UNITED
STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K/A

(Amendment No.
1)



|  |  |                                                                                      |  |  |  |  |  | 
|- |  | ------------------------------------------------------------------------------------ |  |  |  |  |  | 
|  |  |                                                                                      |  | 
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |  |  |  |  |  | 

For the
         fiscal year ended December 31, 2012

OR



|  |  |                                                                                          |  |  |  |  |  | 
|- |  | ---------------------------------------------------------------------------------------- |  |  |  |  |  | 
|  |  |                                                                                          |  | 
| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934 |  |  |  |  |  | 

For the transition period from
to

Commission file number: 001-31275





Vertical
                                                                                                                                   Health Solutions, Inc.

(Exact name of registrant as specified in its charter)



|                                                                                                                    |  |                                     
|------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------
|Florida                                                                                                             |  | 59-3635262                          
|(State or other jurisdiction of
incorporation or organization)                                                      |  | (I.R.S. Employer Identification No.)
|                                                                                                                    | 
|7760 France Ave
                                 South, 11th Floor
                                 Minneapolis, MN |  | 55435                               
|(Address of principal executive offices)                                                                            |  | (Zip Code)                          

(612) 568-4210

(Registrants telephone number, including area code)

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

Securities
registered pursuant to Section 12(g) of the Exchange Act: Common Stock



| |  | 
| |  | 

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO   ̈

Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.   ̈

Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act.

|                        |   |                           |  
|----------------------- | - | ------------------------- | -
|Large Accelerated Filer |  ̈ | Accelerated Filer         |  ̈
|                        |   |                           |  
|Non-accelerated Filer   |  ̈ | Smaller reporting company | x





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

The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant was approximately $7,698,788 as of the last business day of the registrant’s
most recently completed  fiscal quarter, based upon the closing sale price on the OTC Bulletin Board reported for such date.
Shares of common stock held by each officer and director and by each person who owns 10% or more of the outstanding common stock
have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily
a conclusive determination for other purposes.

There were 13,473,299 shares of the registrant’s common
stock par value $0.001 per share outstanding as of March 18, 2013.





1





TABLE OF CONTENTS



|         |  | Item |  |                                                                                                              |  | Page | 
|-------- |  | ---- |  | ------------------------------------------------------------------------------------------------------------ |  | ---- | 
|         |  |      |  |                                                                                                              |  |      | 
|PART I   |  | 1.   |  | Business                                                                                                     |  | 3    | 
|         |  | 1A.  |  | Risk Factors                                                                                                 |  | 8    | 
|         |  | 1B.  |  | Unresolved Staff Comments                                                                                    |  | 14   | 
|         |  | 2.   |  | Properties                                                                                                   |  | 14   | 
|         |  | 3.   |  | Legal Proceedings                                                                                            |  | 14   | 
|         |  | 4.   |  | Mine Safety Disclosures                                                                                      |  | 14   | 
|         |  |      |  |                                                                                                              |  |      | 
|PART II  |  | 5.   |  | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 14   | 
|         |  | 6.   |  | Selected Financial Data                                                                                      |  | 16   | 
|         |  | 7.   |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations                        |  | 16   | 
|         |  | 7A.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 23   | 
|         |  | 8.   |  | Financial Statements and Supplementary Data                                                                  |  | 24   | 
|         |  | 9.   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 51   | 
|         |  | 9A.  |  | Controls and Procedures                                                                                      |  | 51   | 
|         |  | 9B.  |  | Other Information                                                                                            |  | 52   | 
|         |  |      |  |                                                                                                              |  |      | 
|PART III |  | 10.  |  | Directors, Executive Officers and Corporate Governance                                                       |  | 53   | 
|         |  | 11.  |  | Executive Compensation                                                                                       |  | 56   | 
|         |  | 12.  |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 62   | 
|         |  | 13.  |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 64   | 
|         |  | 14.  |  | Principal Accounting Fees and Services                                                                       |  | 66   | 
|         |  |      |  |                                                                                                              |  |      | 
|PART IV  |  | 15.  |  | Exhibits, Financial Statement Schedules                                                                      |  | 67   | 



EXPLANATORY NOTE



This Form 10-K/A (this “Amendment”)
amends and restates the Annual Report on Form 10-K filed by Vertical Health Solutions, Inc. on March 29, 2013 (the “Annual
Report”) solely to (1) revise the period of the report set forth on the cover page, (2) correct the EDGAR tagging of the
required certifications of the Principal Executive, Financial and Accounting Officers as exhibits and (3) correct the exhibit index.



No other item or disclosure appearing in the
Annual Report is affected by this Amendment. This report on Form 10-K/A is presented as of the filing date of the Annual Report
and does not reflect events occurring after that date, or modify or update other items or disclosures in the Annual Report.



In this Amendment, “the Company,”
“we”, “us” and “our” refer to Vertical Health Solutions, Inc. and its subsidiaries.







2





PART I



Item 1.	     Business.





Overview

Vertical Health Solutions, Inc., or VHS,
was incorporated in March 2000, as a Florida corporation under the name LabelClick.com, Inc. In January 2001, VHS changed
its name to Vertical Health Solutions, Inc.  On February 1, 2011, VHS entered into the Agreement and Plan of Merger,
by and among OnPoint Medical Diagnostics, Inc., OnPoint, on the one hand, and VHS and Vertical HS Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of VHS, referred to herein as Merger Sub, on the other hand, which we refer to as the
Merger Agreement.  The transactions contemplated by the Merger Agreement were consummated on April 15, 2011, referred
to herein as the Closing or the Closing Date.



Pursuant to the Merger Agreement, on the Closing
Date, Merger Sub merged with and into OnPoint, which we refer to as the Merger, with OnPoint being the surviving corporation and
becoming a wholly-owned subsidiary of VHS, and the outstanding shares of capital stock of OnPoint were converted into an aggregate
of 7,143,113 shares of common stock of VHS, on the terms and conditions as set forth in the Merger Agreement.  This summary
of the Merger is qualified in its entirety by reference to the actual agreement, a copy of which was filed as an exhibit to VHS’s
Current Report on Form 8-K, filed with the SEC, on February 7, 2011.



Following the Closing,
the business of OnPoint constitutes our only operations. OnPoint was founded to commercialize Magnetic Resonance Imaging, or MRI,
quality assurance testing software and technologies developed by Mayo Clinic. Our vision, however, is much broader than this.
We intend to leverage technology and intelligent systems to assist the global healthcare industry in delivering the highest quality
medical images possible – safely, consistently and efficiently. We have built a disruptive “big data” platform
for delivering measurable, objective and automated quality assurance to the medical imaging market. This enterprise quality assurance
solution is delivered in a “Software as a Service”, or SaaS, utility computing model, which can be scaled to accommodate
thousands of imaging facilities with multiple diagnostic imaging scanners.

Our flagship product
for MRI is focused on automating the quality control measures required for accreditation by American College of Radiology, or
ACR, with real-time dashboards, analytics and trending to make sure scanners are providing the best possible images of patients.

The address of our
principal office is 7760 France Avenue South, 11th Floor, Minneapolis, MN 55435, and our telephone number is (612) 568-4205. Our
Internet website is www.onpointmd.com.

Multi-tenant SaaS
Platform Delivered in the Cloud

Our software-as-a-service
platform enables our proprietary software solutions to be implemented, accessed and used by our customers remotely through an
Internet connection, a standard web browser and a variety of other access points such as smart phones, tablets and hand-held devices.
Our multi-tenant architecture provides for a single instance of the software to serve multiple clients. This technical architecture
allows for rapid time to deployment, faster innovation cycles, increased scalability and a reduced cost structure through operational
efficiencies.

Our solutions are
hosted in the cloud, which are data center facilities provided by a third party, but where the operating software is maintained
by us. For our customers, the cloud delivery model eliminates the time, risk, headcount and costs associated with installing and
maintaining applications within their own operating environments. We believe our cloud-based SaaS delivery model, coupled with
our subscription-based license model, effectively replaces the large, front-loaded cost typical of most traditional licensed enterprise
software deployments, with a lower risk, pay-as-you-go model.

3





“Big Data” architecture



Objectively measuring each individual imaging
scan and comparing it against an internal standard or an industry benchmark is not an easy undertaking. A single Computed Tomography
(CT) scanner, for instance, produces over 500 million data points annually. A typical small hospital with multiple types of imaging
devices may produce more than 4 million images and upwards of 2 billion data points annually. With over 12,000 hospitals and imaging
centers in the United States alone, organizing, benchmarking and analyzing medical images quickly becomes what is known as a “big
data” problem.



OnPoint has deployed
its solutions on one of the leading open-source NoSQL databases, which provides advanced storage techniques on commodity hardware
in the cloud, offers simpler scalability and improved performance relative to traditional databases, and utilizes in-memory techniques
to make access to unstructured data fast and efficient.

Products and Services

The MRI
quality assurance system was developed by Mayo Clinic and has been used by them since 2006, where the system successfully
performed automated quality control on over 200,000 MRI images. In 2009, we licensed the technology underlying the MRI
quality assurance system from Mayo Clinic in order to further develop the technology to create a product that would be
suitable for commercial use. While leaving the core image processing algorithms intact, we have rewritten the user interface,
created a flexible reporting framework, redesigned the database, and ported the customer specific system to a more extensible
and configurable platform. We have successfully tested and validated these modifications at three locations: (i) Mayo
Clinic, (ii) an outpatient imaging provider, and (iii) a hospital during 2011. The aforementioned software development,
testing and validation were necessary to complete commercialization during 2011. We began our commercial launch in December 2011
and received our first revenues from Abbott Northwestern Hospital in January 2012. The software is currently in use by 48
medical providers across 19 states with over 85 scanners sending images to the OnPoint cloud. While we are currently focused
on commercializing our MRI quality assurance product, our broader vision is to deliver an enterprise quality assurance
platform that addresses the quality, operational, and regulatory requirements of all diagnostic imaging devices.

The MRI quality assurance
system automates the time-consuming, paper-based, and subjective quality control process mandated by the federal government as
a condition for Medicare reimbursement. The proprietary algorithms underlying the MRI quality assurance system for automated image
analysis perform all the measurements providing immediate results to technologists.

Our software provides
access to all quality control results, DICOM phantom images, trends, reports, charts and benchmarking data on any computer or
device with an internet browser. It also maintains a complete history of the ACR accreditation reports, available online in multiple
formats. In addition to the mandatory measures required by the ACR, our product automatically calculates and provides results
from other valuable and more time consuming quality control tests, such as the signal-to-noise ratio. To help detect the subtle
and gradual degradation of image quality that occurs over time, we offer trending charts and proactive alerts on our dashboard
to notify institutions of negative trends, which our customers can use to prevent unplanned downtime with their scanners.

Marketing and Sales

We are
currently selling and marketing our software through a direct, inside sales (telemarketing) team and a reseller that provides
physics consulting services (see below). We intend to sell and market our software through; (i) formal and informal strategic
partnerships, (ii) additional resellers, and (iii) formal and informal strategic relationships with payors (insurance
companies, health care plans, and radiology benefit management groups).

In the fourth quarter of 2012, we hired a Chief Revenue Office
to lead our sales and business development efforts. In November of 2012, we signed a reseller agreement with West Physics
Consulting. West Physics currently serves over 1,100 client facilities in 49 states, federal territories, the Caribbean and
Latin America, and provides physics consulting and testing services covering MRI, CT, Nuclear Medicine, Mammography,
Ultrasound and Radiography/Fluoroscopy. They are well known for providing local-style response times and pricing combined
with national expertise and consistency.



4







In March  2013,
we hired 3 full-time employees to our inside sales organization. Each of the individuals hired has over 20 years of sales experience.
This team will be prospecting, qualifying, demonstrating our product, and closing business leveraging the email campaigns, conference
calls and online webinars. In fourth quarter of 2012, we successfully completed a pilot with one of the largest radiology benefit
management companies in the United States by deploying our MRI quality assurance software with two of their customers. As a follow-up
to this pilot, we have assembled an independent physics advisory board to develop an objective rating system for comparing the
quality of MRI scanners across the industry. The purpose of this quality score is reduce costs to health care plans by directing
members to the lowest cost highest quality providers in the market.

Our software is sold
on a per scanner per month basis, with appropriate volume discounts. It is deployed in the cloud so activation costs for new customers
are minimal and our software, implementation, training, sales, marketing and customer support will leverage technology and automation.
Currently, we can get a new customer fully implemented and trained remotely in less than one hour. This allows us to offer programs
such as 30-day free trials for our software to the market.

We intend to develop
additional models for MRI as well as quality control systems for other modalities (Computed Tomography, or CT, Mammography, Ultrasound
and others), all of which have similar accreditation requirements and quality control challenges.

Governmental Regulation

Most of our products
will be considered medical devices as defined in the Federal Food, Drug and Cosmetic Act and are subject to the regulatory authority
of the United States Food and Drug Administration, or FDA, which regulates the manufacture, distribution, related record keeping,
labeling and advertising of such medical devices. Medical devices are classified by the FDA on the basis of control deemed necessary
to reasonably ensure the safety and effectiveness of the device. Class I devices are subject to general controls. These controls
include registration and listing, labeling, pre-market notification and adherence to the FDA Quality System Regulation. Class
II devices are subject to general and special controls. Special controls include performance standards, post market surveillance,
patient registries and FDA guidelines. Class III devices are those which must receive pre-market approval by the FDA to ensure
their safety and effectiveness.

Our MRI quality control
software has been classified as a Class I Medical Device. The regulations applicable to our MRI quality control software indicate
that such a device is Good Manufacturing Practice, or GMP, exempt which means that we, as the manufacturer, are exempt from the
pre-market notification requirement, but must register the manufacturing facility and list the device with the FDA when we are
ready to market the device, which we have completed.

The Medicare Improvements for
Patients and Providers Act of 2008

Due to efforts by
the ACR and others, the United States Congress passed the Medicare Improvements for Patients and Providers Act of 2008, or MIPPA,
requiring physicians and other suppliers that furnish advanced diagnostic imaging services, including MRI, CT, and nuclear medicine/PET,
to meet Medicare standards by January 1, 2012 in order to receive reimbursement under Medicare. The ACR was designated as an accrediting
body, and requires a stringent quality control process to meet its accreditation standard. OnPoint’s software-as-a-service
solution automates ACR’s labor intensive quality control process mandated by the United States Congress as a condition for
Medicare reimbursement of the technical component of an MRI procedure.

Competition

The market for MRI
quality assurance software solutions is new and currently just evolving. Overall, the quality control market within the medical
industry is fragmented, with much of the work still being performed manually. As such, our primary competitor today is the manual
process performed by technologists and recorded in a paper-based log book. The only direct competitor with a software solution
is Radiological Imaging Technology, who does not offer a cloud-based solution. Potential competitors include large, multi-national
companies who have

5





a larger installed base of users, longer
operating histories, greater name recognition and substantially greater technical, marketing, and financial resources.

We believe that the
principal competitive factors in our market include:

| | • | ease
                                                                                                                        of use;
| | - | ------------------------------------------------------------------------------------------------------------------------------------

| | • | product
                                                                                                                        performance
                                                                                                                        and functionality;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | breadth
                                                                                                                        and depth
                                                                                                                        of functionality;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | speed
                                                                                                                        and ease
                                                                                                                        of deployment,
                                                                                                                        integration
                                                                                                                        and configuration;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | total
                                                                                                                        cost of
                                                                                                                        ownership,
                                                                                                                        including
                                                                                                                        price
                                                                                                                        and implementation
                                                                                                                        and support
                                                                                                                        costs;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | sales
                                                                                                                        and marketing
                                                                                                                        approach;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | multinational
                                                                                                                        capabilities;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | • | security
                                                                                                                        and data
                                                                                                                        privacy;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | scalability
                                                                                                                        and reliability;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | • | company
                                                                                                                        reputation;
                                                                                                                        and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | price
| | - | -----





Based on our assessment
of the existing competition, we believe we can compete favorably on ease of use, breadth and depth of functionality, speed and
ease of deployment, integration and configuration, total cost of ownership and scalability of the product. However, large, multi-national
companies will have greater sales, marketing and financial resources, a more extensive geographic presence and greater name recognition
than we expect to have, and therefore, may inhibit our ability to compete effectively in the market.

Intellectual Property

On August 1, 2009,
OnPoint and Mayo Foundation for Medical Education and Research, or Mayo, entered into a worldwide perpetual license agreement
whereby OnPoint licensed certain software and other technology developed by Mayo for use in the healthcare field. This license
is a co-exclusive license with Mayo and another licensee of Mayo. Pursuant to the license agreement, OnPoint made an upfront payment
of $50,000 to Mayo and issued Mayo 1,111,000 shares of OnPoint’s common stock.

OnNovember 12, 2010, OnPoint and Mayo amended and restated the license agreement. Under the amended and restated license
agreement, OnPoint made an additional upfront payment of $50,000 to Mayo and is required to pay Mayo a 5% royalty payment on gross
sales of the licensed technology beginning in fiscal year 2011, with minimum royalties of $50,000 for fiscal year 2011 and $100,000
for each fiscal year thereafter. Pursuant to the terms of the amended and restated agreement, any overdue payments shall bear
interest until paid at a per annum rate 2% above the prime rate in effect at Citibank on the due date. Additionally, under the
amended and restated agreement, so long as Mayo owns common shares in OnPoint, OnPoint has granted Mayo the right to have one
representative present at all meetings as a nonvoting observer and OnPoint is required to provide to Mayo copies of all materials
distributed at any board meeting, regardless of whether a Mayo representative is in attendance. OnPoint has agreed to indemnify
Mayo and its affiliates from any claims arising from (a) the exercise of any rights granted under the amended and restated agreement,
(b) any disposition of the licensed products, (c) any act or omission of OnPoint under the amended and restated agreement, and
(d) any claims by the shareholders of OnPoint relating to their investment in OnPoint. Mayo has the right to terminate the agreement
for material breach, if OnPoint brings suit against Mayo (other than as a result of a material breach by Mayo) or upon insolvency.

