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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q/A**

** **

**x****     ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the quarterly period endedMarch 31, 2010**

** **

**OR**

** **

**o****        ****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the transition periodfrom               to               **

 

**CommissionFile Number 333-143236**

** **

**TECHNISCAN, INC.**

(Exactname of registrant as specified in its charter)

 

| **DELAWARE**  (State or other jurisdiction of  incorporation or organization) | ** ** | **27-1093363**  (I.R.S. Employer Identification  Number) |
|-------------------------------------------------------------------------------|------------|----------------------------------------------------------|

 

**3216 South Highland Drive, Suite 200,**

**Salt Lake City, UT 84106**

(Addressof principal executive offices) (Zip Code)

 

**(801) 521-0444**

Registrant’stelephone number, including area code

 

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Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.  x Yes o No

 

Indicate by check mark whether the registranthas submitted electronically and posted on its corporate Web site, if any,every Interactive Data File required to be submitted and posted pursuant toRule 405 of Regulation S-T (§232.405 of this chapter) during the preceding12 months (or for such shorter period that the registrant was required tosubmit and post such files).  Yes o No o

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, ora smaller reporting company. See the definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

| o Large accelerated filer                                            |   | o Accelerated filer         |
|---------------------------------------------------------------------------|--------|----------------------------------|
|                                                                      |   |                             |
| o Non-accelerated filer  (Do not check if a small reporting company) |   | x Smaller reporting company |

 

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

 

The number of shares outstanding of theregistrant’s common stock, par value $0.001 per share, as of July 27, 2010was 20,724,446.

 

 

 

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**EXPLANATORY NOTE**

 

The Company is filing this Amendment No. 1 toits Quarterly Report on Form 10-Q for the three months ended March 31,2010 as filed with the Securities and Exchange Commission on May 4, 2010(the “Original Filing”).

 

We are filing this Amendment No.1 to:

* Restate the interim financial statements asof March 31, 2010 and for the three months then ended to reflect adjustments toexpenses, liabilities and additional paid-in capital as set out in Note 1 - Organization and Description OFBUSINESS – *Restatement of Interim Financial Statements.*

* Amend Item 7. *Management’sDiscussion and Analysis and Analysis of Financial Condition and Results ofOperations*, to modify management’s discussion to reflect changes tothe financial statements.

* Modify the Company’s disclosure in Item 4, *Controls and Procedures.*

 

Updated Certifications under Sections 302 and906 of the Sarbanes-Oxley Act 2002 are also included in this Amendment.

 

Except as stated above, no other changes havebeen made to the Original Filing, and this Form 10-Q/A does not amend,update or change any other items or disclosures in the Original Filing. This Form 10-Q/Adoes not reflect events occurring after the Original Filing and does not modifyor update the disclosures in the Original Filing in any way.

 

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| PART I — FINANCIAL INFORMATION |                                                                                            |
|------------------------------------------|-------------------------------------------------------------------------------------------------|
| **ITEM 1.**                              | **FINANCIAL STATEMENTS**                                                                        |   |
| **ITEM 2.**                              | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |   |
| **ITEM 3.**                              | **QUANTITATIVE  AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**                                  |   |
| **ITEM  4T.**                            | **CONTROLS AND  PROCEDURES**                                                                    |   |
|                                     |                                                                                            |   |
| PART II — OTHER  INFORMATION   |                                                                                            |
| **ITEM  1.**                             | **LEGAL PROCEEDINGS**                                                                           |   |
| **ITEM 1A.**                             | **RISK FACTORS**                                                                                |   |
| **ITEM 5.**                              | **EXHIBITS**                                                                                    |   |

 

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**PART I — FINANCIAL INFORMATION**

 

**ITEM 1.****     ****FINANCIAL STATEMENTS**

 

**TECHNISCAN, INC.**

**(A Development Stage Company)**

**CONDENSED BALANCE SHEETS**

**(unaudited)**

** **
| ** **                                                                                   | ** ** | **March 31,  2010****(as restated)** | ** ** | **December 31,  2009** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------|------------|
|                                                                                         |       | ** **                                |       |                        |       |
| **ASSETS**                                                                                   |       |                                      |       |                        |       |
| Current assets:                                                                              |       |                                      |       |                        |       |
| Cash and cash equivalents                                                                    |       | $                                         | 746,017    |                        | $          | 232,706 |   |
| Debt issuance costs                                                                          |       | 180,627                                   |       | —                      |       |
| Prepaid expenses                                                                             |       | 161,559                                   |       | 271,209                     |       |
| Total current assets                                                                         |       | 1,088,203                                 |       | 503,915                     |       |
|                                                                                         |       |                                      |       |                        |       |
| Property and equipment,  net                                                                 |       | 674,413                                   |       | 617,142                     |       |
|                                                                                         |       |                                      |       |                        |       |
| Deposits                                                                                     |       | 28,153                                    |       | 28,153                      |       |
|                                                                                         |       |                                      |       |                        |       |
| Total assets                                                                                 |       | $                                         | 1,790,769  |                        | $          | 1,149,210 |   |
|                                                                                         |       |                                      |       |                        |       |
| **LIABILITIES AND STOCKHOLDERS’ DEFICIT**                                               |       |                                      |       |                        |       |
| Current liabilities:                                                                         |       |                                      |       |                        |       |
| Accounts payable                                                                             |       | $                                         | 736,484    |                        | $          | 472,367 |   |
| Accrued liabilities                                                                          |       | 365,848                                   |       | 670,638                     |       |
| Convertible notes payable,  net of discount of $1,850,000                                    |       | —                                    |       | —                      |       |
| Embedded derivative  liability                                                               |       | 1,016,897                                 |       | —                      |       |
| Common stock warrant  liability                                                              |       | 2,001,864                                 |       | —                      |       |
| Related-party customer  deposits                                                             |       | 260,000                                   |       | 260,000                     |       |
| Total current liabilities                                                                    |       | 4,381,093                                 |       | 1,403,005                   |       |
|                                                                                         |       |                                      |       |                        |       |
| Deferred rent                                                                                |       | 141,517                                   |       | 139,330                     |       |
| Accrued software license  fees                                                               |       | 250,000                                   |       | 250,000                     |       |
|                                                                                         |       |                                      |       |                        |       |
| Total liabilities                                                                            |       | 4,772,610                                 |       | 1,792,335                   |       |
|                                                                                         |       |                                      |       |                        |       |
| Commitments                                                                                  |       |                                      |       |                        |       |
|                                                                                         |       |                                      |       |                        |       |
| Stockholders’ deficit:                                                                  |       |                                      |       |                        |       |
| Common stock, $.001 par  value: 150,000,000 shares authorized; 20,724,446 shares outstanding |       | 20,724                                    |       | 20,724                      |       |
| Additional paid-in-capital                                                                   |       | 24,766,355                                |       | 24,524,019                  |       |
| Accumulated deficit prior  to development stage                                              |       | (389,393                                  | )          | (389,393                    | )          |
| Accumulated deficit during  development stage                                                |       | (27,379,527                               | )          | (24,798,475                 | )          |
| Total stockholders’  deficit                                                            |       | (2,981,841                                | )          | (643,125                    | )          |
|                                                                                         |       |                                      |       |                        |       |
| Total liabilities and  stockholders’ deficit                                            |       | $                                         | 1,790,769  |                        | $          | 1,149,210 |   |

 

See accompanying notes to the condensedfinancial statements.

 

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**TECHNISCAN, INC.**

**(A Development Stage Company)**

**CONDENSED STATEMENTS OFOPERATIONS**

**(unaudited)**

 
| ** **                                                                | ** ** | **For the Three Months Ended  March 31,** | ** ** | **For the Period From  January 1, 2002  (inception of  development stage)  Through March 31,** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                | ** ** | **2010**                                       | ** ** | ** **                                                                                               | ** ** | **2010** | ** ** |
|                                                                      |       | **(as  restated)**                             |       | **2009**                                                                                                 |       | **(as  restated)** |   |
|                                                                      |       | ** **                                     |       | ** **                                                                                               |       | ** ** |   |
| Revenues:                                                                 |       |                                           |       |                                                                                                     |       |   |   |
| Government grant                                                          |       | $                                              | 88,510     |                                                                                                     | $          | 355,360 |   | $ | 3,133,974 |   |
| Related-party research                                                    |       | —                                         |       | —                                                                                                   |       | 240,000 |   |
| Total revenues                                                            |       | 88,510                                         |       | 355,360                                                                                                  |       | 3,373,974 |   |
|                                                                      |       |                                           |       |                                                                                                     |       |   |   |
| Operating expenses:                                                       |       |                                           |       |                                                                                                     |       |   |   |
| Selling, general and  administrative                                      |       | 919,504                                        |       | 289,700                                                                                                  |       | 13,883,089 |   |
| Research and development                                                  |       | 451,113                                        |       | 325,696                                                                                                  |       | 13,298,870 |   |
| Direct grant                                                              |       | 111,165                                        |       | 215,829                                                                                                  |       | 1,986,321 |   |
| Total operating expenses                                                  |       | 1,481,782                                      |       | 831,225                                                                                                  |       | 29,168,280 |   |
|                                                                      |       |                                           |       |                                                                                                     |       |   |   |
| Loss from operations                                                      |       | (1,393,272                                     | )          | (475,865                                                                                                 | )          | (25,794,306 | ) |
|                                                                      |       |                                           |       |                                                                                                     |       |   |   |
| Interest income                                                           |       | 102                                            |       | 1,021                                                                                                    |       | 55,915 |   |
| Interest expense                                                          |       | (19,121                                        | )          | (109                                                                                                     | )          | (474,836 | ) |
| Loss on derivatives                                                       |       | (1,168,761                                     | )          | —                                                                                                   |       | (1,168,761 | ) |
| Gain on sale of property  and equipment                                   |       | —                                         |       | —                                                                                                   |       | 2,461 |   |
|                                                                      |       |                                           |       |                                                                                                     |       |   |   |
| Net loss                                                                  |       | $                                              | (2,581,052 | )                                                                                                        | $          | (474,953 | ) | $ | (27,379,527 | ) |
|                                                                      |       |                                           |       |                                                                                                     |       |   |   |
| Net loss per common share  - basic and diluted                            |       | $                                              | (0.12      | )                                                                                                        | $          | (0.05 | ) |   |   |
|                                                                      |       |                                           |       |                                                                                                     |       |   |   |
| Weighted average number of  common shares outstanding - basic and diluted |       | 20,724,446                                     |       | 8,710,416                                                                                                |       |   |   |

