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,
2008




 ̈
              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







IMPACT
MEDICAL SOLUTIONS, 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.


The
Galleria


2 Bridge
Avenue


Red Bank,
New Jersey 07701


(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,
2008.





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:  $12,408,849 based on a sales price of
$0.75 per share on June 30, 2008.





As of
April 14, 2009 there were 20,718,466 shares of the registrant’s Common Stock
outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE:





Portions
of the Registrant’s Proxy Statement for its Annual Meeting of Stockholders to be
held on June 12, 2009 are incorporated by reference in Part III of this
Report.  Except as expressly incorporated by reference, the
Registrant’s Proxy Statement shall not be deemed to be part of this Form
10-K.





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





TABLE
OF CONTENTS





PagePART IItem 1.
                                                                            
                                                                            Business
                                                                            4Item 1A.
                                                                            
                                                                            Risk Factors
                                                                            17Item 1B.
                                                                            
                                                                            Unresolved Staff Comments
                                                                            21Item 2.
                                                                            
                                                                            Properties
                                                                            22Item 3.
                                                                            
                                                                            Legal Proceedings
                                                                            22Item 4.
                                                                            
                                                                            Submission of Matters to a Vote of Security
      Holders
                                                                            22PART IIItem 5.
                                                                            
                                                                            Market for Registrant’s Common Equity, Related
      Stockholder Matters, and Issuer Purchases of Equity
      Securities
                                                                            23Item 6.
                                                                            
                                                                            N/A
                                                                            29Item 7.
                                                                            
                                                                            Management’s Discussion and Analysis of Financial
      Condition and Results of Operation
                                                                            29Item 7A.
                                                                            
                                                                            Quantitative and Qualitative Disclosures About
      Market Risk
                                                                            33Item 8.
                                                                            
                                                                            Financial Statements and Supplementary
      Data
                                                                            33Item 9.
                                                                            
                                                                            Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosure
                                                                            33Item 9A(T).
                                                                            
                                                                            Controls and Procedures
                                                                            34Item
      9B.
                                                                            
                                                                            Other Information
                                                                            34PART IIIItem 10.
                                                                            
                                                                            Directors, Executive Officers and Corporate
      Governance
                                                                            35Item 11.
                                                                            
                                                                            Executive Compensation
                                                                            35Item 12.
                                                                            
                                                                            Security Ownership of Certain Beneficial Owners
      and Management and Related StockholderMatters
                                                                            35Item 13.
                                                                            
                                                                            Certain Relationships and Related Transactions and
      Director Independence
                                                                            35Item 14.
                                                                            
                                                                            Principal Accountant Fees and
      Services
                                                                            35PART IVItem 15.
                                                                            
                                                                            Exhibits and Financial Statement
      Schedules
                                                                            36SIGNATURES
                                                                            37




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 Impact Medical
Solutions, 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,” “Impact Medical,” “we,” “us,” and “our” refer to Impact Medical
Solutions, Inc., a Delaware corporation.





Item 1.
            Business





Impact
Medical Solutions, Inc. (a development stage company) (the "Company" or “IMS”),
a Delaware corporation, was incorporated on October 20, 1997 as a Nevada
corporation.  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.  On December 27, 2006, IMS 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 IMS was the surviving
entity.  Since December 2002 and continuing after the reverse merger,
IMS has been involved in the development and pre-market clinical testing of the
MPR System.





MPR is a
non-invasive, bio-mechanically and mathematically based evaluation that
objectively discriminates between normal and abnormal musculoskeletal function
as it relates to the back and neck. MPR 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 normally or abnormally, 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 normal database. When patients replicate the
same carefully administered, standardized movements performed by 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, 2008 and 2007, we incurred a net loss of $1,589,500
and $1,263,489, respectively, and had $34,015 cash on hand as of December 31,
2008.  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 bank borrowings, 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.





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. Two of our four employees and two of our three
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 decreased to $134,327 in 2008 from $151,217 in 2007 primarily due to
less working capital available to pursue our programs. Our pivotal clinical
trial was suspended in 2005 due to lack of adequate funding. In February 2009,
we initiated a smaller pilot clinical trial which is expected to be completed
during the second half of 2009. We are currently working on securing new
financing so that we can re-commence the pivotal trial in the second half of
2009 following the completion of the pilot study. Should our funding efforts be
unsuccessful, the re-commencement of our pivotal clinical program would remain
on hold until such time as appropriate financial resources were
available.





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.


5





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:




·
            Acuteback pain is arbitrarily defined
      as pain that has been present for six weeks or
  less.


·
            Sub
      acuteback pain has
      a six- to 12-week duration
and


·
            Chronicback 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.





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.


6





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.
  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.


7





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.





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 IMS.  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.


8





The MPRData Analysis
System


The data
collected during each MPRTest
is transmitted electronically to a central location (application server) for
processing by our computerized Data Analysis System.  Proprietary
analytical software, also developed and owned by IMS, 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.





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.


9





IMS
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 IMS.  IMS 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 IMS.





Regulatory
Requirements





The Food
and Drug Administration (FDA), under the authority of the Federal Food, Drug,
& Cosmetic (FD&C) Act and the Safe Medical Devices Act (SMDA), regulates
all medical devices manufactured in the United States.  FDA`s Center
for Devices and Radiological Health (CDRH) is charged with assuring the public
that a device is safe and effective for its intended use.  CDRH is
also responsible for regulating the firms who manufacture, re-package, re-label,
and/or import medical devices sold in the United States.





The level
of regulatory scrutiny is determined in good part by the class of a device.
Device classification is risk-based, depending on the intended use of the
device. Devices fall 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 Class
I and Class II diagnostic devices, 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 FD&C
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.





For Class
III devices, a premarket approval (PMA) is required.  PMA is the most
stringent type of device marketing application required by FDA.  Class
III devices are those that support or sustain human life, are of substantial
importance in preventing impairment of human health, or which present a
potential, unreasonable risk of illness or injury. Due to the level of risk
associated with Class III devices, FDA has determined that general and special
controls alone are insufficient to assure the safety and effectiveness of Class
III devices.  Therefore, these devices require a PMA application under
section 515 of the FD&C Act in order to obtain marketing
clearance.





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 and may
be treated as a Class III medical device by FDA.  IMS is working with
experienced FDA/regulatory consultants and plans to meet with the FDA in 2009 to
determine the classification of the MPR System.  The Company believes
the MPR System will be treated as a Class II device and has already identified
suitable predicate devices which it believes are substantially equivalent to the
MPR System and will support a new 510(k) submission.  There is however
no certainty at this time that the FDA supports this belief.