In addition, we rely
on a combination of trade secret and copyright law, employee and third-party nondisclosure agreements and other protective measures
to protect intellectual property rights pertaining to our products and technologies.

Research and Development

Our research and development
activities are focused on enhancing our existing MRI quality assurance product leveraging a SaaS platform using Microsoft based
and NoSQL technologies. We intend to develop quality assurance products for other medical imaging devices, such as CT, ultrasound
and mammography. An integral

6





component of our future growth strategies
includes developing and introducing additional new products for hospitals, clinics, and medical imaging providers as it relates
to regulatory and quality assurance software and automation.

Geographic Information

Our corporate headquarters
are in Minneapolis, Minnesota where executive, product development and research activities are performed.

Employees

The company currently
has six full-time employees: William Cavanaugh, the President and Chief Executive Officer, Chris Hafey, the Chief Technology Officer,
and Brian Diaz, the Director of Product Management along with a team of three inside sales representatives. James Marolt, our
Interim Chief Financial Officer, is a part-time consultant to the business. Ken Roos, our Chief Revenue Office is an independent consultant to the business working between twenty to
thirty hours per week. In addition, we have two software developers who are operating as independent consultants and are paid
on an hourly basis. These software developers are re-writing the user interface, creating a flexible reporting framework, redesigning
the database, and porting the customer specific system to a more extensible and configurable platform. The independent software
developers are sole proprietors functioning as individuals or under their own limited liability companies.

7





Item 1A.	Risk Factors.



The more prominent
risks and uncertainties inherent in our business are described below. However, additional risks and uncertainties may also impair
our business operations. If any of the following risks actually occur, our business, financial condition or results of operations
may suffer. Investing in our common stock involves a high degree of risk. Any of the following factors could harm our business
and future results of operations, and you could lose all or part of your investment.

Risks Related To Our Business and Industry

Our auditors have expressed
substantial doubt about our ability to continue as a going concern.

Our audited financial
statements for the year ended December 31, 2012, were prepared under the assumption that we will continue our operations
as a going concern. We have a limited operating history with limited revenues and have incurred cumulative net losses of $8,687,254
through December 31, 2012. As a result, our independent registered public accounting firm in their audit report on our 2012
Financial Statements has expressed substantial doubt about our ability to continue as a going concern. Continued operations are
dependent on our ability to complete equity or debt financing activities or to generate profitable operations. Given general economic
uncertainties, such capital financing activities may not be available or may not be available on reasonable terms. Our financial
statements do not include any adjustments that may result from the outcome of this uncertainty. If we cannot continue as a viable
entity, our stockholders may lose some or all of their investment in us.

We are a development stage
company. We have incurred losses since inception and expect to incur significant net losses in the foreseeable future and may
never become profitable.

We are in the development
stage and have a limited operating history for you to consider in evaluating our business and prospects.  As of December
31, 2012, we have generated limited sales revenue, and continue to generate net operating losses. We have incurred operating losses
since inception and expect to incur significant net losses in the foreseeable future.  There can be no assurance that we
will be able to generate significant revenues from the sales of current or future products. Our ability to achieve profitability
will depend on, among other things, our success in selling our products, managing our expense levels and quickly integrating newly-hired
personnel, including management.

We will need additional
capital to fund our operations.

We are continually
seeking to raise additional capital to fund our operations and future development. A capital raise could include the securing
of funds through new strategic partnerships or collaborations, the sale of common stock or other equity securities or the issuance
of debt.  In the event we do not enter into a corporate collaboration or undertake a financing of debt or equity securities,
we may not have sufficient cash on hand to fund our operations.  We can give no assurances that we will be able to enter
into a strategic transaction or raise any additional capital or if we do, that such additional capital will be sufficient to meet
our needs, or on terms favorable to us.

If we are unable to
raise additional funds, we will need to do one or more of the following:

| | • | further
                                                                                                                        delay,
                                                                                                                        scale-back
                                                                                                                        or eliminate
                                                                                                                        some or
                                                                                                                        all of
                                                                                                                        our product
                                                                                                                        development
                                                                                                                        programs;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | attempt
                                                                                                                        to sell
                                                                                                                        our company;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | cease
                                                                                                                        operations;
                                                                                                                        or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | declare
                                                                                                                        bankruptcy.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



Initiating and expanding
sales and marketing activities and continuing our development efforts will require significant expenditures of capital. 
The actual amount and timing of capital requirements may differ materially from our estimates, depending on the demand for our
products and as a result of new market developments and opportunities. We may determine that it is necessary or desirable to obtain
financing for such requirements through borrowings or the issuance of debt or equity securities. Debt financing would increase
leverage, while equity

8





financing may dilute the ownership of
stockholders. There can be no assurance as to whether, or as to the terms on which, we will be able to obtain such financing.
Any failure to generate sufficient funds from operations or equity or debt financing to meet our capital requirements could have
a material adverse effect on our business, financial condition and results of operations.

At December 31,
2012, we had cash and cash equivalents, including restricted cash of $550,403 and working capital of $69,255. Through December 31,
2012, we have funded substantially all of our operations and capital expenditures through private placements of equity and debt
totaling $4,690,500. Based on our operating plan, we expect that our existing cash and cash equivalents will fund our operations
only through July 2013.

Our success depends upon
maintaining our license to critical intellectual property.

Our success depends
upon our maintaining the license with Mayo Foundation for Medical Education and Research for the technology which comprises our
product.  Future defaults by us, could result in the termination of the license which is critical to our business.

Our success is dependent
on market acceptance of our products.

Our ability to gain
market acceptance and to grow will largely depend upon our success in effectively and efficiently communicating product benefits
to the key buyer groups and distinguishing our products from other similar products.  To gain market share, we must also
overcome the established relationships between other service providers and customers.  We cannot assure you that we will
be able to achieve success, to gain market acceptance and to grow.  Our failure to achieve market acceptance of our products
would have a material adverse effect on our business, financial condition and results of operations.

Our future revenues are
unpredictable and we expect our operating results to fluctuate from period to period.

Our limited operating
history and the uncertain nature of the market make it difficult for us to accurately forecast our future revenues in any given
period. We have limited experience in financial planning for our business on which to base our planned operating expenses. If
our revenues in a particular period fall short of our expectations, we will likely be unable to quickly adjust our spending in
order to compensate for that revenue shortfall. As a result, our operating results would be adversely affected.  Our operating
results are likely to fluctuate substantially from period to period as a result of a number of factors, many of which are beyond
our control. These factors include:

| | • | the
                                                                                                                        amount
                                                                                                                        and timing
                                                                                                                        of operating
                                                                                                                        costs
                                                                                                                        and capital
                                                                                                                        expenditures
                                                                                                                        relating
                                                                                                                        to expansion
                                                                                                                        of our
                                                                                                                        operations;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | the
                                                                                                                        rate at
                                                                                                                        which
                                                                                                                        potential
                                                                                                                        users
                                                                                                                        adopt
                                                                                                                        our products;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | the
                                                                                                                        announcement
                                                                                                                        or introduction
                                                                                                                        of new
                                                                                                                        or enhanced
                                                                                                                        products
                                                                                                                        by our
                                                                                                                        competitors;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | our
                                                                                                                        ability
                                                                                                                        to attract
                                                                                                                        and retain
                                                                                                                        qualified
                                                                                                                        personnel;
                                                                                                                        and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | the
                                                                                                                        pricing
                                                                                                                        policies
                                                                                                                        of our
                                                                                                                        competitors.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our business model is evolving
and unproven.

Our business model
is unproven and is likely to continue to evolve.  Accordingly, our business model may not be successful and may need to be
changed. Our ability to generate significant revenues will depend, in large part, on our ability to successfully market our products
to potential users who may not be convinced of the need for our products and services or may be reluctant to rely upon third parties
to develop and provide these products. We intend to continue to develop our business model as our market continues to evolve.

We need to increase brand
awareness.

Due to a variety of
factors, our opportunity to achieve and maintain a significant market share may be limited. Developing and maintaining awareness
of our brand name, among others, is critical. Further, the importance

9





of brand recognition will increase as
competition in our market increases. Successfully promoting and positioning our brand will depend largely on the effectiveness
of our marketing efforts and our ability to develop industry-leading products at competitive prices. Therefore, we may need to
increase our financial commitment to creating and maintaining brand awareness. If we fail to successfully promote our brand name
or if we incur significant expenses promoting and maintaining our brand name, it could have a material adverse effect on our results
of operations.

We compete in highly competitive
markets.

The market for MRI
quality assurance software solutions is new and currently just evolving.  Overall, the quality control market within the
medical industry is fragmented, with much of the work still being performed manually.  As such, our primary competitor today
is the manual process performed by technologists and recorded in a paper-based log book.  The only direct competitor with
a software solution is Radiological Imaging Technology, who does not offer a cloud-based solution.  Potential competitors
include large, multi-national companies who have a larger installed base of users, longer operating histories, greater name recognition
and substantially greater technical, marketing, and financial resources.

Although we believe
we will compete favorably in our market, new competitors could develop that may have longer operating histories, established ties
to customers, greater brand awareness and well-accepted products. These competitors in the market space could have greater financial,
technical and marketing resources. Our ability to compete depends, in part, upon a number of factors outside our control, including
the ability of our competitors to develop alternatives that are competitive with our products.

Our success depends, in
part, upon our intellectual property rights.

Our success depends,
in part, upon our intellectual property rights.  We also rely upon a combination of trade secret, nondisclosure and other
contractual arrangements, and copyright and trademark laws to protect our proprietary rights.  We enter into confidentiality
agreements with our employees and contractors and limit access to and distribution of our proprietary information. There can be
no assurance that such steps will be adequate to deter misappropriation of our proprietary information or that we will be able
to detect unauthorized use and take appropriate steps to enforce our intellectual property rights.

In addition, under
our existing license agreement, Mayo Clinic has the sole right, but not the obligation, to prepare, file, prosecute, maintain,
abandon, enforce, defend or otherwise handle the copyrights and know-how relating to the software we have licensed from Mayo Clinic
in its sole discretion, at our expense.  There can be no assurance that Mayo Clinic will adequately protect these intellectual
property rights, or if so, that such efforts will not result in a material expense to us.  In the event Mayo Clinic fails
to protect these intellectual property rights, or attempts to protect these intellectual property rights and such attempts result
in a material expense, it could have a material adverse effect on our business, financial condition and results of operations.

Our ability to manage growth
will affect our management systems, infrastructure and resources.

Our ability to
successfully offer products and implement our business plan in the market requires an effective planning and management
process. We are in the early  stage of initiating our operations, and we intend to increase our headcount substantially.
Beginning our operations and experiencing rapid growth will place a significant strain on our management systems,
infrastructure and resources. To manage anticipated growth, we will need to develop and improve our operational, financial,
accounting and other internal systems. In addition, our future success will depend in large part upon our ability to recruit,
train, motivate and retain managers and other employees and maintain product quality. If we are unable to manage anticipated
growth effectively, it could have a material adverse effect on the quality of our products and our business, financial
condition, and results of operations.

We depend on key personnel
and will need to attract and retain additional personnel.

Our success will depend
in large part upon the key personnel we intend to retain and/or hire.  At this time, we have our President and Chief Executive
Officer, William Cavanaugh, our Interim Chief Financial Officer, James

10





Marolt, our Chief Revenue
Officer, Ken Roos, our Chief Technology Officer, Chris Hafey, and our Director of Product Management, Brian Diaz, in place as
part of our management team.  We intend to recruit other key members of the management team.  If we do not quickly
and efficiently integrate these key personnel into our management and culture, our business could suffer. Our future
success depends on our ability to identify, attract, hire, train, retain and motivate highly skilled executive,
technical, managerial, sales and marketing and business development personnel. We intend to hire additional executive,
technical, sales, and marketing, business development and administrative personnel during the next year. Competition for
qualified personnel is intense. If we fail to successfully attract, assimilate and retain a sufficient number of qualified
executive, technical, managerial, sales and marketing, business development and administrative personnel, our business could
suffer. The loss of the services of these key employees could have an adverse effect on our business. In addition, if one or
more of these key employees resigns to join a competitor or to form a competing company, the loss of such employees and any
resulting loss of existing or potential customers to such competitor could have a material adverse effect on our business,
financial condition and results of operations. In the event of the loss of any such personnel, there can be no assurance that
we would be able to prevent the unauthorized disclosure or use of our practices or procedures by such personnel. Although we
intend to have key employees execute agreements containing confidentiality covenants, there can be no assurance that courts
will enforce such covenants as written or that the agreements will deter conduct prohibited by such covenants.

Our organizational documents
limit director liability.

Our Articles of Incorporation
and Bylaws provide for indemnification of directors to the full extent permitted by law, eliminate or limit the personal liability
of our directors and shareholders of monetary damages for certain breaches of fiduciary duty. Such indemnification may be available
for liabilities arising in connection with the Merger. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers or persons controlling our business pursuant to the foregoing provisions, we have
been informed that in the opinion of the Securities and Exchange Commission, or SEC, such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.

We may be subject to potential
product liability and other claims and we may not have the insurance or other resources to cover the costs of any successful claims.

Defects in our products
could subject us to potential product liability claims that our products caused some harm to the human body.  Our product
liability insurance may not be adequate to cover future claims.  Product liability insurance is expensive and, in the future,
may not be available on terms that are acceptable to us, if it is available at all.  Plaintiffs may also advance other legal
theories supporting their claims that our products or actions resulted in some harm.  A successful claim brought against
us in excess of any insurance coverage that we have could significantly harm our business and financial condition.

Risks Related to Our Common Stock

We expect an illiquid market
for our common stock.

The shares of our
common stock are currently subject to very limited trading.  We are unable to predict if a trading market will develop and
be sustained, but we expect any such market to involve limited liquidity for some period of time.

We expect the market price
for our common stock to be volatile.

The price of our common
stock is expected to be volatile and an investment in our common stock could decline in value.

The market price of
our common stock and the market prices for securities of software or medical imaging companies in general, are expected to be
highly volatile. The following factors, in addition to other risk factors described herein and the potentially low volume of trades
in our common stock, may have a significant impact on the market price of our common stock, some of which are beyond our control:

11





| | • | announcements
                                                                                                                        of technological
                                                                                                                        innovations
                                                                                                                        and discoveries
                                                                                                                        by us
                                                                                                                        or our
                                                                                                                        competitors;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | developments
                                                                                                                        concerning
                                                                                                                        any research
                                                                                                                        and development,
                                                                                                                        manufacturing,
                                                                                                                        and marketing
                                                                                                                        collaborations;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | new
                                                                                                                        products
                                                                                                                        or services
                                                                                                                        that we
                                                                                                                        or our
                                                                                                                        competitors
                                                                                                                        offer;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | actual
                                                                                                                        or anticipated
                                                                                                                        variations
                                                                                                                        in operating
                                                                                                                        results;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | the
                                                                                                                        initiation,
                                                                                                                        conduct
                                                                                                                        and/or
                                                                                                                        outcome
                                                                                                                        of intellectual
                                                                                                                        property
                                                                                                                        and/or
                                                                                                                        litigation
                                                                                                                        matters;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | changes
                                                                                                                        in financial
                                                                                                                        estimates
                                                                                                                        by securities
                                                                                                                        analysts;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | conditions
                                                                                                                        or trends
                                                                                                                        in software
                                                                                                                        or other
                                                                                                                        medical
                                                                                                                        imaging
                                                                                                                        industries;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | regulatory
                                                                                                                        developments
                                                                                                                        in the
                                                                                                                        United
                                                                                                                        States
                                                                                                                        and other
                                                                                                                        countries;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | changes
                                                                                                                        in the
                                                                                                                        economic
                                                                                                                        performance
                                                                                                                        and/or
                                                                                                                        market
                                                                                                                        valuations
                                                                                                                        of other
                                                                                                                        software
                                                                                                                        or medical
                                                                                                                        imaging
                                                                                                                        companies;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | our
                                                                                                                        announcement
                                                                                                                        of significant
                                                                                                                        acquisitions,
                                                                                                                        strategic
                                                                                                                        partnerships,
                                                                                                                        joint
                                                                                                                        ventures
                                                                                                                        or capital
                                                                                                                        commitments;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | additions
                                                                                                                        or departures
                                                                                                                        of key
                                                                                                                        personnel;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | global
                                                                                                                        unrest,
                                                                                                                        terrorist
                                                                                                                        activities,
                                                                                                                        and economic
                                                                                                                        and other
                                                                                                                        external
                                                                                                                        factors;
                                                                                                                        and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | sales
                                                                                                                        or other
                                                                                                                        transactions
                                                                                                                        involving
                                                                                                                        our common
                                                                                                                        stock.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The stock market in
general has recently experienced relatively large price and volume fluctuations.  In particular, market prices of securities
of software companies have experienced fluctuations that often have been unrelated or disproportionate to the operating results
of these companies.  Continued market fluctuations could result in extreme volatility in the price of our common stock, which
could cause a decline in the value of our common stock.  Prospective investors should also be aware that price volatility
may be worse if the trading volume of our common stock is low.

We do not expect to pay
cash dividends in the foreseeable future.

No dividends have
ever been paid by us and it is anticipated that any future profits received from operations will be retained for operations. We
do not anticipate the payment of cash dividends on our capital stock in the foreseeable future, and any decision to pay dividends
will depend upon our profitability at the time, cash available, and other factors. Therefore, no assurance can be given that there
will ever be any such cash dividend or distribution in the future.

Because OnPoint became a
public company as a result of the Merger and not a public offering, we may not attract the attention of major brokerage firms
and, as a public company, will incur substantial expenses.