 

See accompanying notes to the condensedfinancial statements.

 

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**TECHNISCAN, INC.**

**(A Development Stage Company)**

**CONDENSED STATEMENTS OFCASH FLOWS**

**(unaudited)**

 
| ** **                                                                                                    | ** ** | **For the Three Months Ended**             | ** ** | **For the Period  From January  1, 2002  (inception of  development  stage) Through** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                    | ** ** | **March 31,  2010****(as  restated)** | ** ** | **March 31,  2009**                                                                   | ** ** | **March 31,  2010****(as  restated)** | ** ** |
|                                                                                                          |       |                                       |       |                                                                                       |       |   |   |
| CASH FLOWS FROM OPERATING  ACTIVITIES                                                                         |       |                                       |       |                                                                                       |       |   |   |
| Net loss                                                                                                      |       | $                                          | (2,581,052 | )                                                                                          | $          | (474,953 | ) | $ | (27,379,527 | ) |
| Adjustments to reconcile  net loss to net cash used in operating activities:                                  |       |                                       |       |                                                                                       |       |   |   |
| Depreciation and  amortization                                                                                |       | 46,943                                     |       | 10,208                                                                                     |       | 548,890 |   |
| Impairment of intangible  assets                                                                              |       | —                                     |       | —                                                                                     |       | 14,179 |   |
| Gain on sale of property  and equipment                                                                       |       | —                                     |       | —                                                                                     |       | (2,461 | ) |
| Non-cash interest expense                                                                                     |       | —                                     |       | —                                                                                     |       | 383,610 |   |
| Issuance of common stock  for services                                                                        |       | —                                     |       | —                                                                                     |       | 375,000 |   |
| Stock-based compensation                                                                                      |       | 242,336                                    |       | 5,698                                                                                      |       | 1,368,437 |   |
| Loss on derivatives                                                                                           |       | 1,168,761                                  |       | —                                                                                     |       | 1,168,761 |   |
| Changes in assets and  liabilities:                                                                           |       |                                       |       |                                                                                       |       |   |   |
| Accounts receivable                                                                                           |       | —                                     |       | —                                                                                     |       | 267 |   |
| Inventory                                                                                                     |       | —                                     |       | —                                                                                     |       | 61,649 |   |
| Prepaid expenses                                                                                              |       | 109,650                                    |       | 6,230                                                                                      |       | 1,035,287 |   |
| Accounts payable                                                                                              |       | 264,117                                    |       | 3,524                                                                                      |       | 727,564 |   |
| Accrued liabilities                                                                                           |       | (304,790                                   | )          | (30,483                                                                                    | )          | 26,030 |   |
| Related-party customer  deposits                                                                              |       | —                                     |       | —                                                                                     |       | 260,000 |   |
| Deferred rent                                                                                                 |       | 2,187                                      |       | 18,206                                                                                     |       | 141,517 |   |
| Other liabilities                                                                                             |       | —                                     |       | —                                                                                     |       | 250,000 |   |
| Net cash used in operating  activities                                                                        |       | (1,051,848                                 | )          | (461,570                                                                                   | )          | (21,020,797 | ) |
|                                                                                                          |       |                                       |       |                                                                                       |       |   |   |
| CASH FLOWS FROM INVESTING  ACTIVITIES                                                                         |       |                                       |       |                                                                                       |       |   |   |
| Proceeds from sale of  property and equipment                                                                 |       | —                                     |       | —                                                                                     |       | 4,000 |   |
| Purchase of property and  equipment                                                                           |       | (104,214                                   | )          | —                                                                                     |       | (1,121,028 | ) |
| Net cash used in investing  activities                                                                        |       | (104,214                                   | )          | —                                                                                     |       | (1,117,028 | ) |
|                                                                                                          |       |                                       |       |                                                                                       |       |   |   |
| CASH FLOWS FROM FINANCING  ACTIVITIES                                                                         |       |                                       |       |                                                                                       |       |   |   |
| Principal payments on debt                                                                                    |       | —                                     |       | —                                                                                     |       | (79,292 | ) |
| Proceeds from exercise of  stock options and warrants, and from the issuance of stock, net of issuance  costs |       | —                                     |       | 441,873                                                                                    |       | 18,748,587 |   |
| Payment of debt issuance  costs                                                                               |       | (180,627                                   | )          | —                                                                                     |       | (180,627 | ) |
| Proceeds from issuance of  convertible notes payable                                                          |       | 1,850,000                                  |       | —                                                                                     |       | 4,250,000 |   |
| Net cash provided by  financing activities                                                                    |       | 1,669,373                                  |       | 441,873                                                                                    |       | 22,738,668 |   |
|                                                                                                          |       |                                       |       |                                                                                       |       |   |   |
| Net increase (decrease) in  cash and cash equivalents                                                         |       | 513,311                                    |       | (19,697                                                                                    | )          | 600,843 |   |
|                                                                                                          |       |                                       |       |                                                                                       |       |   |   |
| Cash and cash equivalents  at beginning of period                                                             |       | 232,706                                    |       | 269,192                                                                                    |       | 145,174 |   |
|                                                                                                          |       |                                       |       |                                                                                       |       |   |   |
| Cash and cash equivalents  at end of period                                                                   |       | $                                          | 746,017    |                                                                                       | $          | 249,495 |   | $ | 746,017 |   |

 

See accompanying notes to the condensedfinancial statements.

 

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**TECHNISCAN, INC.**

**(A Development Stage Company)**

**CONDENSED STATEMENTS OFCASH FLOWS**

**(Continued)**

**(unaudited)**

 
| ** **                                                                                | ** ** | **For the Three Months Ended**             | ** ** | **For the Period  From January  1, 2002  (inception of  development  stage) Through** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| ** **                                                                                | ** ** | **March 31,  2010****(as  restated)** | ** ** | **March 31,  2009**                                                              | ** ** | **March 31,  2010****(as  restated)** | ** ** |
|                                                                                      |       |                                       |       |                                                                                  |       |   |   |
| **Supplemental  Disclosure of Cash Flow Information:**                                    |       |                                       |       |                                                                                  |       |   |   |
| Cash paid for interest                                                                    |       | $                                          | 12,814     |                                                                                  | $          | — |   | $ | 26,581 |   |
| Cash paid for income taxes                                                                |       | 100                                        |       | 100                                                                                   |       | 900 |   |
| **Supplemental  Disclosure of Noncash Investing and****Financing Activities:**            |       |                                       |       |                                                                                  |       |   |   |
| Embedded derivative  liability associated with convertible notes payable                  |       | $                                          | 1,016,897  |                                                                                  | $          | — |   | $ | 1,016,897 |   |
| Common stock warrant  liability associated with convertible notes payable                 |       | 2,001,864                                  |       | —                                                                                |       | 2,001,864 |   |
| Common stock issued to  stockholders of Castillo, Inc. in connection with the Merger |       | —                                     |       | —                                                                                |       | 6,000 |   |
| Issuance of common stock  for future services                                             |       | —                                     |       | —                                                                                |       | 225,000 |   |
| Conversion of preferred  stock and common stock warrants to common stock                  |       | —                                     |       | —                                                                                |       | 38,937 |   |
| Issuance of Series E  convertible preferred stock for future services                |       | —                                     |       | —                                                                                |       | 1,000,000 |   |
| Conversion of notes  payable, including accrued interest, to preferred stock              |       | —                                     |       | —                                                                                |       | 2,611,831 |   |

 

See accompanying notes to the condensedfinancial statements.

 

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**TECHNISCAN, INC.**

**(A Development Stage Company)**

 

**NOTES TOCONDENSED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.****             ****ORGANIZATION AND DESCRIPTION OF BUSINESS**

 

***Organization***

 

TechniScan, Inc. (the “Company”)(formerly known as Castillo, Inc. or “Castillo”) was originally formed asa Nevada corporation on February 2, 2007. The Company changed its state of incorporation from the state of Nevadato the state of Delaware on October 8, 2009.