Additional
performance and marketing claims will be filed with the FDA after the completion
of an independent clinical trial - the results of which will determine the
degree of clinical utility for the MPR test as a diagnostic tool in its own
right.  (For more
information on the clinical trial, see Major Medical
Market)


10


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).





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. We are
working with a leading specialized consulting firm that provides financial and
regulatory services to companies like ours and we expect to complete a thorough
analysis of this issue before a decision is made regarding a specific
reimbursement code.




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.


11





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.





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.




12




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.





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.


13





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.





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.


14





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.





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.


15





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.





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. 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 European Union (EU) but no agreement has been
reached. We have also entered into discussions with another company for a
similar 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, one of which spends 100% of his time on
research and development activities and the other who spends a portion of his
time on such activities, and two of our three independent consultants who devote
100% of their time on research and development activities.  We engage
consultants on an as needed basis and pay them on an hourly basis.  In
2008, we paid our consultants an aggregate of $9,527, compared to $22,016 in
2007.   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 2008, we
paid our consultants an aggregate of $9,527, compared to $22,016 in
2007.


16




Available
Information





Our
website is www.impactmedsol.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.





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, 2008 and 2007, we incurred a net loss of $1,589,500
and $1,263,489, respectively, and had $34,015 cash on hand as of December 31,
2008. 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 its 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.





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.


17





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.





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, 2008, our directors and executive officers owned or
controlled an aggregate of 8,300,000 shares, or approximately 44.22%, 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.


18





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.





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.


19





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.





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
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


20





·
            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.





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, 2009 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.


21





Item2.
            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 $25,924
under this lease in 2008, which is subject to adjustments every six months. The
space can house approximately two employees. We leased approximately 300 square
feet of office space at 181 University Avenue, Suite 1812, Toronto, Ontario, M5H
3M7, Canada pursuant to a month-to-month lease.  We paid an aggregate
amount of $4,387 under this lease in 2008.  In August 2008, we leased
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 $12,500 under this lease in
2008.  In December 2008, 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
342,858 shares of common stock to Roy Bonnell & Associates.




Item 3.
            Legal
      Proceedings.





The
Company is not a party to any material legal proceedings and to our knowledge,
there are no material 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 2008 fiscal year covered by this
report.





Item 4A.
            Executive
      Officers of the Company.




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





Name
                
                Position
                
                Age
      at 3/31/2009Wayne
      D. Cockburn
                
                President
      and Chief Executive Officer
                
                52Alan
      Goldman, MD
                
                Vice
      President, Clinical and Medical Affairs
                
                63Steeve
      Asselin
                
                Vice
      President, Research and Development
                
                46





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.


22


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 2008.  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
                      
                      High Bid
                      
                      
                      Low BidFirst
      Quarter 01-1-09 to 03-31-09
                      
                      $
                      0.5
      1
                      
                      
                      $
                      0.15Fiscal
      Year 2008
                      
                      High Bid
                      
                      
                      Low BidFourth
      Quarter 10-1-08 to 12-31-08
                      
                      $
                      0.50
                      
                      
                      $
                      0.20Third
      Quarter 7-1-08 to 9-30-08
                      
                      $
                      0.85
                      
                      
                      $
                      0.55Second
      Quarter 4-1-08 to 6-30-08
                      
                      $
                      1.01
                      
                      
                      $
                      0.45First
      Quarter 1-1-08 to 3-31-08
                      
                      $
                      0.95
                      
                      
                      $
                      0.42Fiscal
      Year 2007
                      
                      High Bid
                      
                      
                      Low BidFourth
      Quarter 10-1-07 to 12-31-07
                      
                      $
                      1.24
                      
                      
                      $
                      0.60Third
      Quarter 9-4-07 to 9-30-07
                      
                      $
                      0.75
                      
                      
                      $
                      0.45




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.





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.


23





Issuer
Purchases of Equity Securities





The
Company has not purchased any equity securities.





Shares
Held by Affiliates.





Of the
18,768,466 shares issued and outstanding as of December 31, 2008, 8,300,000
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 10,468,466 shares that are free trading.





Holders





As of the
date of this Annual Report, we have 63 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 18,768,466 shares are considered issued and
outstanding as of our fiscal year-end, December 31, 2008, 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.





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.


24





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
      ValueGeorge
      Angelidis
                      
                      
                      
                      Director
                      
                      $
                      25,000
                      
                      
                      March
      21,
                        2007
                      
                      June
      1,
                        2007
                      
                      B
                      
                      
                      
                      25,000
                      
                      
                      $
                      11,291June
      1,
                        2007
                      
                      August
      1,
                        2007
                      
                      B
                      
                      
                      
                      25,000
                      
                      
                      $
                      11,121August
      1,
                        2007
                      
                      December
      31,
                        2007
                      
                      B
                      
                      
                      
                      50,000
                      
                      
                      $
                      22,320December
      31,
                        2007
                      
                      March
      31,
                        2008
                      
                      B
                      
                      
                      
                      25,000
                      
                      
                      $
                      8,656March
      31,
                        2008
                      
                      July
      1,
                        2008
                      
                      B
                      
                      
                      
                      25,000
                      
                      
                      $
                      7,198July
      1,
                        2008
                      
                      October
      31,
                        2008
                      
                      B
                      
                      
                      
                      25,000
                      
                      
                      $
                      4,752October
      31,
                        2008
                      
                      January
      31,
                        2009
                      
                      B
                      
                      
                      
                      25,000
                      
                      
                      $
                      1,154Frans
      Berndsen (2)
                      
                      
                      
                      Shareholder
                      
                      $
                      13,815
                      
                      
                      May
      31,
                        2007
                      
                      September
      27,
                        2007
                      
                      B
                      
                      
                      
                      13,815
                      
                      
                      $
                      6,100$
                      51,185
                      
                      
                      June
      8,
                        2007
                      
                      September
      27,
                        2007
                      
                      B
                      
                      
                      
                      51,185
                      
                      
                      $
                      22,600$
                      35,000
                      
                      
                      July
      17,
                        2007
                      
                      September
      27,
                        2007
                      
                      B
                      
                      
                      
                      35,000
                      
                      
                      $
                      15,454September
      27,
                        2007
                      
                      December
      27,
                        2007
                      
                      B
                      
                      
                      