As a result of the
Merger, OnPoint became a publicly-traded company and, accordingly, will be subject to the information and reporting requirements
of the United States securities laws. The costs to public companies of preparing and filing annual and quarterly reports, proxy
statements and other information with the SEC and furnishing audited reports to stockholders will cause our expenses to be higher
than they would be if it were a privately-held company. Security analysts of major brokerage firms may not provide coverage of
our business. No assurance can be given that brokerage firms will undertake to make a market for our common stock in the future.

Effective internal controls
are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial
reports or prevent fraud, our operating results and financial condition could be harmed.

We are required to
document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley
Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting.
During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet the deadline
imposed by the Sarbanes-Oxley Act of 2002 for compliance with the requirements of Section 404. In addition, if we fail to
maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we
may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting
in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Failure to achieve and maintain effective internal controls
in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on

12





our business and operating results. In
addition, current and potential stockholders could lose confidence in our financial reporting, which could have a material adverse
effect on our stock price.

Our compliance with the
Sarbanes-Oxley Act and SEC rules concerning internal controls will be time consuming, difficult and costly.

As a reporting company,
it will be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures
required by Sarbanes-Oxley. We will need to hire additional financial reporting, internal control, and other finance staff in
order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with Sarbanes-Oxley’s
internal controls requirements, we may not be able to obtain the independent accountant certifications that Sarbanes-Oxley Act
requires publicly-traded companies to obtain.

As shares of our common
stock become eligible for sale, their sale could depress the market price of our common stock.

As shares of our common
stock become gradually available for resale in the public market, the supply of our common stock will increase, which could decrease
our market price. Some or all of the shares of our common stock may be offered from time to time in the open market pursuant to
Rule 144 (or pursuant to a registration statement, if one is effective), and these sales may have a depressive effect on
the market for the shares of our common stock.

Our common stock will be
considered “a penny stock” and may be difficult to sell.

The SEC has adopted
regulations that generally define “penny stock” to be an equity security that has a market or exercise price of less
than $5 per share, subject to specific exemptions. The market price of our common stock is less than $5 per share and therefore
is designated a “penny stock” under SEC rules. This designation requires any broker or dealer selling our common stock
to disclose certain information about the transaction, obtain a written agreement from the investor and determine that the investment
in our common stock by the investor is a reasonably suitable investment for such investor. These rules may restrict the ability
of brokers or dealers to sell our common stock and, as a result, may affect the ability of investors to sell their shares. In
addition, unless and until our common stock is listed for trading on a national securities exchange, investors may find it difficult
to obtain accurate quotations of the price of our common stock and may experience a lack of buyers to purchase such stock or a
lack of market makers to support the stock price. Resale restrictions on transferring “penny stocks” are sometimes
imposed by some states, which may make transactions in our stock more difficult and may reduce the value of your investment.

Substantial future issuances
of our common stock could depress our stock price.

The market price for
our common stock could decline, perhaps significantly, as a result of issuances of a large number of shares of our common stock
in the public market or even the perception that such issuances could occur.  Sales of a substantial number of these shares
of our common stock, or the perception that holders of a large number of shares intend to sell their shares, could depress the
market price of our common stock.

Shareholders will experience
additional dilution upon the conversion of the convertible notes or the exercise of warrants or options.

As of December 31,
2012, we have 7,085,338 shares of common stock issuable upon conversion of our convertible promissory notes (at an assumed conversion
price of $0.25 and $0.76 per share), 3,815,264 shares of common stock issuable upon exercise of outstanding warrants and 1,130,000
shares of common stock issuable upon exercise of outstanding options.  In addition, we are entitled to reserve a pool of
stock options representing approximately 20% of the shares of our common stock for the Employee Stock Option Pool, pursuant to
our 2011 Omnibus Incentive Compensation Plan. The Employee Stock Option Pool will automatically increase each year such that the
total number of shares available for issuance under the 2011 Omnibus Incentive Compensation Plan is equal to 20% of the fully-diluted
shares as of the date of such increase.

13





If the holders of
those convertible notes, warrants, or options convert or exercise their rights, you may experience dilution in the net tangible
book value of your common stock.

Our directors and officers,
as well as certain stockholders, will have a high concentration of common stock ownership.

As of December 31,
2012, our officers and directors beneficially own approximately 31.4% of our outstanding common stock (assuming none of our remaining
notes are converted).  In addition, certain of our existing stockholders will beneficially own more than 10% of our common
stock.  Such a high level of ownership by such persons may have a significant effect in delaying, deferring or preventing
any potential change in control of us.  Additionally, as a result of their high level of ownership, our officers, directors
and such stockholders might be able to strongly influence the actions of our board of directors, and the outcome of actions brought
to our stockholders for approval. Such a high level of ownership may adversely affect the voting and other rights of our stockholders.



Item 1B.	     Unresolved
Staff Comments .



We have unresolved Staff comments related to
our Registration Statement on Form S-1 filed with the Securities and Exchange Commission on September 2, 2011. As of March 30,
2012, these comments remain outstanding.



Item 2.	     Properties.



We lease an office
in Minneapolis, Minnesota, pursuant to a month-to-month lease agreement. We believe that our current facilities are adequate for
our needs.

Item 3.	     Legal Proceedings.



The Company’s
management knows of no material existing or pending legal proceedings or claims against the Company, nor is the Company involved
as a plaintiff in any material proceeding or pending litigation. To the Company’s knowledge, no director, officer or affiliate
of the Company, and no owner of record or beneficial owner of more than five percent (5%) of the Company’s securities, or
any associate of any such director, officer, affiliate or security holder is a party adverse to the Company or any of its subsidiaries
or has a material interest adverse to the Company or any of its subsidiaries in reference to pending litigation.

Item 4.	     Mine Safety Disclosures



Not applicable.





PART II



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



Market for Securities

In January 2004, our
common stock began trading on the OTC Bulletin Board. Our common stock is now traded under the symbol “ONMD”. There
is a limited trading market for our common stock; therefore historical price information is limited. High and low bid information
for our common stock, by quarter-ended date, for the two most recent fiscal years, are as follows:



14







|2012 Fiscal Year:  |  |   | High  |  |  |   | Low  | 
|------------------ |  | - | ----- |  |  | - | ---- | 
|March 31, 2012     |  | $ | 4.99  |  |  | $ | 1.01 | 
|June 30, 2012      |  | $ | 3.98  |  |  | $ | 1.01 | 
|September 30, 2012 |  | $ | 1.99  |  |  | $ | 0.70 | 
|December 31, 2012  |  | $ | 1.15  |  |  | $ | 0.76 | 
|                   |  |   |       |  |  |   |      | 
|2011 Fiscal Year:  |  |   |       |  |  |   |      | 
|March 31, 2011     |  | $ | 11.48 |  |  | $ | 3.60 | 
|June 30, 2011      |  | $ | 10.66 |  |  | $ | 2.95 | 
|September 30, 2011 |  | $ | 4.99  |  |  | $ | 4.99 | 
|December 31, 2011  |  | $ | 4.99  |  |  | $ | 4.99 | 





The number of shareholders
of record as of March 23, 2013 was 246.The number of record holders was determined from
the records of our transfer agent and does not include beneficial owners of our common stock whose shares are held in the names
of various security brokers, dealers and registered clearing agencies.

Dividend Policy

Historically, we
have not declared or paid any cash dividends on our common stock. Any future determination to pay dividends on  our common
stock will depend upon our results of operations, financial condition and capital requirements, applicable restrictions under
any contractual arrangements and such other factors deemed relevant by our Board of Directors.

15





Item 6.	     Selected
Financial Data.



Not applicable.



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

Following the Merger on April 15, 2011,
the business of our wholly-owned subsidiary, OnPoint, constitutes all of our operations.  This discussion and analysis should
be read in conjunction with the financial statements and notes, and other financial information included in this report. With
respect to this discussion, the terms “OnPoint,” the “Company,” “we,” “us,” and
“our” refer to OnPoint Medical Diagnostics, Inc.

Overview

OnPoint is a development
stage company founded to commercialize Magnetic Resonance Imaging, or MRI, quality assurance software technologies developed by
Mayo Clinic.

Since our
inception in February 2009, we have incurred losses and negative cash flows from operations, and such losses have continued
subsequent to December 31, 2012. As of December 31, 2012, we had an accumulated deficit of $8,867,254 and anticipate
incurring additional losses for at least the next several years. We expect to spend significant resources over the next
several years to enhance our technologies, market and sell our product, and further fund research and development of
additional products. Through December 31, 2012, we generated only  limited revenue as we have insufficient operating capital
to fully-launch our sales and marketing efforts and to build additional quality assurance modules to support other imaging
modalities. In order to achieve profitability, we must continue to develop software products and technologies that can be
commercialized by us or through existing and future collaborations.

Revenue

The Company is a
development stage company and did not generate any revenue from inception (February 2009 through December 31, 2011. The
Company began generating a  limited amount of revenue during 2012. Revenue under existing contracts is recorded as deferred
revenue upon execution of a software subscription agreement and receipt of payment. Revenue is then recognized monthly on a
straight-line basis over the life of the subscription agreement, which is typically 12 to 36 months. Software subscription
revenue was $19,200 and $0 for the years ended December 31, 2012 and 2011, respectively.

Software service contract
revenue is recognized as services are performed We recognized $56,983 and $0 in software service contract revenue for services
performed during the years ended December 31, 2012 and 2011, respectively.

Financings

In 2011, we issued $525,000 of convertible promissory notes. These notes
bore interest at 10% per annum and were convertible into our common stock. The holder could convert all or a portion of the principal
and accrued interest under the notes into common shares at any time prior to repayment in full. For amounts not previously converted,
principal would be satisfied in four equal installments the first of which commenced on September 30, 2011 and thereafter commenced
on February 29, 2012, July 31, 2012 and December 31, 2012, each referred to herein as a principal satisfaction date. On each principal
satisfaction date, the applicable portion of the outstanding principal balance of such notes was satisfied by the issuance of
shares of common stock at a conversion price determined in accordance with the notes. Accrued interest was due on December 31,
2011 and was payable on each of the principal satisfaction dates thereafter in either cash or common stock at the election of
the holder. The conversion price was equal to the lesser of $0.65 per share or 65% of the volume weighted average of the common
stock for the twenty trading dates preceding a conversion; provided, however, the conversion price could not be less than $0.25
per share. We estimated the fair value of our common stock to be $0.65 during this offering period and therefore, determined there

16





was no beneficial conversion feature
to record. During 2012 and 2011, all principal and accrued interest converted to equity at conversion prices ranging from
$0.62 to $0.65 per share.



On June 7, 2011,
we completed the initial closing of a private placement to accredited investors of 525,000 units, at a purchase price of
$1.00 per unit, for approximately $525,000 in gross proceeds. Each unit consisted of one share of common stock, par value
$0.001 per share and a warrant to purchase 0.5 shares of common stock.  Pursuant to the Confidential Private Placement
Memorandum, we issued an aggregate of 525,000 shares of common stock, together with warrants to purchase 262,500 shares of
common stock at an exercise price of $2.00 per share.  Subsequent closings under this Confidential Private Placement
Memorandum included 150,000 units on August 23, 2011 for $150,000 in gross proceeds, where we issued 150,000 shares of common
stock and 75,000 warrants; and 50,000 units on September 28, 2011 for $50,000 in gross proceeds, where we issued 50,000
shares of common stock and 25,000 warrants. On November 17, 2011, we completed the private placement to accredited investors
by issuing 10,000 units for $10,000 in gross proceeds, by issuing 10,000 shares of common stock and 5,000 warrants.

On November
25, 2011, we issued a promissory note to Richard Lindstrom, a member of our Board of Directors, whereby we could borrow,
from time to time, up to $200,000 from Dr. Lindstrom. Upon the execution of the note, Dr. Lindstrom remitted $50,000 to us.
Prior to the maturity of the note, we could request that Dr. Lindstrom advance additional funds to us in increments of
$10,000 up to the maximum loan amount. The note accrued interest at a rate of 12% per annum and such interest was payable in
quarterly installments beginning on January 1, 2012 until the note was repaid in full. The note was to mature on November 25,
2013  but all outstanding principal ($200,000) converted to equity at a conversion price of $0.25 per share during 2012. In
connection with each advance, we issued Dr. Lindstrom a ten-year warrant to purchase a number of shares of our common stock
equal to the quotient of the amount of such advance divided by $1.00. These warrants have an exercise price of $1.00 per
share.

On December 30,
2011, we issued $165,000 in promissory notes to certain investors. These notes accrued interest at a rate of 15% per annum
and such interest was payable in quarterly installments beginning on January 1, 2012 until the notes were repaid in full.
These notes were to mature on December 30, 2013, but were converted to equity during 2012. In connection with the issuance
of these notes, we also issued to the investors ten-year warrants to purchase, in the aggregate, 247,500 shares of our
common stock. These warrants have an exercise price of $1.00 per share.

In 2012, we completed the initial closing of
a private placement to accredited investors of 223,800 units, at a purchase price of $1.00 per unit, for approximately $223,800
in gross proceeds. Each unit consisted of one share of common stock, par value $0.001 per share and a warrant to purchase 0.5
shares of common stock.  Pursuant to the Confidential Private Placement Memorandum, we issued an aggregate of 223,800 shares
of Common Stock, together with warrants to purchase 111,900 shares of Common Stock at an exercise price of $2.00 per share.



During the period from February 21, 2012
to April 21, 2012, we issued $406,000 of convertible promissory notes. The notes accrue interest at 8% per annum and the
interest is payable in quarterly installments on January 1, April 1, July 1, and October 1. The principal is due in full on
August 21, 2013, with the Company having the option to extend the due date no later than February 21, 2014. The Company
granted each lender warrants to purchase a number of shares of common stock equal to one and one-half times the advance
amount (609,000 in total). The warrants had an original exercise price of $1.25 per share and a 10 year term from issuance
date. The warrant exercise prices were subsequently reduced to $0.65 or $0.31 per share, depending upon the specific terms of
the warrants. However, if the warrant holder elects to exercise the warrant by means of a cashless exercise, the number of net shares
to be issued will be based on a current fair value not less than $2.25 per share. If the Company elects to extend the due
date, the Company shall issue the lender warrants to purchase a number of shares of common stock equal to 75% of
the aggregate number of warrant shares issued to each lender based on the same warrant terms as listed earlier. At the option
of the lender, the outstanding principal and interest under the notes may be converted into shares of the Company’s
common stock at a conversion price of $0.25 per share. In the event of default, the purchaser shall receive 60,000 warrants a
month based on the same terms listed earlier for a maximum of 720,000 warrants. Additionally, this debt is senior to all
other debt that

17





was outstanding as of the issuance date.



During the period from August 10, 2012 to December
31, 2012, the Company issued $1,393,000 in a private placement offering of convertible promissory notes to certain accredited
investors. The notes accrue interest at 6% per annum and such interest is payable at maturity. Each note will mature on the third
anniversary of its issuance date and is junior to all other debt.



The convertible promissory notes may be converted
at the option of the note holder into shares of the Company’s common stock at a conversion price of $0.25 per share. The
debt principal and any accrued interest will automatically convert into shares of common stock at a conversion price of $0.25
per share, upon the earlier of a change of control of the Company or the Company earning $500,000 or more in gross revenue during
any fiscal quarter. Also, if the Company sells an aggregate of $2,500,000 of common stock, the principal and interest will automatically
convert into common stock at a price equal to the lesser of the price per share paid by the investors purchasing such stock at
such first closing or $0.25 per share. In connection with the issuance of these notes, we also issued to the investors, ten-year
warrants to purchase an aggregate of 1,393,000 shares of common stock at $1.25 per share.



Software Research and Development

Our software research
and development expenses consist primarily of certain employee wages and consultant costs relating to software engineers, programmers,
and research related to the software as further described under “Results of Operations” below.

General and Administrative

Our general and administrative
expenses consist primarily of compensation paid to employees and related benefit expenses for business development, financial,
legal and other administrative functions. In addition, we incur external costs for professional fees for legal, patent and accounting
services. We expect that our general and administrative expenses, both internal and external, will continue to increase as we
grow and expand.

Results of Operations

Year ended December 31,
2012 compared to December 31, 2011

Revenue and Costs of Revenue.For
the year ended December 31, 2012, we recognized revenue of $19,200 on our subscription revenue contracts, which have terms of
12 to 36 months.  Additionally, we also recognized $56,983 in service revenue for services performed on one-off
contracts.  Costs of revenue for the year ended December 31, 2012 of $288,247 consisted of employee compensation
allocated to revenue-generating efforts of $85,036; consulting costs of $10,175; $100,000 of royalty payments due to Mayo;
and $93,036 of amortization expense related to software development costs and software technology license. For the year ended
December 31, 2011, we had no revenue and the comparable expenses were classified as General and Administrative expense.

Software Research
and Development Expenses. Our software development expenses were $452,046 for the year ended December 31, 2012 compared to
$147,562 for the year ended December 31, 2011. The increase in expenses was from additional resources working on improving our
initial design and platform and developing a streamlined version thereon, called OnPoint Express.