 

On October 9, 2009, TechniScan Acquisition, Inc.,a Utah corporation and wholly owned subsidiary of the Company, was merged withand into TechniScan, Inc., a Utah corporation (‘‘TechniScan Utah’’).TechniScan Utah was then immediately merged into the Company (collectivelyreferred to as the ‘‘Merger’’). Pursuant to the Merger, the Company succeededto the business of TechniScan Utah as its sole line of business and changed itsname to TechniScan, Inc. The Merger has been accounted for as a recapitalizationof TechniScan Utah and the historical financial statements prior to the Mergerare those of TechniScan Utah.

 

***Description ofBusiness***

 

TechniScan Utah wasincorporated in 1984 for the purpose of conducting research on advancedultrasound imaging and inverse scatter technology. The Company is in thedevelopment stage, as defined by the Financial Accounting Standards Board (“FASB”)Accounting Standards Codification (“ASC”) Subtopic 915-10, *DevelopmentStage Entities*, as it has not generated significant revenues. Thedevelopment stage began January 1, 2002, when the Company was capitalizedfor research, development and commercialization of innovative medical imagingproducts for the detection and diagnosis of breast cancer.

 

The Company’s commercial focusis the development of an ultrasound-based product known as the Warm BathUltrasound (“WBU”) system that is expected to provide radiologists with uniqueinformation about the bulk properties of tissue in the breast as well as clear images of the tissue structure.

 

***Restatement of Interim FinancialStatements***

 

The net loss for the three months ended March 31,2010 was originally reported as $1,763,782, while the restated net loss isreported as $2,581,052.  The increase of$817,270 includes $47,199 in stock-based compensation and $770,071 ofadditional costs associated with the fair value calculation of the Company’sderivative liabilities.  The restatementof the March 31, 2010 balance sheet resulted in an increase in embeddedderivative of $38,355, an increase in common stock warrant liability of$731,716 and an increase in additional paid-in capital of $47,199.  The increase was a result of the Companychanging the expected volatility assumption in the Black-Scholes option-pricingmodel for both stock-based compensation and derivative liabilities from theDow-Jones Small Cap Medical Equipment Index to the volatility of publiccompanies that are as similar as possible to the Company’s industry, size,financial leverage and stage of life cycle.

 

**2.****             ****SIGNIFICANT ACCOUNTING POLICIES**

 

***Basis of Presentation***

 

The accompanying unaudited condensed financialstatements of the Company are presented on the accrual basis of accounting inaccordance with U.S. generally accepted accounting principles (“GAAP”) forinterim financial information and in accordance with the instructions toForm 10-Q and Article 10 of Regulation S-X. Accordingly, they may notinclude all of the information and notes required by GAAP for completefinancial statements. In the opinion of management, all adjustments (consistingonly of normal recurring accruals) considered necessary for a fair presentationhave been included. Operating results for the three months ended March 31,2010 are not necessarily indicative of results that may be expected forthe year ending December 31, 2010. The condensed balance sheet as ofDecember 31, 2009 has been derived from the Company’s audited financialstatements as of that date, but does not include all of the information andnotes required by GAAP for complete financial statements. For furtherinformation refer to the financial statements and notes thereto included in theCompany’s Annual Report on Form 10-K for the year ended December 31,2009, filed with the Securities and Exchange Commission (“SEC”) onMarch 22, 2010.

 

***Use ofEstimates***

 

The preparation of financial statements in conformitywith GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosures of contingent assetsand liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.

 

***CashEquivalents***

 

The Company considers all highly liquid investmentswith an initial maturity of three months or less to be cash equivalents.

 

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***Concentrationof Credit Risk***

 

Financial instruments that potentially subject theCompany to a concentration of credit risk consist principally of cash and cashequivalents.  The Company places its cashwith one financial institution.  Accountsare secured by the Federal Deposit Insurance Corporation up to $250,000.  At times, balances may exceed federallyinsured limits.

 

***DebtIssuance Costs***

 

Debt issuance costs include costs incurred in connection with the saleof the Company’s convertible notes payable, as well as the issuance ofwarrants, which are being amortized over the six-month term of the notes (seeNote 6).  There has been no amortizationexpense recorded for the period ended March 31, 2010 as the notes wereeffectively issued on March 30, 2010.

 

***Property and Equipment***

 

Property and equipment are recorded at cost anddepreciated using the straight-line method over the estimated useful lives ofthe related assets.

 

***Impairmentof Long-Lived Assets***

 

Long-lived assets of the Company are reviewed forimpairment whenever events or changes in circumstances indicate that thecarrying amounts may not be recoverable, in accordance with FASB ASC Subsection360-10-45, *Impairment or Disposal ofLong-Lived Assets*.

 

***Derivative Instruments***

 

In connection with the sale of debt or equityinstruments, the Company may sell warrants to purchase its common stock. In certain circumstances, these warrants may be classified as derivativeliabilities, rather than as equity.  Additionally, the debt or equityinstruments may contain embedded derivative instruments, such as conversionoptions, which in certain circumstances may be required to be bifurcated fromthe associated host instrument and accounted for separately as a derivativeasset or liability.

 

The accounting for derivative instruments iscomplex.  The Company’s derivative liabilities are re-valued at the end ofeach reporting period, with changes in the fair value of the derivativeliability recorded as charges or credits to other income (expense), in theperiod in which the changes in fair value occur.  For embedded derivativesand warrants that are accounted for as derivative instrument liabilities, theCompany determines the fair value of these instruments using both theBlack-Scholes option-pricing model and the Binomial option-pricingmodel. These models require assumptions related to the expected term ofthe instrument and risk-free rates of return, the Company’s current commonstock price, expected dividend yield and the expected volatility correspondingto the expected life of the instrument.

 

***Revenue Recognition***

 

The Company’s revenues are sourced from federalresearch grants and private and government research contracts. Revenue isrecognized when the following criteria are met: (i) a contractualagreement exists; (ii) products have been delivered or services have beenrendered; (iii) the fee is fixed or determinable, and (iv) collectabilityis reasonably assured.  Government grantrevenue is recognized during the period qualifying expenses are incurred forthe research that is performed as set forth under the terms of the grant awardagreements, and when there is reasonable assurance that we will comply with theterms of the grant.

 

***Direct Grant Expenses***

 

Directgrant expenses consist of costs incurred directly related to performance on thegovernment grants.  These expenses consist primarily of payroll, traveland direct material expenses. These expenses are charged to direct grantexpense as incurred.  Because (1) the Company is incurring the expensesregardless of whether or not a government grant is obtained, (2) the Company isthe primary obligor, (3) the Company has reasonable latitude in establishingthe grant amount, (4) the Company performs the services, (5) the Company hasdiscretion in supplier selection, and (6) the Company determines the specificationsof the research, the direct grant expenses are presented gross of governmentgrant revenues.

 

***Fair ValueMeasurements***

 

As defined in FASB ASC 820, *Fair Value Measurements and Disclosures*, fair value is basedon the price that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants at themeasurement date. In order to increase consistency and comparability in fairvalue measurements, FASB ASC 820 establishes a fair value hierarchy that prioritizesobservable and unobservable inputs used to measure fair value into three broadlevels, which are described below:

 
| Level 1 |   | Quoted prices (unadjusted) in active markets that  are accessible at the measurement date for assets or liabilities.                                                                                           |
|--------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |   |                                                                                                                                                                                                           |
| Level 2 |   | Other inputs that are observable directly or  indirectly, such as quoted prices for similar assets and liabilities or  market corroborated inputs.                                                             |
|         |   |                                                                                                                                                                                                           |
| Level 3 |   | Unobservable inputs that are used when little or no  market data is available, which require the Company to develop its own  assumptions about how market participants would value the assets or  liabilities. |

 

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Determining which category an asset or liability fallswithin the hierarchy requires significant judgment.  The Company evaluates its hierarchydisclosure each quarter.  Assets andliabilities measured at fair value on a recurring basis as of March 31, 2010and December 31, 2009 are summarized as follows:

 
| **Assets**         | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **March 31, 2010** | ** ** |
|--------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------------------|------------|
| Money market funds |       | $           | 715,060    |        | $          | —      |       | $                       | —     |   | $ | 715,060 |   |
|               |       |        |       |        |       |        |       |                    |       |
| Total              |       | $           | 715,060    |        | $          | —      |       | $                       | —     |   | $ | 715,060 |   |

 
| **Liabilities**               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| Embedded derivative liability |       | $          | —     |       | $          | —     |       | $          | 1,016,897  |   | $ | 1,016,897 |   |
| Common stock warrant          |       | —     |       | —     |       | 2,001,864  |       | 2,001,864  |       |
|                          |       |       |       |       |       |       |       |       |       |
| Total                         |       | $          | —     |       | $          | —     |       | $          | 3,018,761  |   | $ | 3,018,761 |   |

 
| **Assets**         | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **December 31, 2009** | ** ** |
|--------------------|------------|-------------|------------|-------------|------------|-------------|------------|----------------------------|------------|
| Money market funds |       | $           | 130,028    |        | $          | —      |       | $                          | —     |   | $ | 130,028 |   |
|               |       |        |       |        |       |        |       |                       |       |
| Total              |       | $           | 130,028    |        | $          | —      |       | $                          | —     |   | $ | 130,028 |   |