                      100,000
                      
                      
                      $
                      18,023December
      27,
                        2007
                      
                      March
      31,
                        2008
                      
                      B
                      
                      
                      
                      100,000
                      
                      
                      $
                      34,624March
      31,
                        2008
                      
                      July
      1,
                        2008
                      
                      B
                      
                      
                      
                      100,000
                      
                      
                      $
                      28,793July
      1,
                        2008
                      
                      October
      31,
                        2008
                      
                      B
                      
                      
                      
                      100,000
                      
                      
                      $
                      19,008October
      31,
                        2008
                      
                      January
      31,
                        2009
                      
                      B
                      
                      
                      
                      100,000
                      
                      
                      $
                      4,616Cavandale
      Corporation
                      
                      
                      
                      Affiliate
                      
                      CDN$
                      145,000
                      
                      
                      (3)
                      
                      November
      1,
                        2004
                      
                      A
                      
                      
                      
                      211,270
                      
                      
                      $
                      4,225November
      1,
                        2004
                      
                      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
                      
                      
                      $
                      39,095




25




July
      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
                                                        
                                                        
                                                        $
                                                        12,642Wayne
      Cockburn
                                                        
                                                        
                                                        
                                                        Officer,
                                                          Director
                                                        
                                                        $
                                                        10,000
                                                        
                                                        October
      26,
                                                          2007
                                                        January
      26,
                                                          2008
                                                        
                                                        B
                                                        
                                                        
                                                        
                                                        10,000
                                                        
                                                        
                                                        $
                                                        3,148January
      26,
                                                          2008
                                                        April
      30,
                                                          2008
                                                        
                                                        B
                                                        
                                                        
                                                        
                                                        10,000
                                                        
                                                        
                                                        $
                                                        1,901April
      30,
                                                          2008
                                                        July
      1,
                                                          2008
                                                        
                                                        B
                                                        
                                                        
                                                        
                                                        10,000
                                                        
                                                        
                                                        $
                                                        1,167July
      1,
                                                          2008
                                                        October
      31,
                                                          2008
                                                        
                                                        B
                                                        
                                                        
                                                        
                                                        10,000
                                                        
                                                        
                                                        $
                                                        1,901October
      31,
                                                          2008
                                                        January
      31,
                                                          2009
                                                        
                                                        B
                                                        
                                                        
                                                        
                                                        10,000
                                                        
                                                        
                                                        $
                                                        462Wayne
      Cockburn
                                                        
                                                        
                                                        
                                                        Officer,
      Director
                                                        
                                                        $
                                                        10,000
                                                        
                                                        April
      1,
                                                          2008
                                                        July
      1,
                                                          2008
                                                        
                                                        B
                                                        
                                                        
                                                        
                                                        10,000
                                                        
                                                        
                                                        $
                                                        2,879July
      1,
                                                          2008
                                                        October
      31,
                                                          2008
                                                        
                                                        B
                                                        
                                                        
                                                        
                                                        10,000
                                                        
                                                        
                                                        $
                                                        1,901October
      31,
                                                          2008
                                                        January
      31,
                                                          2009
                                                        
                                                        B
                                                        
                                                        
                                                        
                                                        10,000
                                                        
                                                        
                                                        $
                                                        462Wayne
      Cockburn
                                                        
                                                        
                                                        
                                                        Officer,
      Director
                                                        
                                                        $
                                                        10,000
                                                        
                                                        June
      2,
                                                          2008
                                                        September
      2,
                                                          2008
                                                        
                                                        B
                                                        
                                                        
                                                        
                                                        10,000
                                                        
                                                        
                                                        $
                                                        3,695September
      2,
                                                          2008
                                                        December
      2,
                                                          2008
                                                        
                                                        B
                                                        
                                                        
                                                        
                                                        10,000
                                                        
                                                        
                                                        $
                                                        2,582December
      2,
                                                          2008
                                                        April  30,
                                                          2009
                                                        
                                                        B
                                                        
                                                        
                                                        
                                                        10,000
                                                        
                                                        
                                                        $
                                                        389Wayne
      Cockburn
                                                        
                                                        
                                                        
                                                        Officer,
      Director
                                                        
                                                        $
                                                        1,500
                                                        
                                                        June
      17,
                                                          2008
                                                        September
      17,
                                                          2008
                                                        
                                                        B
                                                        
                                                        
                                                        
                                                        1,500
                                                        
                                                        
                                                        $
                                                        470September
      17,
                                                          2008
                                                        December
      17,
                                                          2008
                                                        
                                                        B
                                                        
                                                        
                                                        
                                                        1,500
                                                        
                                                        
                                                        $
                                                        144December
      17,
                                                          2008
                                                        April
      30,
                                                          2009
                                                        
                                                        B
                                                        
                                                        
                                                        
                                                        1,500
                                                        
                                                        
                                                        $
                                                        77Alan
      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
                                                        
                                                        
                                                        $
                                                        1,846




(1)
            Series
      ‘A’ common stock purchase warrants allow holders to purchase shares of
      common stock at $0.50 per share until June 30, 2009.  Series ‘B’
      common stock purchase warrants allow holders to purchase shares of common
      stock at $1.00 per share until December 31, 2009.  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 calculated 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 $0.0389 - $0.3695.


26





(2)
            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 to the financial statements.  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.





(3)
            Various
      days from July to October 2004.





Convertible
Debt  and Other loans





During
2008, the Company issued convertible promissory notes totaling $120,000 to two
individuals, each of whom qualifies as an “accredited investor” under Regulation
D of the Securities Act.  The notes bear interest at 12%, mature on
April 30, 2009 and are convertible into common shares at a rate of $1.00 per
share until December 31, 2009.  The note holders were granted one
Series B warrant for every $2.00 loaned, for a total of 60,000 Series B
warrants.  The value attributed to the warrants totaled $8,707 at the
issuance dates and are being amortized to interest expense over the life of the
loans.





See Note
5 Convertible Debt in the financial statements for the 2007 convertible
promissory notes information and the extension of these notes in
2008.  An additional 302,244 Series B warrants were issued to extend
the notes throughout 2008 with a current maturing date of April 30,
2009.  The value attributed to the warrants totaled $35,558 at the
issuance dates and was amortized over the extended life of the loans as interest
expense.





During
2008, the Company borrowed a total of $10,000 from 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.  The note
holder 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.  An additional 20,000 Series B warrants were issued to extend
the note throughout 2008 with a current maturing date of April 30,
2009.  The value attributed to the warrants totaled $6,311 at the
issuance date and is being amortized over the extended life of the loan as
interest expense.