Selling,
General and Administrative Expenses. Our selling, general and administrative expenses were $1,244,537 for the year ended
December 31, 2012 compared to $1,177,962 for the year ended December 31, 2011. The increase of $66,575 can be explained as
follows. Legal expense was $117,019 for the year ended December 31, 2012, compared to $82,622 for the year ended December 31,
2011, and the increase of $34,397 was due to the additional legal work due to (1) SEC compliance as a result of being a
public company, and (2) increased convertible debt issuance activity. Consulting expense for 2012 was $37,852 and $142,525
for 2011 which was a decrease of $104,673 which was a result of a reduced reliance on outside consulting services. Insurance
costs were $74,798 in 2012 and $51,715 in 2011, an increase of $23,083 and this was a result of securing insurance for the
business and employees. Accounting costs for 2012 were $124,371 and $84,006 for 2011 which resulted in an increase of
$40,365, primarily due to consulting fees paid our interim Chief Financial Officer. Payroll and payroll related costs   was
$375,448 in 2012 and $360,810 for 2011 and the increase of $14,638 was due to primarily to 2012 being the first full year of
employment for certain Company employees, partially offset by changes in allocations of certain employee
compensation expenses among Selling, General and Administrative Expense, Cost of Revenues  and Research and Development
during the 2012 fiscal year. Office expenses for 2012 were $33,660 and $27,855 for 2011 which resulted in an increase of
$5,805, due to increased office costs as the Company was completing the reorganization and increased activities. Rent expense

18





for 2012 was $65,665 compared to
$41,696 for 2011 which resulted in an increase of $23,969 due to increases in the monthly rent for the Company’s
headquarters office. Advertising and marketing expense for 2012 was $107,326 compared to $27,920 for 2011 with the increase
of $79,406 due to increased selling efforts during 2012, the first full year in which the Company’s software was
commercially viable. Stock option expense was $267,488 for 2012 compared to $345,716 for 2011 due to timing of the vesting of
options issued in 2011 and prior to employees. Depreciation was $1,402 for 2012 compared to $21,648 for 2011, a decrease of
$20,246, due to depreciation of software development costs being included in cost of sales after sales began in 2012. We
anticipate that selling, general and administrative expenses will continue to increase as we continue ramping up our sales
and marketing efforts and general growth in 2013.

Merger Related Costs.Merger related
costs were $0 for the year ended December 31, 2012 and $347,312 for the year ended December 31, 2011.  The merger and related
expenses were incurred for the merger with VHS and OnPoint that occurred on April 15, 2011.



Investor Relations Expense. Investor
relations expense was $819,118 and $0 for the years ended December 31, 2012 and 2011, respectively. The 2012 investor relations
expense arose from the issuance of 671,400     warrants under anti-dilution provisions of the PIPE equity
offering at an exercise price of $0.01 which was valued using the Black-Scholes option pricing model.



Interest Expense.Interest expense increased
to $906,249 for the year ended December 31, 2012 from $349,828 for the year ended December 31, 2011, due to new debt being issued.
The components of interest expense for the years ended December 31, 2012 and 2011 are as follows:





|                                                                                                 |  | Year Ended        |         | Year Ended       
|------------------------------------------------------------------------------------------------ |  | ----------------- | ------- | -----------------
|                                                                                                 |  | December 31, 2012 |         | December 31, 2011
|Components of interest expense:                                                                  |  |                   |         |                  
|Amortization of warrant and beneficial conversion feature discount on long-term promissory notes |  | $                 | 154,919 |                  
|Accrued interest on 2010 and 2011 convertible notes                                              |  |                   | 21,530  |                  
|Amortization of warrant and beneficial conversion feature discount on 2012 convertible notes     |  |                   | 389,585 |                  
|Accrued interest on long-term promissory notes and short-term convertible notes                  |  |                   | 27,422  |                  
|Amortization of deferred debt financing costs                                                    |  |                   | 138,389 |                  
|Accrued interest on 2012 convertible notes                                                       |  |                   | 40,438  |                  
|Interest charge recognized on warrant derivative liability                                       |  |                   | 133,966 |                  
|                                                                                                 |  | $                 | 906,249 |                  







Beneficial Conversion
Expense.Beneficial conversion expense was $809,533 and $0 for the years ended December 31, 2012 and 2011, respectively. The
2012 beneficial conversion expense arose from the conversion of convertible promissory notes to equity.

Loss on Debt Extinguishment.Loss on debt extinguishment was $171,548 and $0 for the years ended December 31, 2012 and 2011, respectively. The loss on
debt extinguishment incurred in 2012 resulted from the modification of the warrant exercise price and conversion price of $306,000
of the first 2012 convertible debt issuance ( Note 11, Convertible Promissory Notes).

Income
Tax Benefit. The income tax benefit was $18,900 and $2,081 for years ended December 31, 2012 and 2011 due to the
Company receiving a research and development credit in cash from the State of Minnesota. The increase in the research and development
credit was due to increased research and development activity in 2012. The Company has not recorded a tax benefit for the
generated net operating losses, as they may not be realized in future periods. Therefore, a full valuation allowance has been
recorded against the Company’s deferred tax assets.



Liquidity and Capital Resources

Year ended December 31,
2012 compared to December 31, 2011

For the
year ended December 31, 2012, compared to the year ended December 31, 2011, we have used $1,431,013 and $1,084,324 cash
in operations, respectively. This was an increase of $346,689. Significant contributors to the increased use of cash
in operations include; an overall increase in net loss of $2,575,880, offset by non-cash operating expenses of (a) an
increase in debt discount amortization of $542,295, (b) an increase in stock based compensation of $740,890, and (c) an
increase in beneficial conversion expense of $809,533. Investing activities provided cash of $25,299 in 2012 compared to cash
used of $395,051 in 2011. In 2011, the Company capitalized software costs of  $367,956, of which there was none in 2012. Finally,
cash provided from financing activities increased by $469,985 ($1,787,337 for 2012 compared to $1,317,352 for 2011), which is
primarily due to increased amounts of convertible note issuances of $1,274,000, offset by a decrease of stock issuances of
$431,940 and debt financing costs of $113,789.



19





Summary



At December 31, 2012,
we had cash and cash equivalents of $550,403 and working capital of $69,255. For the year ended December
31, 2012, we have funded substantially all of our operations and capital expenditures through private placements of equity and
debt totaling approximately $2,022,800. From January 1, 2013 to March 29, 2013, we raised an additional $272,500 of debt funding.

The outstanding convertible
notes issued in the first 2012 convertible debt issuance mature in August 2013 and interest is payable quarterly. At the option
of the Company, the first 2012 convertible debt can be extended until February 2014. The principal and accrued interest on the
outstanding notes issued in the second 2012 convertible debt offering are payable at maturity in August through December 2015.

Assuming we do not
raise additional capital prior to the remaining principal and interest payment dates, these payments would have a significant negative
impact on cash and cash equivalents, and our ability to fund continuing operations of the business.

Under our existing
license agreement with Mayo, we have an obligation to pay a minimum royalty of $100,000 to Mayo for the year ended December 31,
2012, and for each year thereafter. As of December 31, 2012, we have $150,000 of such royalty payment accrued. The entire balance
is past due and remains unpaid. Mayo has verbally agreed to forgo payment until the Company has sufficient funds to pay them.

We continue to
expend cash resources on research and development activities. Without further financing, we expect that expenditures in connection
with our research and development efforts will have a material negative impact on our short term liquidity position.

In order to fully
launch the sales and marketing efforts to penetrate the marketplace with our product, fully fund ongoing research and development
efforts, and build our internal operations, we are seeking to raise additional capital in  2013. A capital
raise could include the securing of funds through new strategic partnerships or collaborations, the sale of common stock or other
equity securities or the issuance of debt. We require operating capital from external sources such as strategic partnerships or
collaborations, the sale of common stock or other equity securities or the issuance of debt to sustain the business as we ramp
up our sales and marketing efforts and secure new customers. We cannot assure you that any such capital raising transaction will
be available to us as needed, or on favorable terms. We are subject to those risks associated with any software company. In addition,
we operate in an environment of rapid technological change and we are largely dependent on the services of our employees and consultants.
We cannot assure you that future development projects will be successful, that future products will be commercially viable, or
that we will be able to attract and retain the necessary employees and consultants to complete development and commercialize products.



Summary of Contractual Obligations

The following table
summarizes our obligations to make future payments under our current contractual obligations as of December 31, 2011:

|                                     |  | Payments Due by Period
|------------------------------------ |  | ----------------------
|                                     |  | Total                 
|Long-term convertible notes payable  |  | $                     
|Estimated interest payments (1)      |  |                       
|License payments (2)                 |  |                       
|Short-term convertible notes payable |  |                       
|Other                                |  |                       
|Totals                               |  | $                     







(1)	Estimated
interest payments represent an amount calculated for expected interest payments due under our convertible and non-convertible
debt agreements at December 31, 2012. Assumptions used to calculate these amounts were based upon current interest rates, required
minimum principal payments and maturity of our debt per our contractual agreements.

(2)	These payments
represent the minimum royalty payments required under our license agreement, which continue to be a minimum of $100,000 per year
after year 5. Additional royalty payments could be due depending on future sales levels (5% of annual gross sales).

Critical Accounting Policies

Our discussion and
analysis of our financial condition and results of operations are based on our financial statements, which have been prepared
in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets, liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and reported amount of revenue and expenses during the reporting period.
On an ongoing basis, we evaluate our judgments and estimates, including those related to revenue recognition, long-lived assets,
accrued liabilities, stock-

20





based compensation and income taxes. We
base our judgment and estimates on historical experience and various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Actual results may differ from these estimates under different assumptions or conditions.

While our significant
accounting policies are described in more detail in Note 3 to our financial statements, we believe the following accounting policies
to be critical to the judgments and estimates used in the preparation of our financial statements:

Use of Estimates

The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could
differ from those estimates.

Property and Equipment

Property and equipment are stated
at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the respective assets. Maintenance
and repairs are charged to expense as incurred; major renewals and betterments are capitalized. As items are sold or retired,
the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in operating income.

The estimated useful lives for computing
depreciation are as follows:



|                  |  | Years
|----------------- |  | -----
|Computer software |  |      
|Computer hardware |  |      





Software Development Costs

Costs related to research, design
and development of software products prior to establishment of technological feasibility, are charged to research and development
expense as incurred. Software development costs are capitalized beginning when a product’s technological feasibility has
been established and ending when a product is available for general release to customers. Capitalized software development costs
will be amortized over the estimated economic life of the underlying products which will generally range from two to six years.
During the years ended December 31, 2012 and 2011, the Company capitalized $0 and $367,956 of software development costs, respectively.
The software was available for customer use as of September 30, 2011 and is being amortized over a five year period.

Software Technology License

The software technology license
is an agreement with Mayo Foundation for Medical Education and Research, a minority stockholder. The license is recorded at cost.
Amortization for the license is provided on the straight-line method over the estimated useful life of the license of 3 years.

Long-Lived Assets

The recoverability of property and
equipment and other long-lived assets is assessed periodically or whenever adverse events or changes in circumstances or business
climate indicate that the expected cash flows previously anticipated warrant a reassessment. When such reassessments indicate
the potential of impairment, all business factors are considered and, if the carrying value of such assets is not likely to be
recovered from future undiscounted operating cash flows, they will be written down for financial reporting

21





purposes to their fair values. These
assessments are done at least annually.

Minimum Royalty Payments

The Company’s policy is to recognize
the minimum royalty payments based on the occurrence of the Company’s sales activity. If it is determined that the
minimum obligation will not be met, an accrual will be recorded accordingly. During the year ended December 31, 2012 and 2011,
the Company determined that the minimum obligation would not be met through a percentage of our sales and therefore, as of
December 31, 2012, the Company has accrued a total of $150,000 of royalty payments.



Revenue Recognition



The Company is a development stage company and
had not generated any revenue from inception (February 1, 2009) through December 31, 2011. The Company began generating a
limited amount of revenue during 2012. Revenue under existing contracts is recorded as deferred revenue upon execution of
a software subscription agreement and receipt of payment. Revenue is then recognized monthly on a straight-line basis over
the life of the subscription agreement, which is typically 12 to 36 months. Software service contract revenue is recognized
as services are performed. All customer contracts are reviewed for the existence of multiple element arrangements. If
multiple elements were to exist, the value of the revenues associated with the customer contract would be allocated to each
element, and recognized accordingly.



Net Loss Per Share

Basic and Diluted net loss per share
is calculated by dividing the net loss for the period by the weighted-average number of common shares outstanding during the period.
Diluted net loss per share is calculated by dividing net loss for the period by the weighted-average number of shares outstanding
during the period, increased by potentially dilutive common shares (“dilutive securities”) that were outstanding during
the period. Dilutive securities include stock options and warrants granted and convertible notes.

For the years ended December 31, 2012 and 2011, options,
warrants, and conversion shares related to convertible notes were excluded from the calculation of the diluted net loss per share
as their effect would have been anti-dilutive.



Stock-Based Compensation

The Company recognizes expense for
its stock-based compensation based on the fair value of the awards granted. The fair value of stock options is estimated at the
date of grant using the Black-Scholes option valuation model. The Company makes assumptions about complex and subjective variables
and the related tax impact. These variables include, but are not limited to, the Company's stock price volatility and stock option
exercise behaviors. For volatility, the Company is currently using comparable public companies. The Company recognizes the compensation
cost for stock-based awards on a straight-line basis over the requisite service period for the entire award.

Income Taxes

The Company accounts for income
taxes using the asset and liability approach which requires the recognition of deferred tax assets and liabilities for the tax
consequences of temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes using enacted tax rates in effect for the years in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Debt Issued with Warrants



The Company accounts for the issuance of debt and related
warrants by allocating the debt proceeds between the debt and warrants based on the relative estimated fair values of the debt
security without

22





regard for the warrants and the estimated fair value
of the warrants themselves. The amount allocated to the warrants would then be reflected as both an increase to equity, and as
a debt discount that would be amortized over the term of the debt. However, in circumstances where warrants must be accounted
for as a liability, the full estimated fair value of the warrants is established as both a liability and a debt discount. In some
cases, if the value of the warrants is greater than the principal amount received, an immediate interest expense charge is recorded
for the excess.



In accounting for convertible debt instruments, the proceeds
from issuance of the convertible notes are first allocated between the convertible notes and the warrants. If the amount allocated
to convertible notes results in an effective per share conversion price less than the fair value of the Company’s common
stock on the date of issuance, the intrinsic value of this beneficial conversion feature is recorded as a further discount to
the convertible debt with a corresponding increase to additional paid in capital. The beneficial conversion feature discount is
equal to the difference between the effective conversion price and the fair value of the Company’s common stock.



Derivative Financial Instruments



Derivative liabilities are required to be accounted for
at fair value. As such, each balance sheet date, all such outstanding derivative liabilities are reported at the period end’s
estimated fair value, and changes in that estimate from the prior period end are reflected as a gain or loss in the consolidated
statement of operations. The Company utilizes a Black-Scholes option pricing model to estimate fair values of its derivative liabilities.



These derivative liabilities are also marked-to-market
prior to any related exercises, modifications, or extinguishments, with any necessary changes in fair value from the prior balance
sheet date being reflected as a gain or loss in the consolidated statement of operations. The carrying value of the liability
is eliminated upon extinguishment, converted to equity upon an exercise, or adjusted as may be necessary in a modification.



Recent Accounting Pronouncements

In July 2012, the FASB issued ASU No. 2012-02,
Testing Indefinite-Lived Intangible Assets for Impairment.Under this standard, entities testing long-lived intangible assets
for impairment now have an option of performing a qualitative assessment to determine whether further impairment testing is necessary.
If an entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more-likely-than-not
less than the carrying amount, the existing quantitative impairment test is required. Otherwise, no further impairment testing
is required. For OnPoint, this ASU is effective beginning January 1, 2013, with early adoption permitted under certain conditions.
The adoption of this standard is not expected to have a material impact on the Company’s consolidated results of operations
or financial condition.



Off-Balance Sheet Arrangements

We do not have any
off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,
results of operations, liquidity or capital resources.

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

Our carrying values
of cash and cash equivalents, accounts receivable, accounts payable, and debt are a reasonable approximation of their fair value.
The estimated fair values of financial instruments have been determined by us using available market information and appropriate
valuation methodologies.

We have not entered
into and do not expect to enter into, financial instruments for trading or hedging purposes. We do not currently anticipate entering
into interest rate swaps and/or similar instruments. Our primary market risk exposure with regard to financial instruments is
to changes in interest rates, which would impact the amount of interest we would incur on our debt. We have no material currency
exchange or interest rate risk exposure as of December 31, 2012. Therefore, there will be no ongoing exposure to a potential material
adverse effect on our business, financial condition or results of operation for sensitivity to changes in interest rates or to
changes in currency exchange rates.





23





Item 8.      	Financial
Statements and Supplementary Data.



|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                    |  | Page
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                                                              |  |     
|Report of Independent Registered Public
    Accounting Firm                                                                                                                                   |  |     
|                                                                                                                                                                                              |  |     
|Consolidated Balance Sheets as of December 31, 2012 and 2011                                                                                                                                  |  |     
|                                                                                                                                                                                              |  |     
|Consolidated Statements of Operations for the Years Ended
    December 31, 2012 and 2011 and the Period From Inception (February 1, 2009) to December 31, 2012                                |  |     
|                                                                                                                                                                                              |  |     
|Consolidated Statements of Changes in Stockholders’ Equity
    (Deficit) for the Years Ended December 31, 2012 and 2011 and the Period From Inception (February 1, 2009) to December 31, 2012 |  |     
|                                                                                                                                                                                              |  |     
|Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2012 and 2011 and the Period From Inception (February 1, 2009) to December 31, 2012                                |  |     
|                                                                                                                                                                                              |  |     
|Notes to Consolidated Financial Statements                                                                                                                                                    |  |     



24











Report of Independent Registered
Public Accounting Firm



To the Board of Directors and Stockholders
of

Vertical Health Solutions, Inc.

dba OnPoint Medical Diagnostics

Minneapolis, Minnesota





We have audited the accompanying consolidated balance sheets of
Vertical Health Solutions, Inc. (a developmental stage company) (the “Company”), as of December 31, 2012 and 2011
and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for the
years ended December 31, 2012 and 2011 and the period from inception (February 1, 2009) to December 31, 2012. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.



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



In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of Vertical Health Solutions, Inc. (a developmental
stage company) as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years ended December
31, 2012 and 2011 and the period from inception (February 1, 2009) to December 31, 2012, in conformity with accounting principles
generally accepted in the United States of America.



The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company had net losses
for the years ended December 31, 2012 and 2011 and has a deficit accumulated during the development stage at December 31, 2012.
These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding
those matters are also described in Note 1. The financial statements do not include any adjustments that might result from the
outcome of this uncertainty.



