with debt in February 2009. See notes 4, 5, and 6.





On
September 1, 2009, the Company extended the expiration date of the Series D
common stock purchase warrants from September 1, 2009 to September 1,
2010.





On
December 31, 2009, the Company signed a new agreement with one of its
consultants to cancel 240,000 shares of common stock and 300,000 Series C
warrants for the issuance of 300,000 Series A warrants.





In
December 2009, the Company issued 1,480,000 Series E common stock purchase
warrants in connection with a private placement.





The
following weighted average assumptions were used to calculate the warrants
issued in 2009:  term of .21-2.54 years, risk-free interest rate of
0.875% - 1.875%, volatility ranging from 78% - 122% and a weighted fair value
ranging from $.0090 - $.1432.





Stock
options




2003 stock option
plan




In
October 2003, the Company adopted the Stock Option Plan (the "2003 Plan"), which
was also approved by its stockholders in October 2003. The purpose of the 2003
Plan is to attract, retain, and motivate certain key employees of the Company by
giving them incentives which are linked directly to increases in the value of
the common stock of the Company.  Each director, officer, employee, or
consultant of the Company is eligible to be considered for the grant of awards
under the 2003 Plan. The maximum number of shares of common stock that may be
issued pursuant to awards granted under the 2003 Plan was increased on March 19,
2004 from 2,250,000 to 4,850,000, subject to certain adjustments to prevent
dilution. Any shares of common stock subject to an award, which for any reason
expires or terminates unexercised, are again available for issuance under the
2003 Plan.  Grants under the 2003 Plan are exercisable at the market
value of the Company's stock on the date of such grant.  All options
under the 2003 Plan are exercisable at times as determined by the board of
directors, not to exceed 10 years from the date of grant.




F-32




8.
            Shareholders’ equity
      (continued)





2003 stock option plan
(continued)





March 10,
2004 a total of 4,173,600 options were granted.  The grant price was
$.25, with 2,120,000 options vesting immediately and the remaining 2,053,600
options vesting on March 10, 2005.  305,000 options were cancelled in
2006, 915,000 were cancelled in 2009 and the remaining 2,953,600 options expire
on March 10, 2014.





2008 stock option
plan




In
February 2008, the company adopted the 2008 Equity Incentive Plan (the “2008
Plan”).  The purpose of the 2008 Plan is to attract, retain, and
motivate certain key employees of the Company by giving them incentives which
are linked directly to increases in the value of the common stock of the
Company.  Each director, officer, employee, or consultant of the
Company is eligible to be considered for the grant of awards under the 2008
Plan.  The maximum number of shares of common stock that may be issued
pursuant to awards granted under the 2008 Plan is 1,000,000, subject to certain
adjustment to prevent dilution.  Any shares of common stock subject to
an award, which for any reason expires or terminates unexercised, are again
available for issuance under the 2008 Plan.  Grants under the 2008
Plan are exercisable at the market value of the Company’s stock on the date of
such grant.  All options under the 2008 Plan are exercisable at times
as determined by the board of directors, not to exceed 10 years from the date of
grant.  To date, no options have been granted under the 2008
Plan.





9.
            Income
      taxes





The
Company recognizes deferred tax assets and liabilities for temporary differences
between the financial reporting and tax bases of its assets and
liabilities.  Deferred tax assets are reduced by a valuation allowance
when deemed appropriate. For 2009, 2008 and 2007 there are no material
differences between income tax expense and the amount computed by applying the
federal statutory income tax rate.





At
December 31, 2009, the Company has a net operating loss carryforward for federal
tax purposes of approximately $9,360,000, which, if unused to offset future
taxable income, will begin to expire in 2023.  The Company also has a
California net operating loss carryforward of approximately $9,360,000 which, if
unused to offset future taxable income, will begin to expire in
2013.





The
Company had deferred tax assets of $4,080,000 at December 31, 2009, relating to
its net operating loss.  A valuation allowance has been recognized to
offset the entire related deferred tax asset due to the uncertainty of realizing
the benefit.  The valuation allowance increased $1,211,000 in 2009 and
$372,000 in 2008, primarily related to the net taxable loss and to change in
estimate for certain deductions.





The
Company has not yet filed its 2008 corporate income tax returns and may be
subject to late filing penalties.





F-33





10.
            Commitments and
      contingencies





Lease




The
Company leases its office space in Huntington Beach, California on a
month-to-month basis.  Effective August 1, 2008, the Company also
leases three rooms in a medical clinic in Salt Lake City, Utah on a
month-to-month basis.  Additionally, effective October 2008, the
Company leased office space in Toronto, Canada on a month-to-month basis.
Effective December 9, 2008, the Company entered into a General Services
Agreement with Roy Bonnell and Associates to lease 2 office spaces in Montreal,
Canada.  Under the terms of the agreement, the lease payments for 2009
for 2 offices are deemed to be paid in full against a payment of 200,000 shares
of common stock to Roy Bonnell and Associates.  During a portion of
2007, the Company leased space in Quebec, Canada as well.  Total rent
expense charged to operations totaled $68,214 in 2009, $42,811 in 2008 and
$58,803 in 2007.