 

The following table presents the fair valuereconciliation of Level 3 liabilities measured at fair value on a recurringbasis during the three months ended March 31, 2010:

 
| ** **                                                                 | ** ** | **Fair Value Mearsurments Using**    | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                 | ** ** | **Significant Unobservable  Inputs** | ** ** |
| ** **                                                                 | ** ** | **(Level 3)**                   | ** ** |
| ** **                                                                 | ** ** | **Embedded  Derivative**             | ** ** | **Warrant Derivative** | ** ** | **Total** | ** ** |
|                                                                       |       |                                 |       |   |   |   |   |
| Beginning balance,  December 31, 2009                                 |       | $                                    | —     |   | $ | — |   | $ | — |   |
| Total (gains) losses  included in earnings                                 |       | —                               |       | — |   | — |   |
| Issuances:                                                                 |       |                                 |       |   |   |   |   |
| Embedded derivatives  issued in conjunction with convertible notes payable |       | 1,016,897                            |       | — |   | 1,016,897 |   |
| Warrants issued in  conjunction with convertible notes payable             |       | —                               |       | 2,001,864 |   | 2,001,864 |   |
| Ending balance,  March 31, 2010                                       |       | $                                    | 1,016,897  |   | $ | 2,001,864 |   | $ | 3,018,761 |   |

 

***Net Loss PerCommon Share***

 

Basic net loss per common share (“Basic EPS”) iscomputed by dividing the net loss by the weighted average number of commonshares outstanding. Diluted net loss per common share (“Diluted EPS”) iscomputed by dividing net loss by the sum of the weighted average number ofcommon shares outstanding and the dilutive potential common share equivalentsthen outstanding. Potential common share equivalents consist of the weightedaverage number of shares issuable upon the exercise of outstanding stockoptions and warrants to acquire common stock, and shares issuable uponconversion of convertible debt. If these potential common share equivalents aredilutive, the Company computes Diluted EPS using the treasury stock method.

 

Due to the fact that for all periods presented, theCompany has incurred net losses, weighted average common share equivalents of3,608,643 and 6,335,674 for the three months ended March 31, 2010 and2009, respectively, are not included in the calculation of Diluted EPS becausethey are anti-dilutive.

 

***Operating Segment***

 

The Company conducts business within one operatingsegment.  The Company’s operations areall related to the research and development of its WBU system.  All assets of the business are located in theUnited States.

 

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***RecentAccounting Pronouncements***

 

In March 2010,the FASB issued Accounting Standards Update (“ASU”) No. 2010-11, which isincluded in the Codification under ASC 815.  This update clarifiesthe type of embedded credit derivative that is exempt from embedded derivativebifurcation requirements.  Only an embedded credit derivative that isrelated to the subordination of one financial instrument to another qualifiesfor the exemption.  This guidance became effective for the Company’sinterim and annual reporting periods beginning January 1,2010.  The adoption of this guidance did not have a material impacton the Company’s condensed financial statements.

 

In February 2010, the FASB issued ASUNo. 2010-09, which is included in the Codification under ASC 855, *Subsequent Events* (“ASC 855”).  This updateremoves the requirement for an SEC filer to disclose the date through whichsubsequent events have been evaluated and became effective for interim andannual reporting periods beginning January 1, 2010.  Theadoption of this guidance did not have a material impact on the Company’scondensed financial statements.

 

In January 2010, the FASB issued ASUNo. 2010-06, which is included in the Codification under ASC 820, *Fair Value Measurements and Disclosures* (“ASC 820”).  Thisupdate requires the disclosure of transfers between the observable inputcategories and activity in the unobservable input category for fair valuemeasurements.  The guidance also requires disclosures about theinputs and valuation techniques used to measure fair value and became effectivefor interim and annual reporting periods beginning January 1, 2010.  Theadoption of this guidance did not have a material impact on the Company’scondensed financial statements.

 

**3.****             ****GOING CONCERN**

 

Since entering thedevelopment stage, Company has not generated revenues in excess of expenses andhas been dependent on government grants and equity raised from individualinvestors to sustain its operations. The WBU system has not yet been approvedby the U.S. Food and Drug Administration (“FDA”) for commercial sale.Therefore, the Company has not generated any revenues from non-research productsales. The Company has incurred losses and used cash in operating activitiessince entering the development stage. As of March 31, 2010, the Companyhad an accumulated deficit of $27,768,920, negative working capital of $3,292,890and minimal revenues.  These factors,among others, raise substantial doubt about the Company’s ability to continueas a going concern. The accompanying financial statements do not include anyadjustments that might result from the outcome of this uncertainty.

 

The Company’s plans toaddress its liquidity issues include the (1) sale of debt and equitysecurities, (2) collaboration with third parties to accelerate theintroduction of product and services into the market, and (3) continuedfocus on obtaining approval from the FDA for the Company’s product and servicesto qualify for commercial sale.

 

There can be no assurancethat the Company’s planned sales of debt and equity securities, itscollaborative efforts, or its effort to obtain FDA approval will be successfulor that the Company will have the ability to commercialize its imaging systemand ultimately attain profitability.

 

**4.****             ****PREPAID EXPENSES**

 

Prepaid expenses as ofMarch 31, 2010 and December 31, 2009 consisted of the following:

 
| ** **                     | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|--------------------------------|------------|-------------------------|------------|----------------------------|------------|
| Deferred offering costs        |       | $                       | 112,068    |                       | $          | 42,568 |   |
| Prepaid professional  services |       | 37,500                  |       | 150,000                    |       |
| Prepaid payroll expense        |       | —                  |       | 59,709                     |       |
| Other                          |       | 11,991                  |       | 18,932                     |       |
|                           |       | $                       | 161,559    |                       | $          | 271,209 |   |

 

**5.****             ****ACCRUED LIABILITIES**

 

Accrued liabilities as ofMarch 31, 2010 and December 31, 2009 consisted of the following:

 
| ** **                             | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|----------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| Accrued compensation and  benefits     |       | $                       | 158,646    |                       | $          | 195,811 |   |
| Accrued software license  fees         |       | 150,000                 |       | 150,000                    |       |
| Accrued interest                       |       | 11,767                  |       | —                     |       |
| Other accrued liabilities              |       | 45,435                  |       | 53,465                     |       |
| Liabilities to dissenter  stockholders |       | —                  |       | 271,362                    |       |
|                                   |       | $                       | 365,848    |                       | $          | 670,638 |   |

 

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**6.****             ****CONVERTIBLE NOTES PAYABLE AND DERIVATIVES**

 

On March 30, 2010, theCompany entered into a Note and Warrant Purchase Agreement with five accreditedinvestors pursuant to which the investors purchased senior secured convertiblenotes (“Notes”) in the aggregate amount of $1,850,000.  Of this amount $500,000 was received frommembers of the Company’s Board of Directors. The Notes are due and payable on September 30, 2010, together withaccrued interest at the rate of 10% per annum, unless the principal amount of anote is converted into shares of common stock of the Company, in which case theinterest is payable on the principal at a rate of 12% per annum. The Company isrecording interest at 12%.   At itsoption, the Company may prepay all of the outstanding principal and accruedinterest on the Notes, subject to a prepayment charge of 10% of the principalamount of the Notes.  The Notes areconvertible in whole or in part at any time at the option of the holder of theNote into the number of shares equal to the principal amount of the Note andall accrued interest divided by $2.68, subject to customary adjustments as setforth in the Notes for stock splits, stock dividends, etc. In addition, inthe event that the Company receives cash investments from one or more investorsin one or more transactions for gross proceeds of not less than $5,000,000 inexchange for the issuance of shares or any other securities that areconvertible into or exercisable for shares at any time between March 30,2010 and September 30, 2010, the Notes are convertible into shares at thesame price and on the same terms as the investors.

 

In conjunction with theNotes, the Company issued warrants (“Warrants”) to investors to purchase anaggregate of 690,301 shares of the Company’s common stock.  The exercise price per share is $2.68, subjectto customary adjustments as set forth in the Warrants for stock splits, stockdividends, etc.  The Warrants expirefive years from the date of grant.

 

The Notes and Warrantscontain a provision which adjusts the exercise price of the Notes and Warrantsif the Company issues or sells common stock or securities convertible intocommon stock at a price per share, or equivalent price per share lower than$2.68.  The Company assessed the terms ofthe Notes and Warrants in accordance with ASC Topic 815 - 40, and determinedthat the underlying terms of the Notes and Warrants are not indexed to theCompany’s common stock. Therefore, the conversion option and the warrants areaccounted for as an embedded derivative and as a derivative, respectively, andare valued at fair value at the date of issuance and each subsequent interimperiod.