Common Stock
Issued





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 was $0.75
and each unit was 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.





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.


27





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.





On
December 9, 2008, the Company issued a total of 1,300,000 shares of the
Company’s common stock to three vendors for consulting services.  The
services were valued at $.20 per share for a total of $260,000, and the value of
the services is being amortized over the period of the consulting
agreements.  These vendors have the ability to earn an additional
1,000,000 shares upon reaching a certain milestone defined in the
agreements.





On
December 13, 2008, the Board granted 250,000 shares of the Company’s common
stock to a consultant 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.





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 and the remaining
3,868,600 options expire on March 10, 2014.  Options under the 2003
Plan were granted under Item 701 of the Securities Act.





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 2008.





Securities
Authorized for Issuance under Equity Compensation Plans





As
described above, 3,868,600 shares of our common stock are authorized for
issuance upon the exercise of 3,868,600 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, 2008:


28





EQUITY
COMPENSATION PLAN INFORMATION


AS
OF DECEMBER 31, 2008


Number 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
                
                
                3,868,600
                
                
                $
                0.25
                
                
                
                0Equity
      compensation plans not approved by securities holders
                
                
                0
                
                
                
                0
                
                
                
                0Total
                
                
                3,868,600
                
                
                $
                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.





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 Impact
Medical Solutions, 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 will strive to implement our business strategy described in
Item 1. Description of Business, included in this Annual Report on Form
10-K.  Our efforts to implement our business strategy are dependent on
our ability to obtain sufficient capital to fund our operations, of which there
can be no assurances.





Today’s
health care environment is very complex, and the development and introduction of
a new medical device such as MPRinvolves
not just an onerous FDA approval process, but overcoming significant
reimbursement hurdles and complex commercial challenges associated with training
and educating physicians, patients and payors.  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 known as evidence-based
medicine.  This new healthcare paradigm has created new and
complex relationships between all organizations involved in the delivery of, and
payment for healthcare products and services.


29





Regulatory





As
mentioned earlier in this Annual Report on Form 10-K, the Food and Drug
Administration’s Center for Devices and Radiological Health (CDRH) regulates all
medical devices manufactured in the United States, including our MPR
System.  The CDRH is charged with assuring the public that a device is
safe and effective for its intended use and is also responsible for regulating
companies who manufacture, re-package, re-label, and/or import medical devices
sold in the United States.





We
believe we will be required to submit an application to the CDRH under Section
510(k) of the Food and Drug Act to have our MPR System cleared for marketing and
sales in the US, and there can be no assurance that this clearance will be
obtained.





Reimbursement





When
billing insurance companies for services like MPR, health practitioners use
reimbursement “codes”.  Reimbursement claims require the use of two
coding systems: 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 codes).





In the
past, MPRhas
been reimbursed under a general CPT code for “Alternative Neuromuscular
Disorders” (Code #95999).  To obtain broad acceptance of the MPRSystem
with health care practitioners, it may be important for us to obtain a more
specific CPT code for the test.  The process for requesting a new CPT code
is well defined and the American Medical Association has developed a formal
process for evaluating coding suggestions however there can be no assurance that
a specific CPT code will be obtained for the MPR System.





Competition





The
market for the MPR System is competitive and is constantly changing and our
competitors vary in the size and scope of the products and services they offer.
We believe we will encounter competition from a number of sources, including
much larger companies whose resources are far greater than ours.  Even
if we are successful in receiving regulatory clearance and reimbursement for the
MPR System, there can be no assurance that we will be successful in the sales
and marketing of the device.





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 specifically do the following:





·
            Successfully
      complete the independent clinical trial to establish the medical and
      scientific credibility required for broad acceptance of MPR, and to
      support our filings with the FDA;


·
            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.


30





Current
funds available to us will not be adequate for us to complete these programs.
During the years ended December 31, 2008 and 2007, we incurred a net loss of
$1,589,500 and $1,263,489, respectively, and had $34,015 cash on hand as of
December 31, 2008. 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.





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 since the second half of 2008,
and the general global economic slowdown in all sectors – including the medical
technology field - 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. Two of our four employees and our two of our three
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 Statement of Financial Accounting
Standards ("SFAS")  7, "Accounting and Reporting by Development Stage
Enterprises." 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.


31





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 FASB Statement  2,
“Accounting for Research and Development Costs”.





Stock-based
Compensation





We have
adopted the provisions of SFAS 123(R) 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.





Results
of Operations





Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007





Net
Losses; Revenues





We
incurred net losses of $1,589,500 for the year ended December 31, 2008 and
$1,263,489 for the year ended December 31, 2007.  We had no revenues
for the year ended December 31, 2008 and no revenues for the year ended December
31, 2007.





Research
and Development





We
expense our research and developments costs as occurred. 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 decreased to $134,327 in 2008 from $151,217 in 2007
primarily due to less working capital available to pursue our
programs.





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 $123,852 in 2008
from $105,767 in 2007. The increase from 2007 to 2008 is primarily due to the
opening of the Utah office in August 2008.  Our clinical trial was
suspended in 2005 due to lack of adequate funding.  We are currently
working on securing new financing so that we can re-commence the clinical trial
in the second half of 2009.  Should our funding efforts be
unsuccessful, the re-commencement of our clinical program would remain on hold
until such time as appropriate financial resources were available.





General
and Administrative Expenses





General
and administrative expenses increased to $960,683 in 2008 from $666,632 in 2007
primarily due to an increase of $341,693 in common stock issued for corporate
finance, M&A and fiscal advisory services.  We expect that we will
require approximately $2.0 million of cash for operating activities in 2009.
This increase will be due primarily to the work required to complete the MPR
analytical software and the recommencement of the clinical trial for MPR
system.


32





Interest
Income and Expense





During
2008 and 2007, we relied heavily on short term borrowings to finance our
operating activities.  The interest expense for the year ended
December 31, 2008 increased to $369,775 as compared with $338,294 for the year
ended December 31, 2007 primarily due to this increase in short term
borrowings.  The actual “cash” interest accrual for 2008 was $82,513
versus $48,067 for 2007.  The increase in the interest expense was due
to the fact we accrued an entire year of interest on over $500,000 in loans and
a partial year on $151,500 of new debt in 2008.  The remaining
interest of $287,262 in 2008, versus $290,227 in 2007, comes from the discounts
for the warrants that were issued to the lenders and the beneficial conversion
feature of the convertible debt.  No interest has been paid to
date.