11.
              Subsequentevents
      (unaudited)





Events
subsequent to December 31, 2009, have been evaluated through April,8 2010, the
date these financial statements were available to be issued, to determine
whether they should be disclosed to keep the financial statements from being
misleading.





On January 22, 2010 the Company entered into a research and
development contract with Salus Research, Inc. (“Salus”), a Canadian entity
owned by a Company officer and two members of the Company’s Board of Directors.
 Salus began conducting scientific research and experimental development
activities in Canada ("SR&ED") and plans to claim for Canadian Scientific
Research and Experimental Development tax credits. The Company funds 100% of
these expenditures, is at risk for 100% of its losses and owns 100% of all
scientific discoveries, and as a result is the party that is the primary
beneficiary of the relationship as defined by FASB ASC 810-10-05. Salus has no
other financing other than amounts received from the Company. The Company has
determined Salus to be a variable interest entity. Starting in January 2010 the
Company will be required to consolidate the financial results of Salus for
financial reporting purposes to comply with Accounting Principles Generally
Accepted in the United States. In the period of January 2010 to April 8, 2010,
the Company remitted $45,000 to Salus to fund scientific research and
experimental development and is obligated to remit an additional
$910,000.





On
January 31, 2010, the CD$145,000 loan from Cavandale Corporation, a Company
owned by one of the directors, was extended to August 1, 2010.





On
January 31, 2010, the $4,000 loan from Alan Goldman, an officer of the Company,
was extended to July 1, 2010.





On
February 11, 2010, the Company signed a three year manufacturing agreement with
Thought Technology Ltd. of Montreal, Quebec for the Company’s proprietary Muscle
Pattern Recognition (MPR) system.  The manufacturing agreement is
non-exclusive and sets out the terms and conditions between Thought Technology
and the Company, including pricing and delivery, for the MPR
hardware.





F-34




11.
            Subsequent events
      (unaudited) (continued)





On March
19, 2010, the Company entered into a financing agreement with a European
investor for $2.2 million of equity financing over the next 12
months.  The investor has the option to provide another $1.0 million
of equity financing during the following six months.  Under the
financing agreement, the investor has agreed to purchase, on a monthly basis
through March 2011, a total of four million shares of common stock for $0.30 per
share and a total of two million shares of common stock for $0.50 per
share.  In connection with those purchases, the investor will receive
warrants to purchase a total of six million shares of common stock at prices
ranging from $0.40 per share to $0.80 per share, expiring between August 31,
2013 and February 28, 2014.  Pursuant to the financing agreement, the
investor may elect to pay the purchase price for the shares of common stock in
either United States dollars or Euros.  These purchase prices were
based on the United States dollar/Euro exchange rate on December 5,
2009.  This release reflects the purchase obligation in United States
dollars.





In
addition, for a 60-day period, commencing upon the date the Company files with
the United States Food and Drug Administration its 510(k) application covering
its MPR technology, the investor will have right to elect to provide an
additional $1.0 million of equity financing through the purchase of common stock
at $0.50 per share over a six-month period.  In connection with those
purchases, the investor will receive warrants to purchase a total of four
million shares of common stock at prices ranging from $0.40 per shares to $0.80
per share, expiring October 31, 2014.





F-35





SIGNATURES





In accordance with Section 13 and
15(d) of the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.





Date:  April
      15, 2010
            ITECH
      MEDICAL, INC.By:
            /s/
      Wayne CockburnWayne
      CockburnPresident
      Chief Executive Officer,
              Secretary,
      Treasurer and
              Interim
      ChiefFinancial
      Officer and
              a
      Member of the Board of Directors
              (Principal
      Executive Officer and Principal Financial and Accounting
      Officer)




In
accordance with the Exchange Act,  this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.




Signature
            
            Title
            
            Date/s/ Wayne D. Cockburn
            
            President,
      Chief Executive Officer,
            
            April
      15, 2010Wayne
      D. Cockburn
            
            Secretary,
      Treasurer and Interim ChiefFinancial
      Officer and a Member of the Board of Directors (Principal Executive
      Officer and Principal Financial Officer)/s/ Donald Paterson
            
            Chairman
      of the Board of Directors
            
            April
      15, 2010Donald
      Paterson/s/ George Angelidis
            
            Director
            
            April
      15, 2010George
      Angelidis/s/ Craig Lunsman
            
            Director
            
            April
      15, 2010Craig
      Lunsman




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