/s/ Moquist Thorvilson Kaufmann LLC



Edina, Minnesota

March 29, 2013



25





VERTICAL HEALTH SOLUTIONS,
INC.

(A DEVELOPMENT STAGE
COMPANY)

CONSOLIDATED BALANCE
SHEETS





|                                                                        |  |              |            |             
|----------------------------------------------------------------------- |  | ------------ | ---------- | ------------
|                                                                        |  | December 31, |            | December 31,
|                                                                        |  | 2012         |            | 2011        
|                                                                        |  |              |            |             
|ASSETS                                                                  |  |              |            |             
|Current assets:                                                         |  |              |            |             
|Cash                                                                    |  | $            | 550,403    |             
|Restricted cash                                                         |  |              | —          |             
|Accounts receivable                                                     |  |              | 9,408      |             
|Prepaid expenses and other current assets                               |  |              | 24,533     |             
|Total current assets                                                    |  |              | 584,344    |             
|                                                                        |  |              |            |             
|Property and equipment, net                                             |  |              | 2,826      |             
|Software development costs, net                                         |  |              | 275,967    |             
|Software technology license, net                                        |  |              | —          |             
|Deferred financing costs, net                                           |  |              | 625,838    |             
|                                                                        |  |              |            |             
|Total assets                                                            |  | $            | 1,488,975  |             
|                                                                        |  |              |            |             
|LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)                            |  |              |            |             
|Current liabilities:                                                    |  |              |            |             
|Accounts payable                                                        |  | $            | 156,709    |             
|Short-term convertible notes payable                                    |  |              | 16,948     |             
|Accrued interest payable                                                |  |              | 16,799     |             
|Accrued payroll and benefits                                            |  |              | 71,732     |             
|Accrued royalties-related party                                         |  |              | 150,000    |             
|Deferred revenue                                                        |  |              | 29,320     |             
|Current maturities of long-term convertible debt, net of                |  |              |            |             
|discounts ($406,000 face value in 2012)                                 |  |              | 73,581     |             
|Total current liabilities                                               |  |              | 515,089    |             
|                                                                        |  |              |            |             
|Long-term promissory notes, net of discounts                            |  |              | —          |             
|Long-term convertible debt, net of current
    maturities and discounts |  |              | 92,212     |             
|Total liabilities                                                       |  |              | 607,301    |             
|                                                                        |  |              |            |             
|Stockholders' equity (deficit) :                                        |  |              |            |             
|Common stock, $0.001 par value, 250,000,000 shares                      |  |              |            |             
|authorized; 13,473,299 and 10,650,408 issued and outstanding            |  |              |            |             
|at December 31, 2012 and December 31, 2011, respectively                |  |              | 13,473     |             
|Additional paid in capital                                              |  |              | 9,735,455  |             
|Deficit accumulated during the development stage                        |  |              | (8,867,254 | )           
|                                                                        |  |              |            |             
|Total stockholders' equity (deficit)                                    |  |              | 881,674    |             
|                                                                        |  |              |            |             
|Total liabilities and stockholders' equity
    (deficit)                |  | $            | 1,488,975  |             





See accompanying notes to the consolidated
financial statements.

26





VERTICAL HEALTH
SOLUTIONS, INC.(A DEVELOPMENT STAGE COMPANY)CONSOLIDATED STATEMENTS OF OPERATIONS



|                                    |  |                   |            |                   |  | Period from          
|----------------------------------- |  | ----------------- | ---------- | ----------------- |  | ---------------------
|                                    |  |                   |            |                   |  | Inception            
|                                    |  | Year ended        |            | Year ended        |  | (February 1, 2009) to
|                                    |  | December 31, 2012 |            | December 31, 2011 |  | December 31, 2012    
|                                    | 
|Revenues                            |  | $                 | 76,183     |                   |  | $                    
|Costs of revenues                   |  |                   | 288,247    |                   |  |                      
|Gross loss                          |  |                   | (212,064   | )                 |  |                      
|                                    |  |                   |            |                   |  |                      
|Operating expenses:                 |  |                   |            |                   |  |                      
|Research and development            |  |                   | 452,046    |                   |  |                      
|Selling, general and administrative |  |                   | 1,244,537  |                   |  |                      
|Investor relations expense          |  |                   | 819,118    |                   |  |                      
|Merger related costs                |  |                   | —          |                   |  |                      
|                                    |  |                   |            |                   |  |                      
|Total operating expenses            |  |                   | 2,515,701  |                   |  |                      
|                                    |  |                   |            |                   |  |                      
|Loss from operations                |  |                   | (2,727,765 | )                 |  |                      
|                                    |  |                   |            |                   |  |                      
|Other income (expense):             |  |                   |            |                   |  |                      
|Interest income                     |  |                   | 8          |                   |  |                      
|Interest expense                    |  |                   | (906,249   | )                 |  |                      
|Beneficial conversion expense       |  |                   | (809,533   | )                 |  |                      
|Loss on debt extinguishment         |  |                   | (171,548   | )                 |  |                      
|Gain  on fair value adjustment      |  |                   |            |                   |  |                      
|of warrant derivative liability     |  |                   | 203        |                   |  |                      
|                                    |  |                   |            |                   |  |                      
|Total other income (expense)        |  |                   | (1,887,119 | )                 |  |                      
|                                    |  |                   |            |                   |  |                      
|Net loss before income taxes        |  |                   | (4,614,884 | )                 |  |                      
|                                    |  |                   |            |                   |  |                      
|Income tax benefit                  |  |                   | 18,900     |                   |  |                      
|                                    |  |                   |            |                   |  |                      
|Net loss and comprehensive loss     |  | $                 | (4,595,984 | )                 |  | $                    
|                                    |  |                   |            |                   |  |                      
|Net loss per common share -         |  |                   |            |                   |  |                      
|basic and diluted                   |  | $                 | (0.40      | )                 |  | $                    
|                                    |  |                   |            |                   |  |                      
|Weighted average common shares      |  |                   |            |                   |  |                      
|outstanding - basic                 |  |                   | 11,413,945 |                   |  |                      
|                                    |  |                   |            |                   |  |                      
|Weighted average common shares      |  |                   |            |                   |  |                      
|outstanding - diluted               |  |                   | 11,413,945 |                   |  |                      







See accompanying notes to the consolidated
financial statements

27





VERTICAL HEALTH SOLUTIONS,
INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CHANGES IN STOCKHOLDER
EQUITY (DEFICIT)





|                                          |  | Common Stock |            |   |  |  
|----------------------------------------- |  | ------------ | ---------- | - |  | -
|                                          |  |              |            |   |  |  
|                                          |  |              |            |   |  |  
|                                          |  |              | Shares     |   |  |  
|Balances at inception                     |  |              |            |   |  |  
|(February 1, 2009)                        |  |              | —          |   |  | $
|Founders shares issued                    |  |              |            |   |  |  
|at par value                              |  |              | 11,111,000 |   |  |  
|Sale of common stock, net of              |  |              |            |   |  |  
|$38,600 of issuance costs                 |  |              | 320,000    |   |  |  
|Stock options issued as                   |  |              |            |   |  |  
|compensation for services                 |  |              | —          |   |  |  
|Stock warrants issued as                  |  |              |            |   |  |  
|compensation for services                 |  |              | —          |   |  |  
|Net loss for the period from              |  |              |            |   |  |  
|inception (February 1, 2009)              |  |              |            |   |  |  
|through December 31, 2009                 |  |              | —          |   |  |  
|                                          |  |              |            |   |  |  
|Balances at December 31, 2009             |  |              | 11,431,000 |   |  |  
|                                          |  |              |            |   |  |  
|Additional founders shares                |  |              |            |   |  |  
|issued at par value                       |  |              | 12,249     |   |  |  
|Redemption of founders shares             |  |              | (5,706,636 | ) |  |  
|Accounts payable - related party          |  |              |            |   |  |  
|forgiven by stockholder                   |  |              | —          |   |  |  
|Accounts payable - related party          |  |              |            |   |  |  
|converted to common stock                 |  |              | 500,000    |   |  |  
|Common stock issued as                    |  |              |            |   |  |  
|compensation for services                 |  |              | 906,500    |   |  |  
|Stock options issued as                   |  |              |            |   |  |  
|compensation for services                 |  |              | —          |   |  |  
|Stock warrants issued in                  |  |              |            |   |  |  
|connection with the convertible           |  |              |            |   |  |  
|debt offering                             |  |              | —          |   |  |  
|Net loss                                  |  |              | —          |   |  |  
|                                          |  |              |            |   |  |  
|Balances at December 31, 2010             |  |              | 7,143,113  |   |  |  
|                                          |  |              |            |   |  |  
|Recapitalization of Vertical Health       |  |              |            |   |  |  
|Solutions stock upon execution of         |  |              |            |   |  |  
|share exchange agreement                  |  |              | 1,084,632  |   |  |  
|Stock options issued as compensation      |  |              |            |   |  |  
|for services                              |  |              | —          |   |  |  
|Stock warrants issued in connection       |  |              |            |   |  |  
|with the debt offerings                   |  |              | —          |   |  |  
|Private unit offering-stock and warrants  |  |              |            |   |  |  
|issued for cash, net of $139,398 in       |  |              |            |   |  |  
|offering costs                            |  |              | 735,000    |   |  |  
|Stock issued upon conversion of debt      |  |              | 1,687,663  |   |  |  
|Net loss                                  |  |              | —          |   |  |  
|Balances at December 31, 2011             |  |              | 10,650,408 |   |  |  
|                                          |  |              |            |   |  |  
|Stock options issued as compensation      |  |              |            |   |  |  
|for services                              |  |              | —          |   |  |  
|Private unit offering-stock and warrants  |  |              |            |   |  |  
|issued for cash, net of                   |  |              |            |   |  |  
|60,138 in offering costs                  |  |              | 223,800    |   |  |  
|Stock issued upon conversion of debt      |  |              |            |   |  |  
|and accrued interest                      |  |              | 1,927,691  |   |  |  
|Beneficial conversion  expense upon       |  |              |            |   |  |  
|conversion of term debt                   |  |              |            |   |  |  
|Warrants exercised                        |  |              | 671,400    |   |  |  
|Warrant derivative liability reclassified |  |              |            |   |  |  
|to equity                                 |  |              | —          |   |  |  
|Beneficial conversion feature on          |  |              |            |   |  |  
|convertible debt                          |  |              | —          |   |  |  
|Stock warrants issued in connection       |  |              |            |   |  |  
|with debt                                 |  |              | —          |   |  |  
|Stock warrants issued for                 |  |              |            |   |  |  
|investor relations expense                |  |              | —          |   |  |  
|Net loss                                  |  |              | —          |   |  |  
|Balances at December 31, 2012             |  |              | 13,473,299 |   |  | $







See accompanying notes to the consolidated
financial statements.

28





VERTICAL HEALTH SOLUTIONS,
INC.

(A DEVELOPMENT STAGE
COMPANY)

CONSOLIDATED STATEMENTS
OF CASH FLOWS





|                                                                                      |  |                   |            |                   |  | Inception            
|------------------------------------------------------------------------------------- |  | ----------------- | ---------- | ----------------- |  | ---------------------
|                                                                                      |  | Year Ended        |            | Year Ended        |  | (February 1, 2009) to
|                                                                                      |  | December 31, 2012 |            | December 31, 2011 |  | December 31, 2012    
|                                                                                      |  |                  
|Cash flows used in operating activities:                                              |  |                   |            |                   |  |                      
|Net loss                                                                              |  | $                 | (4,595,984 | )                 |  | $                    
|Adjustments to reconcile net loss to net cash used                                    |  |                   |            |                   |  |                      
|in operating activities:                                                              |  |                   |            |                   |  |                      
|Depreciation and amortization of assets                                               |  |                   | 232,827    |                   |  |                      
|Amortization of debt discount                                                         |  |                   | 544,504    |                   |  |                      
|Stock-based compensation                                                              |  |                   | 1,086,606  |                   |  |                      
|Non-cash merger related costs                                                         |  |                   | —          |                   |  |                      
|Interest expense for warrant liability derivative                                     |  |                   |            |                   |  |                      
|recorded in excess of discounted debt                                                 |  |                   | 133,966    |                   |  |                      
|Beneficial conversion expense                                                         |  |                   | 809,533    |                   |  |                      
|Loss on Debt Extinguishment                                                           |  |                   | 171,548    |                   |  |                      
|Gain on fair value adjustment of warrant derivative                                   |  |                   |            |                   |  |                      
|liability                                                                             |  |                   | (203       | )                 |  |                      
|Changes in operating assets and liabilities:                                          |  |                   |            |                   |  |                      
|Increase in accounts receivable                                                       |  |                   | (9,408     | )                 |  |                      
|(Increase) decrease in prepaid expenses and                                           |  |                   |            |                   |  |                      
|other current assets                                                                  |  |                   | 32,387     |                   |  |                      
|Increase (decrease) in accounts payable                                               |  |                   | (86,868    | )                 |  |                      
|Increase (decrease) in accrued interest                                               |  |                   | 65,688     |                   |  |                      
|Increase (decrease) in accrued payroll and                                            |  |                   |            |                   |  |                      
|benefits                                                                              |  |                   | 55,071     |                   |  |                      
|Increase in accrued royalties-related party                                           |  |                   | 100,000    |                   |  |                      
|Increase in deferred revenue                                                          |  |                   | 29,320     |                   |  |                      
|Increase (decrease) in accounts payable-related                                       |  |                   |            |                   |  |                      
|parties                                                                               |  |                   | —          |                   |  |                      
|                                                                                      |  |                   |            |                   |  |                      
|Net cash used in operating activities                                                 |  |                   | (1,431,013 | )                 |  |                      
|                                                                                      |  |                   |            |                   |  |                      
|Cash flows provided by (used in) investing activities:                                |  |                   |            |                   |  |                      
|Decrease (increase) in restricted cash                                                |  |                   | 25,299     |                   |  |                      
|Capitalized software development costs                                                |  |                   | —          |                   |  |                      
|Purchase of property and equipment                                                    |  |                   | —          |                   |  |                      
|Cash received from VHS merger                                                         |  |                   | —          |                   |  |                      
|Net cash provided by (used in) investing                                              |  |                   |            |                   |  |                      
|activities                                                                            |  |                   | 25,299     |                   |  |                      
|                                                                                      |  |                   |            |                   |  |                      
|Cash flows provided by financing activities:                                          |  |                   |            |                   |  |                      
|Proceeds from issuance of convertible debt                                            |  |                   | 1,799,000  |                   |  |                      
|Debt financing costs                                                                  |  |                   | (182,039   | )                 |  |                      
|Proceeds from issuance of promissory notes                                            |  |                   | —          |                   |  |                      
|Proceeds from exercise of stock warrants                                              |  |                   | 6,714      |                   |  |                      
|Proceeds from sale of common stock and warrants,                                      |  |                   |            |                   |  |                      
|net of issuance costs                                                                 |  |                   | 163,662    |                   |  |                      
|                                                                                      |  |                   |            |                   |  |                      
|Net cash provided by financing activities                                             |  |                   | 1,787,337  |                   |  |                      
|                                                                                      |  |                   |            |                   |  |                      
|Increase (decrease) in cash                                                           |  |                   | 381,623    |                   |  |                      
|                                                                                      |  |                   |            |                   |  |                      
|Cash:                                                                                 |  |                   |            |                   |  |                      
|Beginning of period                                                                   |  |                   | 168,780    |                   |  |                      
|                                                                                      |  |                   |            |                   |  |                      
|End of period                                                                         |  | $                 | 550,403    |                   |  | $                    
|                                                                                      |  |                   |            |                   |  |                      
|Supplemental disclosure of cash flow information:                                     |  |                   |            |                   |  |                      
|Cash paid for interest                                                                |  | $                 | 23,699     |                   |  | $                    
|                                                                                      |  |                   |            |                   |  |                      
|Non-cash investing and financing activities:                                          |  |                   |            |                   |  |                      
|                                                                                      |  |                   |            |                   |  |                      
|Accounts payable - related parties incurred for the
    purchase of intangible assets |  | $                 | —          |                   |  | $                    
|Accounts payable - related party reduced by                                           |  |                   |            |                   |  |                      
|forgiveness of debt and issuance of                                                   |  |                   |            |                   |  |                      
|common stock                                                                          |  | $                 | —          |                   |  | $                    
|Increase in deferred debt financing costs by                                          |  |                   |            |                   |  |                      
|issuing stock warrants                                                                |  | $                 | 517,588    |                   |  | $                    
|Accrued interest converted to common stock                                            |  | $                 | 84,159     |                   |  | $                    
|Debt converted to common stock                                                        |  | $                 | 612,500    |                   |  | $                    
|Increase in accounts payable, accrued expenses and                                    |  |                   |            |                   |  |                      
|short-term convertible
    debt for liabilities assumed                               |  |                   |            |                   |  |                      
|in reverse merger                                                                     |  | $                 | —          |                   |  | $                    
|Increase in debt discounts on long-term promissory                                    |  |                   |            |                   |  |                      
|notes by issuing stock
    warrants                                                   |  | $                 | —          |                   |  | $                    
|Increase in debt discounts on long-term convertible                                   |  |                   |            |                   |  |                      
|notes by issuing stock
    warrants                                                   |  | $                 | 809,442    |                   |  | $                    
|Increase in debt discounts on long-term convertible                                   |  |                   |            |                   |  |                      
|notes by issuing warrant liability derivatives                                        |  | $                 | 406,000    |                   |  | $                    
|Increase in accounts payable for deferred financing                                   |  |                   |            |                   |  |                      
|costs                                                                                 |  | $                 | 29,260     |                   |  | $                    
|Warrant derivative liability reclassified to equity                                   |  | $                 | 539,763    |                   |  | $                    
|Increase in debt discounts in connection with                                         |  |                   |            |                   |  |                      
|beneficial conversion feature on long-term                                            |  |                   |            |                   |  |                      
|convertible notes                                                                     |  | $                 | 919,558    |                   |  | $                    







See accompanying notes to the consolidated
financial statements.