The
assumptions used to calculate the discounts and beneficial conversion features
vary from year to year.  Since our share price was lower for most of
2008 versus 2007, 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 $28,026 in 2008 and $29,809 in 2007, and
when discounts from warrants and conversion features are taken into account, the
average interest expense for each note was approximately $12,716 in 2008 and
$18,200 in 2007.  The weighted average interest rate for the short
term borrowings outstanding at December 31, 2008 is 17.19% in 2008 and 126.00%
in 2007, after taking into account the discounts from warrants and conversion
features.





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,
2008 and 2007, we incurred a net loss of $1,589,500 and $1,263,489,
respectively.





At
December 31, 2008 and 2007, we had cash on hand of $34,015 and $15,144,
respectively. We utilized cash of approximately $368,956 in the period ended
December 31, 2008 compared to $530,510 for the same period ended December 31,
2007. The cash used in operating activities in 2008 is lower than 2007 due to
less working capital available for our research and clinical programs. We have
funded our operations primarily through private placements of equity securities.
In 2008, we raised gross proceeds of approximately $21,500 from loans from
related parties, $10,000 from an accredited investor, approximately $120,000
from convertible debt from 2 accredited investors and $270,000 from issuance of
common stock net of $30,000 in costs.





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.


33




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





Impact
Medical Solutions’ 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, Impact Medical Solutions’ management carried out an
evaluation, with the participation of Impact Medical Solutions’ 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”).




Impact
Medical Solutions’ 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 Impact Medical Solutions
maintained effective internal control over financial reporting as of December
31, 2008, 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 the fourth quarter ended December 31, 2008 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


34


PART
III




Item 10.
            Directors,
      Executive Officers and Corporate
Governance.





Reference
is made to the disclosure required by Items 401, 405, 406 and 407(c)(3), (d)(4)
and (d)(5) of Regulation S-K to be contained in the Registrant’s definitive
proxy statement to be mailed to shareholders on or about May 10, 2009, and to be
filed with the Securities and Exchange Commission.





Item 11.
            Executive
      Compensation.





Summary
Compensation Table





Reference
is made to the disclosure required by Items 402 and 407 (e) (4) and (e) (5) of
Regulation S-K to be contained in the Registrant’s definitive proxy statement to
be mailed to shareholders on or about May 10, 2009, and to be filed with the
Securities and Exchange Commission.





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


Reference
is made to the disclosure required by Item 403 of Regulation S-K to be contained
in the Registrant’s definitive proxy statement to be mailed to shareholders on
or about May 10, 2009, and to be filed with the Securities Exchange
Commission.





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





Reference
is made to the disclosure required by Item 404 of Regulation S-K to be contained
in the Registrant’s definitive proxy statement to be mailed to shareholders on
or about May 10, 2009, and to be filed with the Securities and Exchange
Commission.





Item 14.
            Principal
      Accountant Fees and Service.





Reference
is made to the proposal regarding the approval of the Registrant’s independent
accountants to be contained in the Registrant’s definitive proxy statement to be
mailed to shareholders on or about May 10, 2009, and to be filed with the
Securities and Exchange Commission.





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, 2007 and 2008 were approximately $58,000 and $64,000,
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, 2007 and
2008.





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, 2007 and 2007 were
$nil.


35


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 Impact Medical Solutions, 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, 2008.32.1(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.


36


Impact
Medical Solutions, Inc.


Financial
Statements


For the
fiscal year ended December 31, 2008


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 Impact Medical Solutions,
Inc.





We have
audited the accompanying balance sheet of Impact Medical Solutions, Inc., a
development stage company (the "Company") as of December 31, 2008 and December
31, 2007, and the related statements of operations, shareholders' equity
(deficit), and cash flows for each of the years ended December 31, 2008, 2007
and 2006 and October 20, 1997 (date of inception) to December 31,
2008.  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 Impact Medical Solutions, Inc. as
of December 31, 2008, and the results of its operations and its cash flows for
each of the years ended December 31, 2008, 2007 and 2006, and October 20, 1997
(date of inception) to December 31, 2008, in conformity with generally accepted
accounting principles 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, the Company's significant operating losses 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,
2009


Camarillo,
California


F-2


Impact
Medical Solutions, Inc.


(A
Development Stage Company)


Balance
Sheets





December
      31,2008
                        
                        
                        2007ASSETSCurrent
      assetsCash
                        
                        $
                        34,015
                        
                        
                        $
                        15,144Prepaid
      expenses
                        
                        
                        5,218
                        
                        
                        
                        26,686Total
      current assets
                        
                        
                        39,233
                        
                        
                        
                        41,830Furniture
      and equipment, net of accumulated depreciation of $58,119 and $43,704 at
      December 31, 2008 and 2007, respectively
                        
                        
                        17,270
                        
                        
                        
                        27,171Patent,
      net of accumulated amortization of $156,864 and $127,452  at
      December 31, 2008 and 2007, respectively
                        
                        
                        343,136
                        
                        
                        
                        372,548$
                        399,639
                        
                        
                        $
                        441,549LIABILITIES
      AND SHAREHOLDERS' DEFICITCurrent
      liabilitiesLoans
      from related parties, net of unamortized discount of $3,258
      and $65,447 at December 31, 2008 and 2007,
    respectively
                        
                        $
                        311,896
                        
                        
                        $
                        257,366Convertible
      debt, net of unamortized discount of $4,267 and $16,910 at December
      31, 2008 and 2007, respectively
                        
                        
                        448,724
                        
                        
                        
                        316,081Other
      loan payable, net of unamortized discount of $116 at December 31,
      2008
                        
                        
                        9,884
                        
                        
                        
                        -Note
      payable
                        
                        
                        34,613
                        
                        
                        
                        34,613Accounts
      payable
                        
                        
                        279,282
                        
                        
                        
                        269,875Accrued
      interest
                        
                        
                        153,229
                        
                        
                        
                        83,391Accrued
      vacation
                        
                        
                        64,133
                        
                        
                        
                        64,133Accrued
      salaries, bonuses and other payroll related items
                        
                        
                        589,600
                        
                        
                        
                        330,350Other
      accrued liabilities
                        
                        
                        30,000
                        
                        
                        
                        -Total
      current liabilities
                        
                        
                        1,921,361
                        
                        
                        
                        1,355,809Commitments
      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, 18,768,466
      and 16,478,465 shares issued and outstanding at December 31, 2008 and
      2007, respectively
                        
                        
                        1,877
                        
                        
                        
                        1,648Additional
      paid-in capital
                        
                        
                        6,432,631
                        
                        
                        
                        5,226,178Deferred
      option and warrant costs
                        
                        
                        (612,081
                        )
                        
                        
                        (387,437
                        )Deficit
      accumulated during the development stage
                        
                        
                        (7,344,149
                        )
                        
                        
                        (5,754,649
                        )Total
      shareholders' deficit
                        
                        
                        (1,521,722
                        )
                        
                        
                        (914,260
                        )$
                        399,639
                        
                        
                        $
                        441,549





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


F-3


Impact
Medical Solutions, Inc.