 

Pursuant to certainprepayment provisions set forth in the Notes, including the Company’s failureto file a registration statement covering the “resale” ofall of the shares issuable upon conversion of the Notes and exercise of theWarrants by May 30, 2010, the investors have the right, at the investors’option to require the Company to prepay all or a portion of the Notes in cashat a price equal to the greater of (1) 125% of the aggregate principalamount of the Notes plus all accrued and unpaid interest and (2) theaggregate principal amount of the Notes plus all accrued and unpaid interest,divided by the conversion price on the date the investor demands payment,pursuant to this provision or the date the payment is actually made by theCompany to the investor pursuant to this provision, whichever is less,multiplied by the daily volume weighted average price of the Company’s commonstock on the greater of either of the two dates used to determine theconversion price in connection with a payment pursuant to this provision.  The prepayment provisions are embeddedderivates and the fair value of the prepayment penalties are included in theembedded derivative liability.

 

As of March 30, 2010,the fair value of the liabilities were $1,016,897 and $2,001,864 for theembedded derivatives on the Notes and the derivatives on the Warrants,respectively.  As a result, the Companyrecorded a discount of $1,850,000 on the convertible notes payable, embeddedderivatives of $1,016,897, a warrant liability of $2,001,864 and an inceptionloss of $1,168,761. The fair values of the derivatives as of March 31,2010 and March 30, 2010 were identical. The fair values of the derivatives were determined using the followingassumptions:

 

***EmbeddedDerivatives***

* *
| ** **                        | ** ** | **March 30,** | ** ** | **March 31,** | ** ** |
|-----------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                        | ** ** | **2010**           | ** ** | **2010**           | ** ** |
| Expected volatility               |       | 46.10              | %          | 46.10              | %          |
| Expected life, range in  years    |       | 0.5                |       | 0.5                |       |
| Expected dividend yield on  stock |       | 0.00               | %          | 0.00               | %          |
| Risk free interest rate  range    |       | 0.28               | %          | 0.28               | %          |

 

***Common StockWarrant Liability***

 
| ** **                        | ** ** | **March 30,** | ** ** | **March 31,** | ** ** |
|-----------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                        | ** ** | **2010**           | ** ** | **2010**           | ** ** |
| Expected volatility               |       | 69.00              | %          | 69.00              | %          |
| Expected life, range in  years    |       | 5                  |       | 5                  |       |
| Expected dividend yield on  stock |       | 0.00               | %          | 0.00               | %          |
| Risk free interest rate  range    |       | 2.63               | %          | 2.63               | %          |

 

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**7.****             ****STOCKHOLDERS’ DEFICIT**

 

***RetroactivePresentation for Reverse Common Stock Split***

 

Effective June 28, 2010, the Company implementeda 1-for-4 reverse stock split of its issued and outstanding common stock.  All common share and per share information inthe accompanying condensed financial statements have been retroactivelyrestated to reflect the reverse common stock split.

 

***Stock Options***

 

Under the Company’s ComprehensiveManagement Incentive Plan (the “Plan”), the number of options authorized islimited to 18 percent of the total outstanding common shares.  As of March 31, 2010, the number ofoptions authorized was 3,730,400.

 

As of March 31, 2010,there was $1,236,532 of total unrecognized compensation cost with a weightedaverage vesting period of 1.92 years related to unvested share-basedcompensation arrangements granted under the Plan.  The total fair value of shares vested duringthe three months ended March 31, 2010 was $171,466.

 

A summary of the status ofthe Company’s stock options as of March 31, 2010 and changes during theperiod then ended are presented in the table below:

 
| ** **                                        | ** ** | **Three Months Ended  March 31, 2010** | ** ** |
|---------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                        | ** ** | **Number of  Options  Outstanding**         | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Contractual  Term (Years)** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
| Options outstanding as of  December 31, 2009 |       | 3,596,195                                   |       | $ | 1.55 |   |   |   |   |   |
| Granted                                           |       | 5,000                                       |       | 3.36 |   |   |   |   |   |
| Exercised                                         |       | —                                      |       | — |   |   |   |   |   |
| Forfeited                                         |       | (10,000                                     | )          | 1.50 |   |   |   |   |   |
| Options outstanding as of  March 31, 2010    |       | 3,591,195                                   |       | 1.55 |   | 4.78 |   | $ | 8,792,494 |   |
| Options exercisable as of  March 31, 2010    |       | 3,124,945                                   |       | 1.56 |   | 4.61 |   | 7,639,369 |   |
|                                                   |            |                                             |            |  |  |  |  |  |  |  |  |

 

A summary of the Company’s non-vested options for theperiod ended March 31, 2010 is presented below:

 
| ** **                              | ** ** | **Shares** | ** ** | **Weighted Average  Grant-Date Fair Value** | ** ** |
|-----------------------------------------|------------|------------|------------|---------------------------------------------|------------|
| Nonvested as of  December 31, 2009 |       | 525,000    |       | $                                           | 3.34       |   |
| Granted                                 |       | 5,000      |       | 1.08                                        |       |
| Vested                                  |       | (63,750    | )          | (3.20                                       | )          |
| Forfeited                               |       | —     |       | —                                      |       |
| Nonvested as of  March 31, 2010    |       | 466,250    |       | 3.34                                        |       |
|                                         |            |            |            |                                             |            |  |

 

The Company uses the Black-Scholes option-pricingmodel to estimate the value of its share-based payments. The assumptions usedin the Black-Scholes option-pricing model for the three months ended March 31,2010 are set forth in the following table. The expected volatility is based onthe volatility of public companies that are similar to the Company’s industry,size, financial leverage and stage of life cycle.  . The Company calculated the historicalvolatility of these companies using the daily closing total returns for aperiod of time equal to the expected term of the options immediately prior tothe grant date. The Company uses historical data to estimate option exerciseand employee termination patterns. The expected term of the options grantedrepresents the period of time that options granted are expected to beoutstanding. The risk free rate for periods within the contractual life of theoption is based on the U.S. treasury securities constant maturity rate thatcorresponds to the expected term in effect at the time of grant.  The fair value of common stock is based onclosing stock quotes for the Company’s common stock.

 
| Expected volatility               |   | 91.04             | %      |
|-----------------------------------|--------|-------------------|--------|
| Expected life, range in  years    |   | 6.25              |   |
| Expected dividend yield on  stock |   | 0.00              | %      |
| Risk free interest rate  range    |   | 3.85              | %      |
| Fair value of common stock        |   | $  3.36 |   |

 

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**8. SUBSEQUENT EVENTS**

 

Subsequent to March 31, 2010, the Companyreceived $700,000 in connection with the issuance of Notes.  Of this amount $100,000 was received from amember of the Company’s Board of Directors.

 

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**ITEM2.      MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

**STATEMENT ON FORWARD-LOOKING INFORMATION**

 

*This report onForm 10-Q contains certain forward-looking statements.  Allstatements other than statements of historical fact are “forward-lookingstatements” for purposes of these provisions, including any projections ofearnings, revenues, or other financial items; any statements of the plans,strategies, and objectives of management for future operations; any statementsconcerning proposed new products, services, or developments; any statementsregarding future economic conditions or performance; statements of belief; andany statement of assumptions underlying any of the foregoing. Suchforward-looking statements are subject to inherent risks and uncertainties, andactual results could differ materially from those anticipated by theforward-looking statements.*

 

*These forward-lookingstatements involve significant risks and uncertainties, including, but not limitedto, the following: competition, promotional costs, and risk of decliningrevenues.  Our actual results could differ materially from thoseanticipated in such forward-looking statements as a result of a number offactors.  These forward-looking statements are made as of the date of thisfiling, and we assume no obligation to update such forward-looking statements. The following discusses our financial condition and results of operationsbased upon our financial statements which have been prepared in conformity withaccounting principles generally accepted in the United States of America. It should be read in conjunction with our financial statements and thenotes thereto included elsewhere herein.*

 

The following discussion and analysis provides informationwhich our management believes to be relevant to an assessment and understandingof our results of operations and financial condition.  The discussion should be read together withour financial statements and the notes to the financial statements, which areincluded in this report.

 

Our financial statements prior to the Merger are thefinancials of TechniScan Utah. Pursuant to the Merger, TechniScan Utah’sfinancial statements became our financial statements.

 

**Overview**

 

We are a development stage company. Our developmentstage began January 1, 2002 when we were capitalized for the research,development, and commercialization of innovative medical imaging products forthe detection and diagnosis of breast cancer. We consider our operations tocomprise one business segment.

 

Our current commercial focus is the development of anultrasound-based product, the WBU system, that is expected to provideradiologists with information about the bulk properties of tissue in the breastas well as useful images of the tissue structure.

 

Our technology has been developed through researchsupported, in part, by federal research grants and private and governmentresearch contracts.

 

From inception through March 31, 2010, we havegenerated revenues solely from grants and research contracts. The WBU systemhas not yet been approved by the FDA for commercial sale; therefore, we havenot yet generated revenues from non-research product sales. We have incurredlosses since we began operating. As of March 31, 2010 and December 31,2009, we had an accumulated deficit of $27,768,920 and $25,187,868,respectively. To date, we have been dependent on debt and equity funding tosupport our operations, and we will continue to be dependent on similarfinancing to support our operations until we generate significant revenues fromthe WBU system. There is substantial doubt about our ability to continue as agoing concern, and no adjustments have been reflected in our financialstatements that may result from the outcome of this uncertainty.