29





VERTICAL HEALTH SOLUTIONS,
INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





1.	NATURE OF OPERATIONS



The accompanying financial statements include the accounts of the
Vertical Health Solutions, Inc. (“VHS or “the Company”) and include the acquisition of its wholly-owned subsidiary
OnPoint Medical Diagnostics, Inc. (“OnPoint”) which was completed through a reverse merger on April 15, 2011. (See
Note 2 for discussion of the impact of the reverse merger.) Intercompany transactions and balances are eliminated in consolidation.



The on-going operations of the Company are that of OnPoint. OnPoint
provides a software-as-a-service (SAAS) enterprise quality assurance solution for the diagnostics imaging market. OnPoint has
generated only nominal revenue from inception to December 31, 2012 and is considered a development stage company as of December
31, 2012.



Going Concern



The accompanying financial statements have been prepared
in conformity with accounting principles generally accepted in the United States of America, assuming the Company will
continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal
course of business. For the year ended December 31, 2012, we incurred a net loss of $4,595,984. At December 31, 2012, we had
an accumulated deficit of $8,867,254 and working capital of only $69,255. Our ability to continue as a going concern is
dependent on our ability to raise the required additional capital or debt financing to meet short and long-term operating
requirements. During 2012, we raised $223,800 through a PIPE financing and $1,799,000 in convertible debt financing, for a
total of $2,022,800. Through the date of these financial statements, we have raised $272,500 of additional convertible
debt financing.



These funds are expected to last us through July 2013 at which
time future private placements of equity capital or debt financing such as the item discussed in Note #19, “Subsequent Events”
herein, will be needed to fund our long-term operating requirements. If we raise additional funds through the issuance of equity
or convertible debt securities, the percentage ownership of our current shareholders could be reduced, and such securities might
have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms,
or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage
of prospective business endeavors or opportunities, which could significantly and materially restrict our operations. We are continuing
to pursue external financing alternatives to improve our working capital position. If we are unable to obtain the necessary capital,
we may have to reduce our expenses or cease operations.



2.	REVERSE MERGER



VHS, a Florida corporation, and its newly-formed subsidiary,
Vertical HS Acquisition Corp., a Delaware corporation (“Merger Sub”) entered into an Agreement and Plan of Merger
(the “Merger Agreement”), dated as of February 1, 2011, by and among OnPoint, on the one hand, and VHS and Merger
Sub, on the other hand.  Pursuant to the Merger Agreement, Merger Sub, which VHS had incorporated in the state of Delaware
for the purpose of completing the transaction, merged into OnPoint (the “Merger”) on April 15, 2011 (the “Closing”
or the “Closing Date”) with OnPoint continuing as the surviving entity in the Merger.  As a result of the Merger,
OnPoint became a wholly-owned subsidiary of the Company. Immediately prior to the Merger, VHS had 44,474,973 shares of common
stock outstanding. The Company then converted certain VHS liabilities aggregating $150,000 into 133,425,011 shares of VHS common
stock resulting in 177,899,984 shares outstanding. On the Closing Date, VHS implemented a 1 for 164 reverse stock split effectively
cancelling 176,815,352 shares. VHS then issued an additional 7,143,113 shares to existing shareholders of OnPoint in exchange
for 100% of OnPoint’s outstanding shares. In addition, OnPoint’s outstanding options, warrants and convertible notes
became options, warrants and convertible notes exercisable or convertible into such number of shares of VHS common stock at an
exercise or conversion price having the same economic value as prior to the Merger. Upon completion of the Merger, VHS had 8,227,745
shares of common stock outstanding. All merger transaction costs totaling $347,312 have been expensed as incurred.

30





The acquisition was treated as a
recapitalization of OnPoint with OnPoint being treated as the accounting acquirer in the reverse merger. Accordingly, the
financial statements of the Company presented reflect the historical results of OnPoint prior to the Merger, and do not
include the historical financial results of VHS prior to the consummation of the Merger. Stockholders’ deficit has
been retroactively restated to reflect the capital structure of VHS after giving effect to the Merger. The accompanying
financial statements as of December 31, 2012 and 2011, present the historical financial information of OnPoint consolidated
with VHS from the date of reorganization (April 15, 2011) to December 31, 2012.

The operations of OnPoint are the continuing operations
of VHS. In connection with the Merger, OnPoint received $1,145 in cash remaining in VHS’ bank account and assumed $20,428
in accounts payable, $6,597 in accrued expenses and $16,948 in convertible short-term notes which were rewritten in the following
terms: interest at 0.21% per annum; mature on July 15, 2011 and payment is due on demand thereafter; principal and accrued interest
is convertible prior to the maturity date into common stock using a conversion price of 80% of the fair value of the common stock.

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION



Use of Estimates



The preparation of financial statements in conformity with United
States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates.





Accounts Receivable and Allowance for Doubtful
Accounts



The Company evaluates the collectability of
accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customer’s
inability to meet its financial obligations, a specific reserve is recorded to reduce the receivable to the amount the Company
believes will be collected. For all other customers, the Company records an allowance for doubtful accounts based on the length
of time the receivables are past due and historical experience. Typically, the Company considers all receivables not paid within
specified terms of the invoice as past due. The Company does not accrue interest on past due receivables.



As of December 31, 2012, management has deemed
all accounts receivable to be fully collectible and has not recorded a reserve for doubtful accounts. If circumstances change,
the Company’s estimates of the collectability of amounts due could be reduced and such reductions could be material.



As of December 31, 2011, there was no accounts
receivable.



Property and Equipment



Property and equipment are stated at cost. Depreciation is provided
on the straight-line method over the estimated useful lives of the respective assets. Maintenance and repairs are charged to expense
as incurred; major renewals and betterments are capitalized. As items are sold or retired, the related cost and accumulated depreciation
are removed from the accounts and any gain or loss is included in operating income.



The estimated useful lives for computing depreciation are as follows:





|                  |  | Years
|----------------- |  | -----
|Computer software |  |      
|Computer hardware |  |      







Software Development Costs



Costs related to research, design and development of software products
prior to establishment of technological feasibility, are charged to research and development expense as incurred.  Software
development costs are capitalized beginning when a product’s technological feasibility has been established and ending when
a product is available for general release to customers.  Capitalized software development costs will be amortized over the
estimated economic life of the underlying products which will generally range from two to six years.  During the years ended
December 31, 2012 and 2011, the Company capitalized $0 and $367,956 respectively, of software development costs.  The software
was available for customer use as of September 30, 2011 and is being amortized over a five year period.



Software Technology License



The software technology license is an
agreement with Mayo Foundation for Medical Education and Research, a minority stockholder. The license is recorded at cost.
Amortization of the license is provided on the straight-line method over the estimated useful life of the license of 3 years,
and is fully amortized as of December 31, 2012.



Deferred Financing Costs

31







Deferred financing costs were incurred in connection with the Company’s
issuance of convertible notes and promissory notes. Amortization of these costs is provided on the effective-interest method over
the term of the related debt.



Long-Lived Assets



The recoverability of property and equipment,
software development costs, and other long-lived assets is assessed periodically or whenever adverse events or changes in circumstances
or business climate indicate that the expected cash flows previously anticipated warrants a reassessment. When such reassessments
indicate the potential of impairment, all business factors are considered and, if the carrying value of such assets is not likely
to be recovered from future undiscounted operating cash flows, they will be written down for financial reporting purposes to their
fair values. There were no impairment charges for the years ended December 31, 2012 and 2011.





Minimum Royalty Payments



The Company’s policy is to recognize the minimum royalty
due for the underlying technology embedded in the Company’s software based on the occurrence of the Company’s sales
activity. If it is determined that the minimum obligation will not be met, an accrual will be recorded accordingly. During the
year ended December 31, 2012 and 2011, the Company determined that the minimum obligation would not be met through a percentage
of our sales and therefore, as of December 31, 2012 and 2011, the Company has accrued and expensed $100,000 and $50,000, respectively.
Accrued royalties aggregated $150,000 and $50,000 at December 31, 2012 and 2011, respectively.



Revenue Recognition



The Company is a development stage company and had not generated
any revenue from inception (February 1, 2009) through December 31, 2011. The Company began generating a nominal amount of revenue
during 2012. Revenue under existing contracts is recorded as deferred revenue upon execution of a software subscription agreement
and receipt of payment. Revenue is then recognized monthly on a straight-line basis over the life of the subscription agreement,
which is typically 12 to 36 months. Software contract revenue is recognized as services are performed. All customer contracts
are reviewed for the existence of multiple element arrangements. If multiple elements were to exist, the value of the revenues
associated with the customer contract would be allocated to each element, and recognized accordingly.



Stock-Based Compensation



The Company recognizes expense for its stock-based
compensation based on the fair value of the awards granted.  The fair value of stock options is estimated at the date of
grant using the Black-Scholes option valuation model. The Company makes assumptions about complex and subjective variables and
the related tax impact.  These variables include, but are not limited to, the Company's stock price volatility and stock
option exercise behaviors.  The Company recognizes the compensation cost for stock-based awards on a straight-line basis
over the requisite service period for the entire award.



Advertising Costs



Advertising costs are expensed as incurred and
were $7,045 and $22,029 for the years ended December 31, 2012 and 2011, respectively.



Net Loss per Share



Basic net loss per share is calculated by dividing the net loss
for the period by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is calculated
by dividing net loss for the period by the weighted-average number of shares outstanding during the period, increased by potentially
dilutive common shares (“dilutive securities”) that were outstanding during the period. Dilutive securities include
stock options and warrants granted and convertible notes.

32







For the years ended December 31, 2012 and 2011, options, warrants,
and conversion shares related to convertible notes were excluded from the calculation of the diluted net loss per share as their
effect would have been anti-dilutive.



Income Taxes



The Company accounts for income taxes using the asset and liability
approach which requires the recognition of deferred tax assets and liabilities for the tax consequences of temporary differences
between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes using enacted tax
rates in effect for the years in which the differences are expected to reverse. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.



The Company accounts for income taxes pursuant to Financial Accounting
Standards Board guidance specifically related to uncertain tax positions. This guidance presents a more-likely-than-not threshold
for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company
believes its income tax filing positions and deductions will be sustained upon examination and, accordingly, no accrual related
to uncertain tax positions has been recorded at December 31, 2012 and 2011. In accordance with the guidance, the Company has adopted
a policy under which, if required to be recognized in the future, interest related to the underpayment of income taxes will be
classified as a component of interest expense and any related penalties will be classified in operating expenses. The Company’s
remaining open tax years subject to examination include 2009, 2010 and 2011.



The Company has recorded a full valuation allowance against its
deferred tax assets at December 31, 2012 and 2011.





Fair Value of Financial Instruments



The Company’s financial instruments consist of cash, accounts
receivable, accounts payable, and debt. The Company is required to estimate the fair value of all financial instruments at the
balance sheet date based on relevant market information. The Company considers the carrying values of its financial instruments
in the financial statements to approximate fair values due to the short-term nature for cash, accounts receivable and accounts
payable and as interest rates on the debt approximate current rates. At December 31, 2012 and 2011, it is deemed impracticable
to estimate the fair value of the Company’s debt, as quoted market prices are not available, a valuation model necessary
to estimate the fair value has not been developed, and the cost of obtaining an independent valuation is deemed excessive in relation
to the value of debt held by the Company.



Debt Issued with Warrants



The Company accounts for the issuance of debt and related warrants
by allocating the debt proceeds between the debt and warrants based on the relative estimated fair values of the debt security
without regard for the warrants and the estimated fair value of the warrants themselves. The amount allocated to the warrants
would then be reflected as both an increase to equity, and as a debt discount that would be amortized over the term of the debt.
However, in circumstances where warrants must be accounted for as a liability, the full estimated fair value of the warrants is
established as both a liability and a debt discount. In some cases, if the value of the warrants is greater than the principal
amount received, an immediate interest expense charge is recorded for the excess.



In accounting for convertible debt instruments, the proceeds from
issuance of the convertible notes are first allocated between the convertible notes and the warrants. If the amount allocated
to convertible notes results in an effective per share conversion price less than the fair value of the Company’s common
stock on the date of issuance, the intrinsic value of this beneficial conversion feature is recorded as a further discount to
the convertible debt with a corresponding increase to additional paid in capital. The beneficial conversion feature discount is
equal to the difference between the effective conversion price and the fair value of the Company’s common stock.



Derivative Financial Instruments



Derivative liabilities are required to be accounted for at fair
value. As such, each balance sheet date, all such outstanding derivative liabilities are reported at the period end’s estimated
fair value, and changes in that estimate from the prior period end are reflected as a gain or loss in the consolidated statement
of operations. The Company utilizes a Black-Scholes option pricing model to estimate fair values of its derivative liabilities.



These derivative liabilities are also marked-to-market prior to
any related exercises, modifications, or extinguishments, with any necessary changes in fair value from the prior balance sheet
date being reflected as a gain or loss in the consolidated statement of operations. The carrying value of the liability is eliminated
upon extinguishment, converted to equity upon an exercise, or adjusted as may be necessary in a modification.





Concentrations of Credit Risk



Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash. The Company places its cash in accounts with financial institutions
that management considers creditworthy. However, at times, deposited funds may exceed amounts insured by the Federal Deposit Insurance
Corporation.



Comprehensive Income (Loss)



Comprehensive income (loss) includes net income (loss) and items
defined as other comprehensive income (loss). Items defined as other comprehensive income (loss) include items such as foreign
currency translation adjustments and unrealized gains and losses on certain marketable securities. For the years ended December
31, 2012 and 2011, there were no adjustments to net loss to arrive at comprehensive loss.



Recent Accounting Pronouncements





In July 2012, the FASB issued ASU No. 2012-02, Testing
Indefinite-Lived Intangible Assets for Impairment.Under this standard, entities testing long-lived intangible assets for impairment
now have an option of performing a qualitative assessment to determine whether further impairment testing is necessary. If an entity
determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more-likely-than-not
less than the carrying amount, the existing quantitative impairment test is required. Otherwise, no further impairment testing
is required. For OnPoint, this ASU is effective beginning January 1, 2013, with early adoption permitted under certain conditions.
The adoption of this standard is not expected to have a material impact on the Company’s consolidated results of operations
or financial condition.









33









4.	PROPERTY AND EQUIPMENT



Property and equipment consisted of the following
at December 31:





|                               |  | 2012 |        | 2011
|------------------------------ |  | ---- | ------ | ----
|Computer software              |  | $    | 7,538  |     
|Computer hardware              |  |      | 4,912  |     
|                               |  |      | 12,450 |     
|Less: accumulated depreciation |  |      | (9,624 | )   
|Net property and equipment     |  | $    | 2,826  |     





Depreciation expense was $1,402 and $3,250 for the years ended
December 31, 2012 and 2011, respectively.



5.	SOFTWARE DEVELOPMENT COSTS



Software development costs consisted of the
following at December 31:





|                               |  | 2012 |         | 2011
|------------------------------ |  | ---- | ------- | ----
|                               |  |      |         |     
|Cost                           |  | $    | 367,956 |     
|Less: accumulated amortization |  |      | (91,989 | )   
|Net software development costs |  | $    | 275,967 |     





Amortization expense was $73,591 and $18,398 for the years ended
December 31, 2012 and 2011, respectively.



Estimated future amortization expense is as follows for the years
ending December 31:





| | Year  | Amortization   
| | ----- | ---------------
| | 2013  | $        73,591
| | 2014  | 73,591         
| | 2015  | 73,591         
| | 2016  | 55,194         
| | 2017  | -              
| | Total | $      275,967 





34





6.	SOFTWARE TECHNOLOGY LICENSES



Software technology licenses consisted of the
following at December 31:



|                                |  | 2012 |          | 2011
|------------------------------- |  | ---- | -------- | ----
|                                |  |      |          |     
|Cost                            |  | $    | 100,000  |     
|Less: accumulated amortization  |  |      | (100,000 | )   
|Net software technology license |  | $    | —        |     





Amortization expense was $19,445 and $33,333 for the years ended
December 31, 2012 and 2011, respectively.







7.	DEFERRED FINANCING COSTS



Deferred financing costs consisted of the following
at December 31:





|                                  |  | 2012 |          | 2011
|--------------------------------- |  | ---- | -------- | ----
|Cost                              |  | $    | 728,887  |     
|Less: accumulated amortization    |  |      | (103,049 | )   
|Net deferred debt financing costs |  | $    | 625,838  |     





Amortization expense was $138,389 and $278,835 for the years ended
December 31, 2012 and 2011, respectively. During 2012, the fully amortized deferred financing costs related to settled debt aggregating
$336,646 was removed from deferred financing costs. Estimated future amortization expense is as follows for the years ending December
31:





| | 2013  |  |  | $ | 238,105 | 
| | ----- |  |  | - | ------- | 
| | 2014  |  |  |   | 217,480 | 
| | 2015  |  |  |   | 170,253 | 
| | Total |  |  | $ | 625,938 | 







8.	CASH AND RESTRICTED CASH





As of January 1, 2013, the Company had $299,534, which exceeded
current Federal Deposit Insurance Corporation (FDIC) cash deposit insurance limits at one financial institution.



At December 31, 2011, the Company had $25,299 of restricted cash, being held
in an escrow account relating to recent purchases of the Company’s common stock. In order to qualify for certain State of
Minnesota tax credits, the investing shareholders must obtain approval from the State of Minnesota prior to their invested funds
being released to the Company. The Company typically expects these funds to be released in 2 to 4 weeks. These funds were released
from escrow during January and February of 2012.





9.	RELATED PARTY







At December 31, 2012 and 2011, the Company had $150,000 and $50,000,
respectively of accrued royalties due to a related party (minority shareholder) which reflected the minimum royalty license fees
for 2012 and 2011 of $100,000 and $50,000, respectively, due to the Mayo Foundation for Medical Education and Research. This amount
remains past due and unpaid. The Company currently has a verbal agreement to make all payments when funding and cash flows allow.