(A
Development Stage Company)


Statements
of Operations





Year
      ended December 31,
                    
                    
                    Cumulative
                      from
      inception
                      (October
      20,
                      1997)
      to
                      December
      31,2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2008Costs
      and expenses:Research
      and development
                    
                    $
                    134,327
                    
                    
                    $
                    151,217
                    
                    
                    $
                    212,060
                    
                    
                    $
                    872,052Medical
      and clinical
                    
                    
                    123,852
                    
                    
                    
                    105,767
                    
                    
                    
                    249,165
                    
                    
                    
                    1,229,565General
      and administrative
                    
                    
                    960,683
                    
                    
                    
                    666,632
                    
                    
                    
                    1,368,915
                    
                    
                    
                    4,231,987Operating
      loss
                    
                    
                    (1,218,862
                    )
                    
                    
                    (923,616
                    )
                    
                    
                    (1,830,140
                    )
                    
                    
                    (6,333,604
                    )Other
      income (expense):Interest
      expense
                    
                    
                    (369,775
                    )
                    
                    
                    (338,294
                    )
                    
                    
                    (246,450
                    )
                    
                    
                    (1,004,601
                    )Interest
      income
                    
                    
                    -
                    
                    
                    
                    15
                    
                    
                    
                    20
                    
                    
                    
                    290(369,775
                    )
                    
                    
                    (338,279
                    )
                    
                    
                    (246,430
                    )
                    
                    
                    (1,004,311
                    )Loss
      before provision for taxes
                    
                    
                    (1,588,637
                    )
                    
                    
                    (1,261,895
                    )
                    
                    
                    (2,076,570
                    )
                    
                    
                    (7,337,915
                    )Provision
      for taxes
                    
                    
                    863
                    
                    
                    
                    1,594
                    
                    
                    
                    577
                    
                    
                    
                    6,234Net
      loss
                    
                    $
                    (1,589,500
                    )
                    
                    $
                    (1,263,489
                    )
                    
                    $
                    (2,077,147
                    )
                    
                    $
                    (7,344,149
                    )Basic
      and diluted net loss per share
                    
                    $
                    (0.09
                    )
                    
                    $
                    (0.08
                    )
                    
                    $
                    (0.13
                    )Basic
      and diluted weighted average number of common shares
      outstanding
                    
                    
                    16,833,629
                    
                    
                    
                    15,996,205
                    
                    
                    
                    15,426,710





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


F-4


Impact
Medical Solutions, Inc.


(A
Development Stage Company)


Statements
of Cash Flow





Year
      ended December 31,
                  
                  
                  Cumulative
                    from
      inception
                    (October
      20,
                    1997)
      to
                    December
      31,2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2008Cash
      flows from operating activities:Net
      loss
                  
                  $
                  (1,589,500
                  )
                  
                  $
                  (1,263,489
                  )
                  
                  $
                  (2,077,147
                  )
                  
                  $
                  (7,344,149
                  )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Depreciation
      and amortization
                  
                  
                  43,827
                  
                  
                  
                  43,970
                  
                  
                  
                  43,584
                  
                  
                  
                  215,279Amortization
      of loan discount
                  
                  
                  287,262
                  
                  
                  
                  290,227
                  
                  
                  
                  233,708
                  
                  
                  
                  822,899Issuance
      of common stock for services
                  
                  
                  440,259
                  
                  
                  
                  81,464
                  
                  
                  
                  50,000
                  
                  
                  
                  631,883Issuance
      of stock options and warrants for services
                  
                  
                  59,233
                  
                  
                  
                  64,119
                  
                  
                  
                  927,257
                  
                  
                  
                  1,179,837Decrease
      (increase) in prepaid expenses
                  
                  
                  21,468
                  
                  
                  
                  (21,677
                  )
                  
                  
                  (2,410
                  )
                  
                  
                  (5,218
                  )Increase
      (decrease) in accounts payable
                  
                  
                  9,407
                  
                  
                  
                  103,402
                  
                  
                  
                  61,486
                  
                  
                  
                  279,282Increase
      (decrease) in accrued expenses
                  
                  
                  359,088
                  
                  
                  
                  171,474
                  
                  
                  
                  51,778
                  
                  
                  
                  836,962Net
      cash used by operating activities
                  
                  
                  (368,956
                  )
                  
                  
                  (530,510
                  )
                  
                  
                  (711,744
                  )
                  
                  
                  (3,383,225
                  )Cash
      flows from investing activities:Capital
      expenditures
                  
                  
                  (4,514
                  )
                  
                  
                  (564
                  )
                  
                  
                  (3,358
                  )
                  
                  
                  (75,685
                  )Net
      cash used by investing activities
                  
                  
                  (4,514
                  )
                  
                  
                  (564
                  )
                  
                  
                  (3,358
                  )
                  
                  
                  (75,685
                  )Cash
      flows from financing activities:Proceeds
      from loans from related parties
                  
                  
                  21,500
                  
                  
                  
                  175,000
                  
                  
                  
                  -
                  
                  
                  
                  341,500Proceeds
      from convertible debt
                  
                  
                  120,000
                  
                  
                  
                  332,991
                  
                  
                  
                  -
                  
                  
                  
                  452,991Proceeds
      from loans from others
                  
                  
                  10,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,000Payments
      on note payable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (4,000
                  )
                  
                  
                  (65,387
                  )Issuance
      of common stock, net of costs
                  
                  
                  270,000
                  
                  
                  
                  -
                  
                  
                  
                  517,305
                  
                  
                  
                  2,780,168Net
      cash provided by financing activities
                  
                  
                  421,500
                  
                  
                  
                  507,991
                  
                  
                  
                  513,305
                  
                  
                  