 

**Recent Developments**

 

*Reverse Common Stock Split*

 

EffectiveJune 28, 2010, we implemented a 1-for-4 reverse stock split of our issuedand outstanding common stock pursuant to an amendment to our Certificate ofIncorporation. Our 82,897,454 issued and outstanding shares of common stockwere reduced to 20,724,446 shares. The total number of shares of common stockwe are authorized to issue was not proportionally reduced, however, and remains150,000,000. The reverse common stock split was unanimously approved by ourBoard on June 2, 2010 and by holders of a majority of our issued andoutstanding common stock, present in person or by proxy, at a special meetingof our stockholders on June 18, 2010. All share and per share amounts in thisForm 10-Q/A reflect the 1-for-4 reverse common stock split.

 

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*SeniorSecured Convertible Promissory Notes*

 

OnMarch 30, 2010, we entered into a Note and Warrant Purchase Agreement withfive accredited investors pursuant to which the investors purchased seniorsecured convertible promissory notes in the aggregate principal amount of$1,850,000. Of this amount $500,000 was received from members of our Board ofDirectors.

 

The notes are due and payable on September 30,2010, together with accrued interest at the rate of 10% per annum, unless theprincipal amount of a note is converted into shares of our common stock, inwhich case interest is payable on the principal at a rate of 12% perannum.  We are recording interest at12%.  At our option, we may prepay all ofthe outstanding principal and accrued interest on all of the notes, subject toa prepayment charge of 10% of the principal amount of the notes.  The notes are convertible in whole or in partat any time at the option of the holder of the note into that number of sharesequal to the principal amount of the note and all accrued interest divided by$0.67, subject to customary adjustments as set forth in the notes for stocksplits, stock dividends, etc.  Inaddition, in the event that we receive cash investments from one or moreinvestors in one or more transactions for gross proceeds of not less than$5,000,000 in exchange for the issuance of shares or any other securities thatare convertible into or exercisable for shares at any time betweenMarch 30, 2010 and September 30, 2010, the notes are convertible intoshares at the same price and on the same terms as the investors.

 

In conjunction with the notes, we issued warrants toinvestors to purchase an aggregate of 951,499 shares of our common stock.  The exercise price per share is $2.68,subject to customary adjustments as set forth in the warrants for a decrease instock price below $2.68, stock splits, stock dividends, etc.  The warrants expire five years from the dateof the grant.

 

We also entered into a Registration Rights Agreementwith the investors pursuant to which we agreed to file a “resale” registrationstatement covering all of the shares issuable upon conversion of the notes andexercise of the warrants by May 14, 2010, which was subsequently extendedto May 31, 2010.  Furthermore, inconnection with the Note and Warrant Purchase Agreement, we granted theinvestors a security interest in all of our personal property now owned orhereafter acquired pursuant to a Security Agreement and a Patent, Trademark andCopyright Agreement.

 

**Significant AccountingPolicies**

 

*Revenues*

 

Since inception, we have generated revenues from federalresearch grants and private and government research contracts. We recognizerevenues when services have been provided and invoiced to the federalgovernment or other research partners.

 

During the three months ended March 31, 2010 and2009, we recognized revenues in connection with federal grants from theDepartment of Health and Human Services for cancer treatment research.  In March 2009, a second no-costextension was applied for and received on our Ultrasound QuantitativeBackscatter and Inverse Scattering (“QUB”) grant as well as on ourThermoacoustic and Inverse Scattering Breast Cancer Scanner (“Thermoacoustic”)grant extending the period on both grants to March 28, 2010 andMarch 31, 2010 respectively. The QUB Grant was completed by March 31,2010.  In March 2010, we applied for and received a third no-costextension on the Thermoacoustic Grant extending the period to March 31,2011.

 

The FDA has not approved the WBU system for commercialsale; therefore, we have not generated revenues from commercial product sales.

 

*Operating Expenses*

 

We classify our operating expenses between selling,general and administrative expenses, research and development expenses  and direct grant expenses..

 

Selling, general and administrative expenses consistprimarily of personnel and personnel-related costs for employees andcontractors engaged in business development, regulatory, executive, finance,accounting, human resources, information technology, marketing and legal roles.These costs also include general corporate costs such as rent for the corporateoffices, insurance, depreciation on information technology equipment, andstock-based compensation expenses that are not allocated to research anddevelopment and direct grant expenses.

 

Research and development expenses consist primarily ofpersonnel and personnel-related costs for employees and contractors engaged inthe development of the WBU technology, as well as indirect costs supportingthese activities, including allocated depreciation and amortization of propertyand equipment and allocated rent for research facilities.

 

Direct grant expenses consist primarily of personneland personnel-related costs for employees and contractors engaged on projectsspecified within the scope allowed by specific federal grants, as well as thecost of direct equipment and materials.

 

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*Income Taxes*

 

We have significant deferred income tax assetsresulting primarily from net operating loss carryforwards and research anddevelopment tax credit carryforwards. These deferred income tax assets mayreduce taxable income in future periods, if any. A valuation allowance isrequired when it is more likely than not that all or a portion of the deferredincome tax assets will not be realized. We have recorded a valuation allowanceagainst the deferred income tax assets that are not offset by deferred incometax liabilities because there is significant uncertainty as to our ability togenerate sufficient profits to realize these deferred income tax assets.

 

**Critical Accounting Policiesand Use of Estimates**

 

*Use of Estimates*

 

In preparing the financial statements in accordancewith GAAP, our management makes estimates and assumptions that affect thereported amounts of assets and liabilities and the disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.

 

*Inventory*

 

Inventory is stated at the lower of cost or marketvalue. Cost is determined using the first-in, first-out method. Inventoryconsists of raw materials and work in process. As appropriate, provisions aremade to reduce inventory to its net realizable value. The cost of inventorythat potentially may not sell prior to expiration or is deemed to have nocommercial value has been written-off when identified. Net inventory has beenvalued at zero as of March 31, 2010 and December 31, 2009.

 

*Derivative Instruments*

 

In connection with the sale of debt or equityinstruments, we may sell warrants to purchase our common stock.  Incertain circumstances, these warrants may be classified as derivativeliabilities, rather than as equity.  Additionally, the debt or equityinstruments may contain embedded derivative instruments, such as conversionoptions, which in certain circumstances may be required to be bifurcated fromthe associated host instrument and accounted for separately as a derivativeasset or liability.

 

The accounting for derivative instruments iscomplex.  Our derivative instrument liabilities are re-valued at the endof each reporting period, with changes in the fair value of the derivativeliability recorded as charges or credits to other income (expense), in theperiod in which the changes in fair value occur.  For embedded derivativesand warrants that are accounted for as derivative instrument liabilities, wedetermine the fair values of these instruments using the Black-Scholesoption-pricing model and the Binomial option-pricing model.  These models require assumptions related tothe expected term of the instrument and risk-free rates of return, our currentcommon stock price, expected dividend yield and the expected volatilitycorresponding to the expected life of the instrument.

 

*Revenue Recognition*

 

Our revenues are sourced from federal research grantsand private and government research contracts. Revenue is recognized when thefollowing criteria are met: (i) a contractual agreement exists; (ii) productshave been delivered or services have been rendered; (iii) the fee is fixedor determinable, and (iv) collectability is reasonably assured.  Government grant revenue is recognized duringthe period qualifying expenses are incurred for the research that is performedas set forth under the terms of the grant award agreements, and when there isreasonable assurance that we will comply with the terms of the grant.

 

*Patent Costs*

 

Since entering the development stage, legal costsincurred to register and defend patents have been expensed as incurred due tothe uncertainty surrounding future cash flows and future benefits to berealized from those patents.

 

*Stock-based Compensation*

 

We account for stock-based compensation in accordancewith FASB ASC 718, *Stock Compensation*.Stock-based compensation for stock options is estimated at the grant date basedon each option’s value as calculated by the Black-Scholes option-pricing model.Prior to the Merger, stock-based payments to employees are grants of stockoptions that are recognized in the statement of operations based on thecalculated value at the date of grant instead of the fair value because it hasnot been practical to estimate the volatility of the share price. Thecalculated value method requires that the volatility assumption used in an option-pricingmodel be based on the historical volatility of an appropriate industry sectorindex. Subsequent to the Merger, we anticipate calculate the fair value ofstock 

 

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options instead of the calculated value using thevolatility of comparable companies when sufficient stock trading history toestimate volatility is available, which is anticipated to occur during the yearending December 31, 2010.

 

We use the Black-Scholes option-pricing model toestimate the value of our share-based payments. Prior to the Merger, the fairvalue of common stock is based on the cash paid by unrelated investors for theCompany’s stock.  Subsequent to therecapitalization, the fair value of common stock is based on closing stockquotes for the Company’s common stock. Prior to the Merger, the expected volatility was based on the volatilityof the Dow Jones Small Cap Medical Equipment Index. Subsequent to the Merger,the expected volatility is based on the volatility of public companies that aresimilar to the Company’s industry, size, financial leverage and stage of lifecycle.  We calculated expected volatilityusing the daily closing total returns for these similar companies for a periodof time equal to the expected term of the options immediately prior to thegrant date. We use historical data to estimate option exercise and employeetermination patterns. The expected term of the options granted represents theperiod of time that the options granted are expected to be outstanding. Therisk free rate for the periods within the contractual life of the option isbased on the United States treasury securities constant maturity rate thatcorresponds to the expected term in effect at the time of grant.