At December 31, 2012 and 2011, accrued interest payable on long-term
convertible debt to a board member was $0 and $24,082, respectively. Interest expense on the related party convertible debt for
the years ended December 31, 2012 and 2011 was $15,835 and $28,575 respectively. During 2012 and 2011, the board member received
377,282 and 327,250 shares of common stock, respectively, upon conversion of $239,917 and $212,712, respectively of principal and
accrued interest on convertible debt.



At December 31, 2012 and 2011, accrued interest payable on
long-term promissory notes to board members was $0 and $913, respectively. Interest expense on the related party long-term promissory
notes to three board members for the years ended December 31, 2012 and 2011 was $24,592 and $913, respectively. During 2012, these
board members received 1,062,016 shares of common stock upon conversion of $265,504 of principal and accrued interest on long-term
debt.



As of December 31, 2011, there were unreimbursed business expenses
of $17,348 in accounts payable which is due to the CEO.



During the year ended December 31, 2012, the Company incurred
$46,345 in consulting fees from the Company’s contract CFO. At December 31, 2012, $19,500 remained unpaid and is
included in accounts payable on the accompanying balance sheet.







35





10.	SHORT TERM CONVERTIBLE PROMISSORY
NOTES



At December 31, 2012 and 2011 the Company has short term convertible
notes payable of $16,948, which are due on demand and accrue interest at 0.21% interest per annum. The
conversion price is 80% of the current fair value of the Company’s common stock.



11.	CONVERTIBLE PROMISSORY NOTES



2010 / 2011 Convertible Debt Issuance





In October 2010, the Company began a $1.5 million private placement
convertible notes offering. The notes bore interest at 10% per annum and outstanding principal amount of the convertible notes
mandatorily converted to common stock in one quarter (25%) intervals on each of September 30, 2011, February 29, 2012, July 31,
2012 and December 31, 2012 (each referred to herein as a principal satisfaction date). In addition, the holder could convert all
or a portion of the outstanding principal plus accrued interest under the notes into common shares of the Company at any time.
Accrued interest was payable in cash or shares of common stock at the election of the holder starting on December 31, 2011 and
on each of the principal satisfaction dates thereafter. The conversion price was equal to the lesser of $0.65 per share or 65%
of the volume weighted average price of the common stock for the twenty trading dates preceding a conversion; however, the conversion
price could not be less than $0.25 per share. The Company estimated its common stock fair value to be $0.65 during this offering
period and therefore, determined there was no beneficial conversion feature to record upon issuance of the notes. A total of $1,347,500
of convertible notes was issued pursuant to this offering during the fourth quarter of 2010 and the first quarter of 2011.



In connection with the notes, the Company incurred legal costs
of $29,980 and finder’s fees of $176,675, which were paid out of the net proceeds to third-party selling agents, and the
Company issued warrants to purchase 236,538 shares of the Company’s common stock to the selling agents. At issuance, the
warrants had a fair market value of $129,991. Total debt financing costs of $336,646 were capitalized and were being recognized
over the term of the related convertible notes using the effective interest rate method.



On June 7, 2011, $1,017,500 of convertible notes and $46,980 of accrued interest
was converted to 1,637,663 shares of common stock pursuant to a note amendment agreement. On both September 30, 2011 and February
29, 2012, the first two principal satisfaction dates, $32,500 of debt was converted to 50,000 shares of common stock per the terms
of the debt agreement. On July 31, 2012, $132,500 of convertible notes and $11,108 of accrued interest was converted to 220,936
shares of common stock in accordance with the terms of the debt agreement. On December 31, 2012, the remaining $132,500 of principal
and $5,554 of related accrued interest was converted to 223,226 shares of common stock pursuant to the mandatory conversion provisions
of the note agreement. The debt was converted at $0.62 to $0.65 per share. No additional beneficial conversion charge
  was recorded upon conversion.









36





The following is a summary of the convertible
notes payable as of December 31, 2012:





|Face amount of notes, unrelated parties                |  | $ | 422,500  |  
|------------------------------------------------------ |  | - | -------- | -
|Face amount of notes, related parties                  |  |   | 400,000  |  
|Balance at December 31, 2010                           |  |   | 822,500  |  
|                                                       |  |   |          |  
|Gross proceeds received in 2011 from unrelated parties |  |   | 525,000  |  
|Converted to equity in 2011, unrelated parties         |  |   | (850,000 | )
|Converted to equity in 2011, related parties           |  |   | (200,000 | )
|Balance at December 31, 2011                           |  |   | 297,500  |  
|                                                       |  |   |          |  
|Converted to equity in 2012, unrelated parties         |  |   | (97,500  | )
|Converted to equity in 2012, related parties           |  |   | (200,000 | )
|Balance at December 31, 2012                           |  |   | —        |  
|Current maturities at December 31, 2012                |  |   | —        |  
|Long-term portion                                      |  | $ | —        |  





First 2012 Convertible Debt Issuance





On February 21, 2012, the Company received an initial
commitment from lenders for $324,000 in long-term convertible debt financing to be received in three installment payments
through April 2012. The committed amount was subsequently adjusted to $306,000, and payments of $216,000 were received during
the three month period ended March 31, 2012. The remaining $90,000 was received in April 2012. An additional $100,000 was
received in May 2012. The notes accrue interest at 8% per annum and the interest is payable in quarterly installments on
January 1, April 1, July 1, and October 1. The principal is due in full on August 21, 2013, with the Company having the
option to extend the due date no later than February 21, 2014. The Company granted each lender warrants to purchase a number
of shares of common stock equal to one and one-half times the advance amount (609,000 in total). The 150,000 warrants granted
with $100,000 of notes issued in May 2012 have an adjusted exercise price of $0.31 per share. The remaining 459,000 warrants
have an adjusted exercise price of $0.65 per share. All warrants have a 10 year term from issuance date. Also, if the warrant
holder elects to exercise the warrant by means of a cashless exercise, the number of net shares to be issued will be based on
a current fair value not less than $2.25 per share. If the Company elects to extend the due date, the Company shall issue the
lender warrants to purchase a number of shares of common stock equal to 75% of the aggregate number of warrant shares issued
to lender based on the same warrant terms as listed earlier. At the option of the lender, the outstanding principal and
interest under the notes may be converted into shares of the Company’s common stock at an adjusted conversion price of
$0.25 per share. In the event of default, the purchaser shall receive 60,000 warrants a month based on the same terms listed
earlier for a maximum of 720,000 warrants. Additionally, this debt is senior to all other debt that was outstanding as of the
issuance date. The $100,000 convertible debt issued in May 2012 is subordinate to the previously issued $306,000 portion of
the 2012 convertible debt issuances.



The Company paid a total of $8,109 in legal fees and $38,600 in
investment banking fees related to these transactions. These fees are recorded as deferred financing costs, and are being amortized
to interest expense utilizing the effective interest rate method over the life of the corresponding convertible promissory notes.



In addition to the aforementioned cash investment banking fees,
the Company may be required to issue warrants to the investment bankers at 10% coverage of the number of warrants issued to investors,
or 60,900 warrants associated with the $406,000 convertible debt issued during 2012. These warrant issuances are contingent upon
the investors’ conversion of their debt to equity, would be issued at the time of the investors’ conversion, and would
have a $1.00 exercise price and five-year term.



Upon issuance to the lenders, the fair value of the 609,000 warrants
related to the $406,000 in convertible debt was determined to be $539,966, utilizing a Black-Scholes pricing model and was
recorded as a warrant derivative liability on the consolidated balance sheet. The fair value of the warrants exceeded
the corresponding $406,000 of debt by $133,966 which was recorded immediately to interest expense. The debt discount is
being amortized over the life of the corresponding convertible promissory notes. See Note 13 for further information on
the derivative liability.







37







In accordance with the anti-dilution provisions within the
original debt agreement, the conversion price for the $100,000 notes issued in May 2012 was adjusted from $1.00 per share to
$0.25 per share during 2012. Due to the resulting beneficial conversion feature, an additional $30,000 debt discount was
recorded with a corresponding increase to additional paid in capital.



In November 2012, the Company entered
into a Note and Warrant Adjustment Agreement (“Agreement”) with debt holders for $306,000 of convertible debt
issued between February and April 2012. Under the Agreement, the conversion price for $306,000 of convertible debt was
adjusted from $1.00 per share to $0.25 per share and the exercise price on the related 459,000 warrants was reduced from
$1.25 per share to $0.65 per share. This transaction was treated as a debt extinguishment. As such, $162,208 of unamortized
discount and $9,340 related to the warrant modifications were expensed as loss on debt extinguishment. Due to the resulting
beneficial conversion feature on the adjusted new notes, a $306,000 debt discount was recorded with a corresponding increase
to additional paid in capital.





Second 2012 Convertible Debt Issuance





During the period from August 10, 2012 to December 31, 2012, the
Company issued $1,393,000 in a private placement offering of convertible promissory notes to certain accredited investors. The
notes accrue interest at 6% per annum and such interest is payable at maturity. Each note will mature on the third anniversary
of its issuance date and is junior to all other debt.







The convertible promissory notes may be converted at the option
of the note holder into shares of the Company’s common stock at a conversion price of $0.25 per share. The debt principal
and any accrued interest will automatically convert into shares of common stock at a conversion price of $0.25 per share, upon
the earlier of a change of control of the Company or the Company earning $500,000 or more in gross revenue during any fiscal quarter.
Also, if the Company sells an aggregate of $2,500,000 of common stock, the principal and interest will automatically convert into
common stock at a price equal to the lesser of the price per share paid by the investors purchasing such stock at such first closing
or $0.25 per share.





In connection with the note issuance, the Company granted each note
holder, warrants to purchase a number of shares of common stock equal to the advance amount (1,393,000 in total). The warrants
have an exercise price of $1.25 per share and have a 10 year term from their respective note issuance date. Upon issuance, the
relative fair value of the 1,393,000 warrants related to the $1,393,000 in convertible debt secured through December 31, 2012 was
determined to be $809,442. The relative fair value was determined utilizing a Black-Scholes pricing model. A beneficial conversion
feature of $583,558 resulted from a conversion price of $0.25 while the estimated fair value of the common stock ranged from $1.23
to $0.90 per share. Both the value assigned to the warrants and the value assigned to the resulting beneficial conversion feature,
were recorded as debt discounts on the consolidated balance sheet. The debt discounts are being amortized over the life of the
corresponding convertible promissory notes using the effective interest method.





In connection with the note issuance, the Company
paid investment banking fees of 13% of the gross proceeds of the offering. In addition, at completion of the offering,
the placement agent will receive a five-year warrant to purchase a number of shares of common stock at $0.25 per share equal
to 10% of the number of shares of common stock that may be issued upon the conversion of the notes. As of December 31,
2012, 586,696 of such warrant shares have been reflected as outstanding. The aforementioned cash fees and commissions,
totaling $161,590, the fair value of the warrants issued of $517,588 and $3,000 of related legal costs, are recorded as
deferred financing costs and are being amortized to interest expense utilizing the effective interest rate method over the
life of the corresponding convertible promissory notes.





On August 21, 2012, one $50,000 convertible note was converted
to 200,000 shares of common stock.







38















The following is a summary of
the 2012 convertible notes:

|                                                              |  | First 2012    |          | Second 2012   |  |      
|------------------------------------------------------------- |  | ------------- | -------- | ------------- |  | -----
|                                                              |  | Convertible   |          | Convertible   |  |      
|                                                              |  | Debt Issuance |          | Debt Issuance |  | Total
|Balance at December 31, 2011                                  |  | $             | —        |               |  | $    
|Face value of notes issued                                    |  |               | 406,000  |               |  |      
|Less: value assigned to warrants as debt discount             |  |               | (406,000 | )             |  |      
|Less: debt discount from beneficial conversion   feature      |  |               | —        |               |  |      
|Net value at issuance                                         |  |               | —        |               |  |      
|Plus: accretion of debt discount for the year ended           |  |               |          |               |  |      
|December 31, 2012                                             |  |               | 247,373  |               |  |      
|Plus: loss on debt extinguishment due to change in   terms    |  |               | 162,208  |               |  |      
|Less: beneficial conversion feature due to change   in terms  |  |               | (306,000 | )             |  |      
|Less: debt discount from resolution of contingent             |  |               |          |               |  |      
|conversion price adjustment                                   |  |               | (30,000  | )             |  |      
|Less: conversion to equity                                    |  |               | —        |               |  |      
|Balance at December 31, 2012, net (face value    $1,749,000)  |  |               | 73,581   |               |  |      
|Current maturities at December 31, 2012 (face value $406,000) |  |               | (73,581  | )             |  |      
|Long-term portion                                             |  | $             | —        |               |  | $    







Future aggregate maturities
of convertible promissory notes are as follows for the years ending December 31:







|     |  |   | Principal |  |  |   | Discount   |   |  |   | Net     | 
|---- |  | - | --------- |  |  | - | ---------- | - |  | - | ------- | 
|2013 |  | $ | 406,000   |  |  | $ | (332,419   | ) |  | $ | 73,581  | 
|2014 |  |   | —         |  |  |   | —          |   |  |   | —       | 
|2015 |  |   | 1,343,000 |  |  |   | (1,250,788 | ) |  |   | 92,212  | 
|     |  | $ | 1,749,000 |  |  | $ | (1,583,207 | ) |  | $ | 165,793 | 









Related Party Convertible Notes

As of December 31, 2012 and 2011, convertible
promissory notes outstanding with related parties aggregated $150,000 and $200,000, respectively, related to the second 2012 convertible
debt issuance and the 2010/2011 convertible debt issuance, respectively.



12. LONG-TERM PROMISSORY NOTES



In November and December, 2011, the Company secured $265,000 of
promissory notes from several individuals. One hundred thousand dollars ($100,000) of the promissory notes bore interest at 12%
per annum and the principal matured in November and December 2013. One hundred sixty-five thousand dollars ($165,000) of the promissory
notes bore interest at 15% and the principal matured in December 2013. Accrued interest was payable quarterly on the 1stof January, April, July, and October each year with the final interest payable upon maturity.



In connection with the 12% notes, the individuals
received 100,000 warrants. The 15% note holders received 247,500 warrants. See the terms of the warrants in Note 15, “Stockholders’
Equity (Deficit)”.



On September 28, 2012, the Company entered
into a   conversion agreement with all  of these  existing promissory note holders to permit the holders of such
notes to convert the outstanding principal and accrued interest into shares of common stock at a conversion price of $0.25 per
share. $265,000 of principal and $28,308 of accrued interest was converted to 1,173,236 shares of common
stock in accordance with terms of this agreement. At the time of this conversion being negotiated, the Company’s estimated
fair value of its common stock was $0.94 and therefore, $809,533 of beneficial conversion expense was recorded. Following such
conversions, no long-term promissory notes remain outstanding.



The following is a summary of the promissory
notes as of December 31, 2012:



39







|Face amount of notes, related parties                      |  | $ | 240,000  |  
|---------------------------------------------------------- |  | - | -------- | -
|Face amount of notes, unrelated parties                    |  |   | 25,000   |  
|Total face amount of notes at December 31, 2011            |  |   | 265,000  |  
|                                                           |  |   |          |  
|Less value assigned to the warrants as a debt discount     |  |   | (157,128 | )
|                                                           |  |   |          |  
|Plus accretion of debt discount for 2011                   |  |   | 2,209    |  
|                                                           |  |   |          |  
|Balance at December 31, 2011, net (face value of $265,000) |  |   | 110,081  |  
|                                                           |  |   |          |  
|Plus accretion of debt discount for the year ended         |  |   |          |  
|December 31, 2012                                          |  |   | 154,919  |  
|                                                           |  |   |          |  
|Conversion of debt to equity                               |  |   | (265,000 | )
|                                                           |  |   |          |  
|Balance at December 31, 2012, net (face value of $0)       |  |   | —        |  
|                                                           |  |   |          |  
|Current maturities at December 31, 2012                    |  |   | —        |  
|Long-term portion                                          |  | $ | —        |  







13. 	DERIVATIVE WARRANT LIABILITY





The Company accounts for certain stock purchase warrants that contain
provisions for a cashless exercise and anti-dilution protection pursuant to the provisions of ASC Topic 815-40, “Derivatives
and Hedging: Contracts in Entity’s Own Equity” (“ASC Topic 815-40”). ASC Topic 815-40 clarifies the determination
of whether an instrument issued by an entity (or an embedded feature in the instrument) is indexed to an entity’s own stock,
which would qualify as a scope exception under ASC Topic 815-10.



The Company has analyzed the criteria first contained in ASC
Topic 815-40 and ASC Topic 815-10, and concluded that certain warrants granted in connection with its first 2012 convertible
debt issuance (Note 11) were required to be accounted for as derivative liabilities. Later  in 2012, certain contingent
anti-dilution provisions within these warrants were resolved, causing the warrant to no longer require derivative liability
treatment. Upon resolution of the contingency, the warrant fair value was reclassified to equity.



In accordance with ASC Topic 815-40, the warrants were valued at
the time of issuance and revalued as of each balance sheet date based on the estimated fair value. Any resultant changes in fair
value were recorded as gain or loss in the Company’s consolidated statements of operations. The Company estimated the fair
value of the warrants, classified as warrant derivative liability, using the Black-Scholes option pricing model. The assumptions
used during the year ended December 31, 2012 are as follows:







|Estimated fair value of stock |  |  | $0.94 - $0.95  |  
|----------------------------- |  |  | -------------- | -
|Expected warrant term         |  |  | 9.5 - 10 years |  
|Risk-free interest rate       |  |  | 1.9            | %
|Expected volatility           |  |  | 117.9          | %
|Dividend yield                |  |  | 0              | %





During 2011, no warrants were outstanding which required liability
accounting treatment in accordance with ASC Topic 815-40.