                  3,519,272Effect
      of exchange rate changes
                  
                  
                  (29,159
                  )
                  
                  
                  27,320
                  
                  
                  
                  -
                  
                  
                  
                  (26,347
                  )Net
      increase (decrease) in cash
                  
                  
                  18,871
                  
                  
                  
                  4,237
                  
                  
                  
                  (201,797
                  )
                  
                  
                  34,015Cash,
      beginning of period
                  
                  
                  15,144
                  
                  
                  
                  10,907
                  
                  
                  
                  212,704
                  
                  
                  
                  -Cash,
      end of period
                  
                  $
                  34,015
                  
                  
                  $
                  15,144
                  
                  
                  $
                  10,907
                  
                  
                  $
                  34,015Non-cash
      investing and financing activities:Issuance
      of common stock & note payable for patent
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  500,000Issuance
      of warrants with debt
                  
                  $
                  212,546
                  
                  
                  $
                  353,036
                  
                  
                  $
                  244,282
                  
                  
                  $
                  830,539





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


F-5


Impact
Medical Solutions, Inc.


(A
Development Stage Company)


Statements
of Changes in Shareholders’ Equity (Deficit)


From
Inception (October 20, 1997) to December 31, 2008





DeficitCommon
      Stock
                
                
                
                
                
                
                
                
                AccumulatedAdditional
                
                
                Deferred
      Share,
                
                
                During
      the
                
                
                TotalNumber
                
                
                
                
                
                Paid-in
                
                
                Option
      &
                
                
                Development
                
                
                Shareholders'of
      Shares
                
                
                Total
                
                
                Capital
                
                
                Warrant
      Cost
                
                
                Stage
                
                
                Equity
      (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


Impact
Medical Solutions, Inc.


(A
Development Stage Company)


Statements
of Changes in Shareholders’ Equity (Deficit)


From
Inception (October 20, 1997) to December 31, 2008





Common
      Stock
                      
                      
                      
                      
                      
                      
                      
                      
                      AccumulatedAdditional
                      
                      
                      Deferred
      Share,
                      
                      
                      During
      the
                      
                      
                      TotalNumber
                      
                      
                      
                      
                      
                      Paid-in
                      
                      
                      Option
      &
                      
                      
                      Development
                      
                      
                      Shareholders'of
      Shares
                      
                      
                      Total
                      
                      
                      Capital
                      
                      
                      Warrant
      Cost
                      
                      
                      Stage
                      
                      
                      Equity
      (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
                      )18,768,466
                      
                      
                      $
                      1,877
                      
                      
                      $
                      6,432,631
                      
                      
                      $
                      (612,081
                      )
                      
                      $
                      (7,344,149
                      )
                      
                      $
                      (1,521,722
                      )





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


F-7


Impact
Medical Solutions, Inc.


(A
Development Stage Company)


Notes to
Financial Statements


December 31,
2008





1.Organization and summary of
significant accounting policies





Organization and Line of
Business


Impact
Medical Solutions, Inc. (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, Impact Medical has been involved in the development and pre-market
clinical testing of the MPR system.





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





Concurrently
with the merger, stockholders of Impact Medical received 1 share of Freedom 1’s
common stock for each issued and outstanding share of Impact Medical’s common
stock.  As a result, at closing Freedom 1 issued 15,653,465 shares of
its common stock to the stockholders of Impact 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 Impact Medical
before the merger will be 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 Statement of Financial
Accounting Standards ("SFAS") 7, Accounting and Reporting by
Development Stage Enterprises. 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.





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, 2008, 2007 and 2006, the Company incurred a net loss of
$1,588,487, $1,263,489 and $2,077,147, respectively, and is in the development
stage at December 31, 2008. 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.


F-8


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





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.  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 $863, $1,594 and $800 were paid in 2008, 2007 and 2006,
respectively.  No interest payments were made in 2008, 2007 and
2006.





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.





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.


F-9


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





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 SFAS 2, Accounting for Research and
Development Costs.





Income
Taxes


The
Company accounts for income taxes under the liability method required by SFAS
109 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.





Share-based
payments


The
Company adopted the provisions of SFAS 123(R), Share-Based Payments, on
January 1, 2006.  Accordingly, 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, as defined by SFAS 123(R), 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, 2008, 2007 and 2006.





Since the
Company has a net operating loss carryforward as of December 31, 2008, 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, 2008, 2007 and 2006 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.


F-10


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





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.





Reclassifications


Certain
items in the 2007 and 2006 financial statements have been reclassified to
conform to the 2008 presentation.





Recent accounting
pronouncements


In
February 2007, the FASB issued SFAS 159 – The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
115(SFAS 159).  SFAS 159 permits entities to choose to measure
eligible items at fair value at specified election dates and report unrealized
gains and losses on items for which the fair value option has been elected in
earnings at each subsequent reporting date. SFAS 159 is effective for fiscal
years beginning after November 15, 2007 and interim periods within those fiscal
years. The Company has implemented this statement in the current fiscal year and
there is no material effect.





In
September 2006, the FASB issued Statement of Financial Accounting Standards 157
(“SFAS 157”), Fair Value
Measurements, which defines fair value, establishes guidelines for
measuring fair value and expands disclosures regarding fair value
measurements.  SFAS 157 does not require any new fair value
measurements but rather eliminates inconsistencies in guidance found in various
prior accounting pronouncements.  SFAS 157 is effective for fiscal
years beginning after November 15, 2007 with earlier adoption
permitted.  The Company has implemented this statement in the current
fiscal year and there is no material effect.





In
October 2008, the FASB issued Financial Staff Position 157-3, Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not Active,
("FSP 157-3"). FSP 157-3 clarifies the application of SFAS 157 in a market that
is not active, and addresses application issues such as the use of internal
assumptions when relevant observable data does not exist, the use of observable
market information when the market is not active, and the use of market quotes
when assessing the relevance of observable and unobservable data. FSP 157-3 is
effective for all periods presented in accordance with SFAS 157. The adoption of
FSP 157-3 did not have a significant impact on our consolidated financial
statements or the fair values of our financial assets and
liabilities.





In
December 2008, the FASB issued Financial Staff Position ("FSP") Financial
Accounting Standard No. 140-4 and FASB Interpretation 46(R)-8, Disclosures by
Public Entities (Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities ("FSP FAS 140-4" and "FIN 46(R)-8"). The document
increases disclosure requirements for public companies and is effective for
reporting periods (interim and annual) that end after December 15, 2008. FSP FAS
140-4 and FIN 46(R)-8 became effective for us on December 31, 2008. The adoption
of FSP FAS 140-4 and FIN 46(R)-8 did not have a significant impact on our
consolidated financial statements.