 

**Results of Operations**

 

**For the Three Months Ended March 31, 2010 compared to the ThreeMonths Ended March 31, 2009**

 

*Revenues*

* *
| ** **       | ** ** | **For the Three Months Ended  March 31,** | ** ** | ** ** | ** ** |
|------------------|------------|------------------------------------------------|------------|------------|------------|
| ** **       | ** ** | **2010**                                       | ** ** | **2009**   | ** ** | **% Change** | ** ** |
| Government grant |       | $                                              | 88,510     |       | $          | 355,360 |   | -75 | % |
|                  |            |                                                |            |            |            |  |  |  |  |

 

Government grant revenues decreased $266,850, or 75%,for the three months ended March 31, 2010 as compared to the three monthsended March 31, 2009. This decrease in revenues is the result of decreasedexpenditures incurred on the second phase of our Inverse Scatter Breast Scan (“SBIR”)grant, as well as decreased expenditures on the QUB grant and theThermoacoustic grant. All of the current grants are nearing the end of theawarded amount and the proposed scope of the work. Grant revenues are expectedto decline with the primary emphasis shifting to the subcontract work ofcompleting the clinical studies under our largest Small Business InnovativeResearch Award.

 

*Operating Expenses*

* *
| ** **                           | ** ** | **For the Three Months Ended  March 31,** | ** ** | ** ** | ** ** |
|--------------------------------------|------------|------------------------------------------------|------------|------------|------------|
| ** **                           | ** ** | **2010**                                       | ** ** | **2009**   | ** ** | **% Change** | ** ** |
| Operating Expenses                   |       |                                           |       |       |       |   |   |
| Selling, general and  administrative |       | $                                              | 919,504    |       | $          | 289,700 |   | 217 | % |
| Research and development             |       | 451,113                                        |       | 325,696    |       | 39 | % |
| Direct grant                         |       | 111,165                                        |       | 215,829    |       | -48 | % |
|                                      |            |                                                |            |            |            |  |  |  |  |

 

Selling, general and administrative expenses increased$629,804, or 217%, for the three months ended March 31, 2010, as comparedto the three months ended March 31, 2009. This increase was primarily due to the following:

 

·      stock-basedcompensation of $236,162 primarily due to options that were granted toemployees and directors during the fourth quarter of 2009;

·      professionalfees of $154,660 for legal and accounting services;

·      marketingexpenses of $128,700 primarily due to costs associated with public relations;

·      traveland related costs of $28,566;

·      boardof director fees of $25,000;

·      compensationand related costs of $23,093 primarily due to the Company previously reducingemployees wages for the three months ended March 31, 2009; and

·      otherselling, general and administrative expenses of $33,623.

 

Research and development expense increased $125,417,or 39%, for the three months ended March 31, 2010, as compared to thethree months ended March 31, 2009. This increase was primarily due to the following:

 

·      Compensation and relatedcosts of $83,684 primarily due to the Company previously reducing wages duringthe three months ended March 31, 2009;

·      Depreciation expense of$29,387 and

 

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·      Other research anddevelopment expenses of $12,346.

 

Direct grant expense decreased $104,664, or 48%, forthe three months ended March 31, 2010, as compared to the three monthsended March 31, 2009.  This decreaseis primarily the result of decreased expenditures on the SBIR grant, as well asexpenditures incurred in connection with the QUB and Thermoacoustic grants.

 

*Other Income and Expenses*

* *
| ** **                | ** ** | **For the Three Months Ended  March 31,** | ** ** | ** ** | ** ** |
|---------------------------|------------|------------------------------------------------|------------|------------|------------|
| ** **                | ** ** | **2010**                                       | ** ** | **2009**   | ** ** | **% Change** | ** ** |
| Other income and expenses |       |                                           |       |       |       |   |   |
| Interest income           |       | $                                              | 102        |       | $          | 1,021 |   | -90 | % |
| Interest expense          |       | (19,121                                        | )          | (109       | )          | 17,442 | % |
| Loss on derivatives       |       | (1,168,761                                     | )          | —     |       | N/A |   |
|                           |            |                                                |            |            |            |  |  |  |  |

 

Interest income decreased $919, or 90% for the threemonths ended March 31, 2010, as compared to the three months endedMarch 31, 2009, primarily as the result of lower interest-bearing cash andcash equivalent balances during the three months ended March 31, 2010.

 

Interest expense increased as a result of interestthat was paid to the dissenter stockholders during March 2010 as well asinterest expense being incurred on the convertible notes payable.

 

Loss on derivatives increased as a result of thevaluation of our derivative financial instruments associated with ourconvertible notes payable issued during the three months ended March 31,2010, as detailed in the notes to the financial statements.

 

**Results of Operations for the Development Stage**

 

Since the inception of our development stage(January 1, 2002) through March 31, 2010, we have generated$3,133,974 of revenues from government grants and have experienced cumulativenet losses of $27,379,527. Selling, general and administrative expenses were$13,883,089, research and development expenses were $13,298,870, and directgrant expenses were $1,986,321 for the development stage period. All researchand development costs are expensed as they are incurred, which include, but arenot limited to, personnel, prototype materials, lab supplies, consulting andresearch-related overhead.

 

**Liquidity and Capital Resources/Plan of Operations for the Next 12Months**

** **
| ** **                                 | ** ** | **For the Three Months Ended  March 31,** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|------------------------------------------------|------------|------------|------------|
| ** **                                 | ** ** | **2010**                                       | ** ** | **2009**   | ** ** | **% Change** | ** ** |
|                                       |       |                                           |       |       |       |   |   |
| Net cash used in operating  activities     |       | $                                              | (1,051,848 | )          | $          | (461,570 | ) | 128 | % |
| Net cash used in investing  activities     |       | (104,214                                       | )          | —     |       | N/A |   |
| Net cash provided by  financing activities |       | 1,669,373                                      |       | 441,873    |       | 278 | % |
|                                            |            |                                                |            |            |            |  |  |  |  |

 

Duringthe development stage, we have not generated revenues in excess of expenses andhave been dependent on government grants and equity raised from individualinvestors to sustain our operations. Our WBU system has not been approved bythe FDA for commercial sale. Therefore, we have not generated revenues fromnon-research product sales. We have incurred losses and used cash in operatingactivities since inception. As of March 31, 2010, we had an accumulateddeficit of $27,768,920 and negative working capital of $3,292,890. We have hadminimal revenues since inception. Until (1) our WBU system is approved bythe FDA for commercial sale, (2) we realize income from operations, and (3) wegenerate cash from operating activities, we expect our short and long-termliquidity issues and uncertainties to remain.

 

Weplan to address our liquidity issues through the sale of equity securities,collaboration with third parties to accelerate the introduction of product andservices into the market, and continued focus on obtaining approval from theFDA for our product and services to qualify for commercial sale. We haveimplemented cost reductions with the implementation of 20% reductions in salarybeginning June 1, 2010 to assist in decreasing our cash needs.

 

*OperatingActivities*

 

Weused cash in operating activities of $1,051,848 for the three months endedMarch 31, 2010, as compared to using $461,570 for the three months endedMarch 31, 2009. We continue to use significant amounts of cash as we moveour product development efforts forward. The main underlying driver of cashused in operating activities is our net loss, which fluctuates based on changesin our

 

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revenuesand expenses as described in the above Results of Operations. Until our WBUsystem is approved by the FDA for commercial sale and we realize income fromoperations, we expect to continue using cash in operating activities in amountsthat fluctuate from period to period based in large part on the level ofexpenses incurred compared to revenues generated. We have used cash inoperating activities of $21,020,797 from the inception of the development stage(January 1, 2002) through March 31, 2010.

 

*Investing Activities*

 

We used cash from investing activities of $104,214 forthe three months ended March 31, 2010, for the purchase of equipment. Incomparison, we had no cash from investing activities for the three months endedMarch 31, 2009. We have used cash in investing activities of $1,117,028from the inception of the development stage (January 1, 2002) throughMarch 31, 2010.

 

*Financing Activities*

 

We generated cash from financing activities of$1,669,373 for the three months ended March 31, 2010, as compared to$441,873 for the three months ended March 31, 2009, primarily from theissuance of convertible notes, net of discounts. We have generated cash fromfinancing activities of $22,738,668 from the inception of the development stage(January 1, 2002) through March 31, 2010. We expect to continue toseek additional funding to meet our working capital requirements through theissuance of debt and the sale of our equity securities. There can be noassurance, however, that additional funds will be available from any of theforegoing or other sources on favorable terms, if at all.

 

Our future capital requirements will depend on manyfactors, including cash flows from operating activities, technologydevelopments, and our ability to develop and successfully market the WBU systemand other new products. We expect that we will need to raise additionalcapital, through other equity offerings or debt financings to satisfy ouranticipated operations, expenses and capital requirements for the next twelvemonths or longer. Because of our accumulated deficit, rate of cash used inoperating activities, negative working capital, minimal revenues, and otherfactors, substantial doubt exists about our ability to continue as a goingconcern.