F-11


2.Furniture and
equipment





2008
                  
                  
                  2007
                  
                  
                  2006Furniture
      and equipment
                  
                  $
                  75,389
                  
                  
                  $
                  70,875
                  
                  
                  $
                  70,311Less
      accumulated depreciation
                  
                  
                  (58,119
                  )
                  
                  
                  (43,704
                  )
                  
                  
                  (29,146
                  )$
                  17,270
                  
                  
                  $
                  27,171
                  
                  
                  $
                  41,165Depreciation
      expense
                  
                  $
                  14,415
                  
                  
                  $
                  14,558
                  
                  
                  $
                  14,172





3.Patents





2008
                  
                  
                  2007
                  
                  
                  2006PatentsGross
      carrying amount
                  
                  $
                  500,000
                  
                  
                  $
                  500,000
                  
                  
                  $
                  500,000Accumulated
      amortization
                  
                  $
                  156,864
                  
                  
                  $
                  127,452
                  
                  
                  $
                  98,040Amortization
      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





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, 2009 for the extension.  The fair value
of the warrants using the Black-Scholes valuation method totaled $77 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.


F-12


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, 2009 for the extension.  The fair
value of the warrants using the Black-Scholes valuation method totaled $389 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.





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 will be reflected as a discount on the loan and
will be amortized over the extended life of the loan as interest
expense.


F-13


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 will be reflected as a discount on the loan and
will be amortized over the extended life of the loan as interest
expense.





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 will be reflected as a
discount on the loan and will be amortized over the extended life of the loan as
interest expense.


F-14


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 will be reflected as a
discount on the loan and will be amortized over the extended life of the loan as
interest expense.


F-15


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 will be reflected as a
discount on the loans and will be amortized over the extended life of the loans
as interest expense.


F-16


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 Cavendale was granted 290,000 Series B warrants for
extending the due date.  The fair value of the warrants using the
Black-Scholes valuation method will be reflected as a discount on the loans and
will be amortized over the extended life of the loans as interest
expense.


F-17


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-


F-18


5.Convertible
debt (continued)





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.





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 is reflected as a
discount on the loan and is being amortized over the extended life of the loan
as interest expense.





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 will be reflected as a
discount on the loans and will be amortized over the extended life of the loans
as interest expense.





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.


F-19


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,
2009.





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.





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, 2009.  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, 2009.  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, 2009.  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, 2009.





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.


F-20


8.Shareholders’
equity (continued)





Common stock issuances
(continued)


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.





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.





On
December 9, 2008, the Company issued a total of 1,300,000 shares of the
Company’s common stock to two vendors and a related party for consulting
services.  The services were valued at $.20 per share for a total of
$260,000, and the value of the services is being amortized over the period of
the consulting agreements.  These vendors have the ability to earn an
additional 1,000,000 shares upon reaching a certain milestone defined in the
agreements.





On
December 13, 2008, the Board granted 250,000 shares of the Company’s common
stock to 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-21


8.Shareholders’
equity (continued)





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.





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.


F-22


8.Shareholders’
equity (continued)





Warrants
(continued)


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.





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
are being 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,
2009.





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.


F-23


8.Shareholders’
equity (continued)





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.  On 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 and the remaining 3,868,600 options expire on March 10, 2014.





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 2008, 2007 and 2006 there are no material
differences between income tax expense and the amount computed by applying the
federal statutory income tax rate.





At
December 31, 2008, the Company has a net operating loss carryforward for federal
tax purposes of approximately $6,580,000, 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 $6,584,000 which, if
unused to offset future taxable income, will begin to expire in
2013.





The
Company had deferred tax assets of $2,869,000 at December 31, 2008, 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 $372,000 in 2008 and
$1,059,000 in 2007, primarily related to the net taxable loss and to change in
estimate for certain deductions.


F-24


10.Commitments and
contingencies





Lease


The
Company leases its office space in Huntington Beach, California and Toronto,
Canada 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 342,858 shares of common stock to Roy Bonnell and Associates; however, if
additional office space is required, an escalation agreement goes into effect.
During all of 2006 and a portion of 2007, the Company leased space in Quebec,
Canada as well.  Total rent expense charged to operations totaled
$42,811 in 2008, $58,803 in 2007 and $45,295 in 2006.





11.    Subsequent
events (unaudited)





Apartment
lease


Effective
January 1, 2009, the Company entered into a short term lease for apartment space
in Montreal, Canada.  Monthly rent will be CD$1,300 through April 30,
2009.





Private
placement


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.  To date, 200,000 units have
been sold for total proceeds of $60,000.





Stock
issuance


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%.





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 issued 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 1,300,000 shares cancelled and returned to the
Company.  If the milestone is met, the shares will be returned to the
vendors.


F-25


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.





11.      Subsequent
events (unaudited) (continued)





Loans from related
parties


On
February 20, 2009, the Company borrowed a total of $25,000 from MPR Health
Systems, Inc.  This loan, evidenced by a short-term promissory note
issued on February 20, 2009, bears interest at 10% per annum and matures on May
20, 2009.  MPR Health Systems, Inc. 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 will be reflected as a
discount on the loans and will be amortized over the extended life of the loans
as interest expense.





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 matures on July 2,
2009.  MPR Health Systems, Inc. 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, 2009.  The fair value of the
warrants using the Black-Scholes valuation method will be reflected as a
discount on the loans and will be amortized over the extended life of the loans
as interest expense.





Other


In
February 2009, the Company’s common shares were accepted for trading on the
Frankfurt Stock Exchange under the ticker symbol "0IM". The International
Security Identification Number (ISIN) number is US45257K1007.


F-26


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, 2009
                IMPACT
      MEDICAL SOLUTIONS, INC.By:
                /s/ Wayne CockburnWayne
      CockburnPresident
      Chief Executive Officer,
                  Secretary,
      Treasurer and Interim Chief
                  Financial
      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, 2009Wayne
      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, 2009Donald
      Paterson/s/ George Angelidis
                  
                  Director
                  
                  April
      15 2009George
      Angelidis/s/ Craig Lunsman
                  
                  Director
                  
                  April
      15 2009Craig
      Lunsman/s/ Stephen Schectman
                  
                  Director
                  
                  April
      15 2009Stephen
      Schectman


37