 

***Recent Accounting Pronouncements***

 

In March 2010,the FASB issued Accounting Standards Update (“ASU”) No. 2010-11, which isincluded in the Codification under ASC 815.  This update clarifiesthe type of embedded credit derivative that is exempt from embedded derivativebifurcation requirements.  Only an embedded credit derivative that isrelated to the subordination of one financial instrument to another qualifiesfor the exemption.  This guidance became effective for our interimand annual reporting periods beginning January 1, 2010.  Theadoption of this guidance did not have a material impact on our condensedfinancial statements.

 

In February 2010, the FASB issued ASUNo. 2010-09, which is included in the Codification under ASC 855, *Subsequent Events* (“ASC 855”).  This updateremoves the requirement for an SEC filer to disclose the date through whichsubsequent events have been evaluated and became effective for our interim andannual reporting periods beginning January 1, 2010.  Theadoption of this guidance did not have a material impact on our condensedfinancial statements.

 

In January 2010, the FASB issued ASUNo. 2010-06, which is included in the Codification under ASC 820, *Fair Value Measurements and Disclosures* (“ASC 820”).  Thisupdate requires the disclosure of transfers between the observable inputcategories and activity in the unobservable input category for fair valuemeasurements.  The guidance also requires disclosures about theinputs and valuation techniques used to measure fair value and became effectivefor our interim and annual reporting periods beginning January 1,2010.  The adoption of this guidance did not have a material impacton our condensed financial statements.

 

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**ITEM 3.****          ****QUANTITATIVE AND QUALITATIVEDISCLOSURE ABOUT MARKET RISK**

 

Not required.

 

**ITEM 4T. CONTROLS AND PROCEDURES**

 

**Evaluation of Disclosure Controls and Procedures (Revised)**

 

Wemaintain disclosure controls and procedures (as defined in 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended, which werefer to as the Exchange Act), designed to ensure that information required tobe disclosed in our reports under the Exchange Act is recorded, processed,summarized and reported on a timely basis and accumulated and made known tomanagement, including our Chief Executive Officer and our Chief FinancialOfficer, to allow timely decisions regarding required disclosures.

 

Inconnection with the preparation of this Quarterly Report on Form 10-Q/A,as of the end of the fiscal period covered by this Quarterly Report on Form 10-Q/A(March 31, 2010), the Company performed an evaluation, under thesupervision and with the participation of the Company’s management, includingour Chief Executive Officer and our Chief Financial Officer, of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures pursuant to Rules 13a-15(b) and 15d-15(b) underthe Exchange Act.

 

Aftergiving effect to the restatement referred to below and based on an evaluationof our disclosure controls and procedures as of the end of the period coveredby this Form 10-Q/A conducted by our management, with the participation ofour Chief Executive Officer and our Chief Financial Officer, our ChiefExecutive Officer and our Chief Financial Officer concluded that our disclosurecontrols and procedures were ineffective in providing reasonable assurance thatinformation required to be disclosed in the reports we file or submit under theExchange Act is recorded, processed, summarized and reported when required andthat such information is accumulated and communicated to management in a mannerthat allows timely decisions regarding required disclosure. In light of thismaterial weakness, the Company performed additional analysis and post-closingprocedures to ensure the Company’s financial statements were prepared inaccordance with U.S. generally accepted accounting principles. After givingeffect to the restatement referred to below, and subject to the statementsbelow regarding our inability to maintain effective controls over thedetermination and reporting of stock-based compensation expense and costsassociated with the fair value calculation of the Company’s derivativeliabilities, the Company’s management has concluded that the financialstatements included in this Form 10-Q/A present fairly in all materialrespects the Company’s financial position, results of operations and cash flowsfor the periods presented.

 

Thecertifications of our Chief Executive Officer and our Chief Financial Officerrequired in accordance with Section 302 of the Sarbanes-Oxley Act of 2002are attached as exhibits to this Form 10-Q/A. The disclosures set forth inthis Item 4T contain information concerning (i) the evaluation of ourdisclosure controls and procedures referred to in paragraph 4 of thecertifications, and (ii) material weaknesses in the design or operation ofour internal control over financial reporting referred to in paragraph 5 ofthose certifications. Those certifications should be read in conjunction withthis Item 4T for a more complete understanding of the matters covered by thecertifications.

 

**Discussion of Material Weakness**

 

Management’sassessment identified a material weakness in the Company’s internal controlover financial reporting. As of March 31, 2010, the Company did notmaintain effective controls over the determination and reporting of stock-basedcompensation expense and the fair value calculation of the Company’s derivativeliabilities.  This deficiency resulted inthe restatement of the Company’s condensed interim financial statements for thequarter ended March 31, 2010.

 

**Remediation Efforts**

 

Theremediation efforts, as outlined below, are designed to address the materialweakness identified by management and to strengthen the Company’s internalcontrol over financial reporting.

 

Beginningin the second quarter of 2010, the Company implemented the followingremediation steps to address this material weakness discussed above and toimprove its internal controls over financial reporting:

 

·                  We have engaged outsideconsultants to assist management in the valuation of our embedded 

 

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derivatives.

·                  We intend toraise additional capital to facilitate hiring additional accounting staff asneeded to assist with our financial reporting processes.

 

Webelieve that these remediation actions will improve our internal control. Whilewe have taken steps to remediate the material weakness, additional measures maybe required. The Company anticipates that it will complete its testing of theadditional internal control processes designed to remediate the previouslydisclosed material weakness in 2010. We will continue to assess theeffectiveness of our remediation efforts in connection with our management’stests of internal control over financial reporting in conjunction with ourannual and quarterly reports.

 

**Changes in Internal Control Over Financial Reporting**

 

Therewere no changes in internal control over financial reporting during the quarterended March 31, 2010 that have materially affected or are reasonablylikely to materially affect, the Company’s internal control over financialreporting.

 

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**PART II — OTHER INFORMATION**

 

**ITEM 1.****          ****LEGAL PROCEEDINGS**

 

We are currently not involved in any litigation thatwe believe could have a material adverse effect on our financial condition orresults of operations. There is no action, suit, proceeding, inquiry orinvestigation before or by any court, public board, government agency,self-regulatory organization or body pending or, to the knowledge of theexecutive officers of our company, threatened against or affecting our company,or our common stock, in which an adverse decision could have a material adverseeffect.

 

**ITEM 1A.  RISK FACTORS**

 

We believe there are no changes that constitutematerial changes from the risk factors previously disclosed in our AnnualReport on Form 10-K for the year ended December 31, 2009, filed withthe SEC on March 22, 2010.

 

**ITEM 5.  EXHIBITS**

** **
| **Exhibit** | ** ** | **Identification of Exhibit**                                                                                |
|-------------|------------|--------------------------------------------------------------------------------------------------------------|
| 3.1         |       | Certificate of Incorporation, filed with the  Secretary of State of the State of Delaware                    |   | Incorporated by reference to our Form 8-K filed  with the SEC on October 16, 2009 |
| 3.2         |       | Bylaws                                                                                                       |   | Incorporated by reference to our Form 8-K filed  with the SEC on October 16, 2009 |
| 4.1         |       | The Convertible Note                                                                                         |   | Incorporated by reference to our Form 8-K filed  with the SEC on April 5, 2010 |
| 4.2         |       | Warrant                                                                                                      |   | Incorporated by reference to our Form 8-K filed  with the SEC on April 5, 2010 |
| 10.1        |       | Note and Warrant Purchase Agreement                                                                          |   | Incorporated by reference to our Form 8-K filed  with the SEC on April 5, 2010 |
| 10.2        |       | Registration Rights Agreement                                                                                |   | Incorporated by reference to our Form 8-K filed  with the SEC on April 5, 2010 |
| 10.3        |       | Security Agreement                                                                                           |   | Incorporated by reference to our Form 10-K  filed with the SEC on April 5, 2010 |
| 10.4        |       | Patent Security Agreement                                                                                    |   | Incorporated by reference to our Form 8-K filed  with the SEC on April 5, 2010 |
| 10.5        |       | Indemnification Agreement                                                                                    |   | Incorporated by reference to our Form 8-K filed  with the SEC on March 25, 2010 |
| 31.1        |       | Certification of Principal Executive Office pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002  |   | Filed herewith |
| 31.2        |       | Certification of Principal Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |   | Filed herewith |
| 32.1        |       | Certification of Chief Executive Officer pursuant to  18 U.S.C. Section 1350                            |   | Filed herewith |
| 32.2        |       | Certification of Chief Financial Officer pursuant to  18 U.S.C. Section 1350                            |   | Filed herewith |

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Act of1934, as amended, the registrant has duly caused this quarterly report to besigned on its behalf by the undersigned, in Salt Lake City, State of Utah, on July 28,2010.

 
| ** ** | **TECHNISCAN, INC.** |
|------------|---------------------------|
|       | (Registrant)              |
|       |                      |
|       |                      |
|       | By:                       | /s/ DAVID C. ROBINSON |
|       |                      | David C. Robinson |
|       |                      | Chief Executive Officer |
|       |                      | (principal executive officer) |
|       |                      |
|       |                      |
|       | By:                       | /s/ STEVEN K. PASSEY |
|       |                      | Steven K. Passey |
|       |                      | Chief Financial Officer |
|       |                      | (principal financial and accounting officer) |

 

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