As trading activity in the Company’s own common stock is
very limited, the estimated fair value of the stock is based on the weighted average of the Company’s previous 10 days with
trading activity and the expected volatility is based upon the observed volatility of capital stock of comparable public companies.
The expected term of the warrants is based on the Company’s analysis of expected exercise behavior, taking into account
the various warrant

40





holder demographics. The risk-free rate of return is based on the
U.S. Treasury security rates for maturities consistent with the expected term of the warrants.



The valuation methods described above may
produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values. Furthermore,
while the Company believes its valuation methods are appropriate and consistent with similar instruments, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value
measurement at the reporting date.





The following table sets forth the components of change in the
Company’s warrant derivative liability for the periods indicated:





|                  |  |                                                             |  | Number of |          | Warrant   
|----------------- |  | ----------------------------------------------------------- |  | --------- | -------- | ----------
|                  |  |                                                             |  | Warrants  |          | Derivative
|Date              |  |                                                             |  | Issued    |          | Liability 
|December 31, 2011 |  | Balance of warrant derivative liability                     |  |           | —        |           
|                  |  | Warrants issued                                             |  |           | 609,000  |           
|                  |  | Fair value of warrants reclassified to  equity during 2012, |  |           |          |           
|                  |  | valued as of the reclassification date                      |  |           | (609,000 | )         
|                  |  | Gain from change in fair value of remaining warrants from   |  |           |          |           
|                  |  | date of issuance to reclassification date                   |  |           | —        |           
|December 31, 2012 |  | Balance of warrant derivative liability                     |  |           | —        |           







14.	FAIR VALUE MEASUREMENTS



Fair value is defined as the exchange price
that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants on the measurement date. Entities are required
to use a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring
fair value. There are three levels of inputs that may be used to measure fair value:



|Level 1 - |  | Inputs
                                                                                       use quoted prices in active markets for
                                                                                       identical assets or liabilities.
|--------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Level 2 - |  | Inputs
                                                                                       use other inputs that are observable, either
                                                                                       directly or indirectly, other than Level
                                                                                       1 prices, such as quoted prices for similar
                                                                                       assets or liabilities, or other inputs
                                                                                       that are observable or can be corroborated
                                                                                       by observable market data for substantially
                                                                                       the full term of the assets or liabilities.
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Level 3 - |  | Inputs
                                                                                       are unobservable inputs that are supported
                                                                                       by little or no market activity and that
                                                                                       are financial instruments whose values
                                                                                       are determined using pricing models, discounted
                                                                                       cash flow methodologies, or similar techniques,
                                                                                       as well as instruments for which the determination
                                                                                       of fair value requires significant judgment
                                                                                       or estimation.
|--------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







A financial instrument’s level within the fair value hierarchy
is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, the Company
performs a detailed analysis of the assets and liabilities that are subject to fair value measurement. At each reporting period,
all assets and liabilities for which the fair value measurement is based on significant unobservable inputs, or instruments which
trade infrequently and therefore have little or no price transparency, were classified as Level 3. During the twelve months ended
December 31, 2012, the Company’s warrant derivative liability was classified as Level 3 within the fair value hierarchy.
As of December 31, 2012 and December 31, 2011, the Company had no financial instruments or related derivative liabilities requiring
fair value measurement.



41





The table below provides a summary of the
changes in fair value during the twelve months ended December 31, 2012, including net transfers in and/or out, of all financial
liabilities, measured at fair value on a recurring basis using significant unobservable inputs (Level 3):





|                                                    |  | Warrant   
|--------------------------------------------------- |  | ----------
|                                                    |  | Derivative
|                                                    |  | Liability 
|                                                    |  |           
|Beginning balance, January 1, 2012                  |  | $         
|Net transfers in to (out of) Level 3                |  |           
|Purchases                                           |  |           
|Sales                                               |  |           
|Issuances                                           |  |           
|Settlements                                         |  |           
|Fair value of warrants reclassified to equity       |  |           
|Total net realized and unrealized gains             |  |           
|included in other income                            |  |           
|Ending balance, December 31, 2012                   |  | $         
|                                                    |  |           
|Gains recorded in other income, net for             |  |           
|Level 3 liabilities still held at December 31, 2012 |  | $         





There were no transfers between Level 1 and Level 2 during the
year ended December 31, 2012.



The significant unobservable inputs used in the fair value measurement
of the Company’s warrant derivative liability include estimated fair value of the Company’s stock, expected warrant
term, expected volatility, and dividend yield. Significant increases (decreases) in any of those inputs in isolation could result
in a significantly different fair value measurement. Generally a change in the assumption used for expected term is accompanied
by a directionally similar change in the assumptions used for expected volatility and risk-free interest rate.



42





15.	STOCKHOLDERS’ EQUITY (DEFICIT)



Common Stock Issuances & Redemptions



During the year ended December 31, 2012, the Company issued the
following shares of unregistered common stock:







| | 1) | From
                                                                                                     March to June 2012, 223,800
                                                                                                     shares of common stock along
                                                                                                     with warrants to purchase
                                                                                                     111,900 shares of common
                                                                                                     stock were issued at $1.00
                                                                                                     per unit for aggregate cash
                                                                                                     proceeds of $223,800, less
                                                                                                     offering costs of $60,138
                                                                                                     for net proceeds of $163,662.
                                                                                                     One unit represented one
                                                                                                     share of common stock and
                                                                                                     0.5 warrants.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) | From
                                                                                                     February to December 2012,
                                                                                                     $347,500 of convertible promissory
                                                                                                     notes, $265,000 of long-term
                                                                                                     promissory notes and $84,159
                                                                                                     of accrued interest was converted
                                                                                                     into 1,927,691 shares of
                                                                                                     common stock at $0.25 to
                                                                                                     $0.65 per share.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3) | From
                                                                                                     September to December 2012,
                                                                                                     the Company issued 671,400
                                                                                                     shares of common stock upon
                                                                                                     exercise of warrants at $0.01
                                                                                                     per share for aggregate proceeds
                                                                                                     of $6,714.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------











During the year ended December 31, 2011, the Company issued the
following shares of unregistered common stock:



| | 1) | On April 15, 2011, 1,084,632 shares were issued as part of
                                                                a recapitalization due to the reverse merger between OnPoint and
                                                                Vertical Health Solutions, Inc.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) | From March to November 2011, 735,000 shares of common stock
                                                                along with warrants to purchase 367,500 shares of common stock
                                                                were issued at $1.00 per unit price for aggregate cash proceeds
                                                                of $735,000, less offering costs of $139,398 for net proceeds
                                                                of $595,602. One unit represented 1 share of stock and .5 warrants.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3) | On June 7, 2011 and September 30, 2011, $1,050,000 of convertible
                                                                notes and $46,980 of accrued interest was converted to 1,687,663
                                                                shares of common stock at $0.65 per share.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





43







Stock Purchase Warrant Grants





For warrants and options granted to non-employees in exchange for
services, the Company records the fair value of the equity instrument using the Black-Scholes pricing model unless the value of
the services is more readily determinable.



During the year ended December 31, 2012, the Company issued the
following stock warrants:







| | 1) | In
                                                                                                     connection with the Company’s
                                                                                                     2012 private placement unit
                                                                                                     offering, 111,900 stock warrants
                                                                                                     were issued to  purchasers
                                                                                                     of common stock. The Company
                                                                                                     also provided the selling
                                                                                                     agent 10% warrant coverage
                                                                                                     based on the amount of the private
                                                                                                     equity offering. The selling
                                                                                                     agent received 22,380 stock
                                                                                                     purchase warrants. All of
                                                                                                     these warrants had an exercise
                                                                                                     price of $2.00 per share, with a five
                                                                                                     year term.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) | In
                                                                                                     connection with the first
                                                                                                     2012 convertible debt issuance of $406,000,
                                                                                                     a total of 609,000 ten-year
                                                                                                     stock warrants were issued to debt
                                                                                                     holders. At December 31,
                                                                                                     2012, these warrants had
                                                                                                     exercise prices of $0.65
                                                                                                     to $0.31 per share.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3) | In
                                                                                                     connection with the second
                                                                                                     2012 convertible debt issuance
                                                                                                     during 2012, a total of 1,393,000
                                                                                                     stock warrants were issued
                                                                                                     to investors with an exercise
                                                                                                     price of $1.25 per share
                                                                                                     with a ten year term.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4) | In
                                                                                                     connection with
                                                                                                     the 2012 private placement unit offering
                                                                                                     of common stock and warrants,
                                                                                                     the Company issued 671,400
                                                                                                     warrants to investors on
                                                                                                     August 10, 2012, in accordance
                                                                                                     with anti-dilution provisions
                                                                                                     of the original equity offering
                                                                                                     agreements. The warrants
                                                                                                     have an exercise price of
                                                                                                     $0.01 and would have expired
                                                                                                     on December 31, 2012. The
                                                                                                     value of the warrants, based
                                                                                                     on a Black-Scholes model
                                                                                                     analysis, was determined
                                                                                                     to be $819,118, and was recognized
                                                                                                       in the statement of operations as a non-cash
                                                                                                     item as Investor Relations
                                                                                                     expense. During the year
                                                                                                     ended December 31, 2012,
                                                                                                     all of these warrants were
                                                                                                     exercised for cash proceeds
                                                                                                     of $6,714.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5) | In
                                                                                                     connection with the second
                                                                                                     2012 convertible note issuance
                                                                                                     during 2012, 586,696 warrant
                                                                                                     shares with a $0.25 exercise
                                                                                                     price and five year term
                                                                                                     will be issued as investment
                                                                                                     banking fees at completion
                                                                                                     of the offering. The value
                                                                                                     of the warrants, based on
                                                                                                     a Black-Scholes model analysis,
                                                                                                     was determined to be $517,588,
                                                                                                     and was recorded as deferred
                                                                                                     financing costs.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

















44





During the year ended December 31, 2011, the
Company issued the following stock warrants:



| | 1) | The Company issued $525,000 of convertible promissory notes,
                                                                of which the Company provided the selling agent 10% warrant coverage
                                                                based on the number of shares purchasable upon exercise of the
                                                                conversion into shares of the Company. The selling agents received
                                                                109,999 stock purchase warrants with an exercise price of $1.00
                                                                and a term of 5 years. The estimated fair value of these warrants
                                                                was $60,535 and has been recorded as both an increase to additional
                                                                paid in capital and deferred financing costs.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) | In connection with a private equity offering during 2011,
                                                                367,500 stock warrants were issued to purchasers of common stock,
                                                                which have an exercise price of $2.00 per share and a term of
                                                                5 years. In addition, 108,750 stock warrants were issued to the
                                                                selling agent, which have an exercise price of $2.00 per share
                                                                and a term of 5 years.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3) | In connection with the long-term promissory notes, 347,500
                                                                stock warrants were issued to the note holders, which have an
                                                                exercise price of $1.00 and a term of 10 years.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------











The weighted average fair value for all warrants
issued in 2012 and 2011 was $0.98 and $0.48, respectively.



The following table summarizes information
about the Company’s outstanding warrants as of December 31, 2012:







| |                                          |                |  |                  |           | Weighted    
| | ---------------------------------------- | -------------- |  | ---------------- | --------- | ------------
| |                                          |                |  | Weighted         |           | Remaining   
| |                                          |                |  | Average Exercise |           | Contractual 
| |                                          | Stock Warrants |  | Price            |           | Life (years)
| | Balance outstanding at December 31, 2011 |                |  |                  | 1,092,288 |             
| |                                          |                |  |                  |           |             
| | Granted                                  |                |  |                  | 3,394,376 |             
| | Exercised                                |                |  |                  | (671,400  | )           
| | Forfeited/cancelled                      |                |  |                  | —         |             
| | Balance outstanding at December 31, 2012 |                |  |                  | 3,815,264 |             







The following table summarizes the information
about stock warrants outstanding as of December 31, 2012:





|Exercise |      | Numbers     |  | Weighted Average      
|-------- | ---- | ----------- |  | ----------------------
|Price    |      | Outstanding |  | Remaining Life (years)
|$        | 0.25 |             |  |                       
|$        | 0.31 |             |  |                       
|$        | 0.65 |             |  |                       
|$        | 1.00 |             |  |                       
|$        | 1.25 |             |  |                       
|$        | 2.00 |             |  |                       
|         |      |             |  |                       



















Stock Option Grants



In 2011, the
Company adopted the Omnibus Incentive Compensation Plan, or 2011 Stock Plan, which authorizes the issuance or transfer of up
to 1,600,000 shares of common stock. Pursuant to the 2011 Stock Plan, the share reserve will automatically increase on the
first trading day in January each calendar year, by an amount equal to the lesser of 20% of the total number of outstanding
shares of common stock on the last trading day in December in the prior calendar year or 1,000,000 shares. At December 31,
2012, shares reserved under the 2011. Stock Plan aggregated 2,600,000.

The 2011 Stock Plan allows for the issuance of incentive and non-qualified
stock options and other stock-based awards. Generally stock options are exercisable for a term and price as determined by the
board of directors, not to

45





exceed a ten year term. Incentive stock options granted to an employee
holding more than 10% of the total combined voting may not exceed a 5 year term.



During 2012 and 2011, the Company granted 80,000 and 450,000
stock options respectively, which included options issued to Company officers (0 and 370,000, respectively) and board members (80,000 and
80,000, respectively). For the years ended December 31, 2012 and 2011, total stock-option compensation expense was $267,488
and $345,716, respectively.











The average fair value of the options issued in 2012 and 2011 was
$0.89 and $0.78 respectively. The total value of the 2012 and 2011 option awards of $71,339 and $349,014, respectively, will be
recognized as compensation expense on a straight line basis over the vesting period of the grants. The stock compensation expense
was classified as general and administrative expense. There wasn’t any 2012 or 2011 tax benefit from recording this non-cash
expense due to the Company’s full income tax valuation allowance. The 2012 and 2011 stock compensation expense had a $0.02
and $0.04 per share impact on the loss per share, respectively. As of December 31, 2012, the unrecognized stock compensation expense
is $259,431 and is expected to be recognized over the next 2.4 years.





The following table summarizes information about the Company’s
outstanding stock options:





|                                 |  |         |           | Weighted |  | Weighted     |      |          
|-------------------------------- |  | ------- | --------- | -------- |  | ------------ | ---- | ---------
|                                 |  |         |           | Average  |  | Remaining    |      |          
|                                 |  | Stock   |           | Exercise |  | Contractual  |      | Intrinsic
|                                 |  | Options |           | Price    |  | Life (Years) |      | Value    
|Outstanding at December 31, 2011 |  |         | 1,050,000 |          |  | $            | 1.00 |          
|Granted                          |  |         | 80,000    |          |  |              | 1.00 |          
|Exercised                        |  |         | —         |          |  |              | —    |          
|Forfeited/cancelled              |  |         | —         |          |  |              | —    |          
|                                 |  |         |           |          |  |              |      |          
|Balance at December 31, 2012     |  |         | 1,130,000 |          |  | $            | 1.00 |          
|                                 |  |         |           |          |  |              |      |          
|Exercisable at December 31, 2012 |  |         | 678,125   |          |  | $            | 1.00 |          



| | (1) | The aggregate intrinsic value in the table represents the
                                                                 difference between the estimated stock price on December 31,
                                                                 2012 and 2011, and the exercise price, multiplied by the number
                                                                 of in-the-money options that would have been received by the
                                                                 option holders had all option holders exercised their options
                                                                 on December 31, 2012 and 2011.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







46









The following table summarizes
information about the Company’s non-vested stock options:





|                                 |  |            |          | Weighted  
|-------------------------------- |  | ---------- | -------- | ----------
|                                 |  | Non-Vested |          | Average   
|                                 |  | Stock      |          | Grant Date
|                                 |  | Options    |          | Value     
|Outstanding at December 31, 2011 |  |            | 660,000  |           
|Granted                          |  |            | 80,000   |           
|Exercised                        |  |            | (288,125 | )         
|Forfeited/cancelled              |  |            | —        |           
|                                 |  |            |          |           
|Balance at December 31, 2012     |  |            | 451,875  |           











During 2012 and 2011, options with fair values
aggregating $267,485 and $317,005 became vested.







The assumptions used to value option and warrant
grants during 2012 and 2011 are as follows:







|                                        |  | 2012 |                 | 2011
|--------------------------------------- |  | ---- | --------------- | ----
|Estimated per share fair value of stock |  |      | $0.90 - $1.23   |     
|Dividend yield                          |  |      | 0.0             | %   
|Risk-free rate of return                |  |      | 0.62% - 1.90%   |     
|Expected life in years                  |  |      | 0.25 - 10 years |     
|Expected volatility                     |  |      | 117.9% - 119.0% |     





The Company reviews its pricing model assumptions on a periodic
basis and adjusts them as necessary to ensure an accurate valuation. As trading activity in the Company’s own stock is very
limited, the estimated fair value of the stock is based on the weighted average of the Company’s previous 10 days with trading
activity. The expected term of an award was determined based upon the Company’s analysis of expected exercise behavior taking
into account various participant demographics and option characteristic criteria. The risk free rate of return is based upon the
Treasury Rate for maturities of bond obligations of the U.S. government with terms comparable to the expected term of the award.
Volatility is based upon the observed volatility of capital stock of comparable public companies.







16.	INCOME TAXES



The provision (benefit) for income taxes consists of the following
for the years ended December 31, 2012 and 2011:





|                                                        |  | 2012 |            | 2011
|------------------------------------------------------- |  | ---- | ---------- | ----
|Current                                                 |  |      | (18,900    | )   
|Deferred                                                |  |      | (1,161,000 | )   
|Establishment of net deferred tax asset as of April 15, |  |      |            |     
|2011 due to the reverse merger                          |  |      | —          |     
|Subtotal                                                |  |      | (1,179,000 | )   
|Change in valuation allowance                           |  |      | 1,161,000  |     
|Income tax benefit                                      |  | $    | (18,900    | )   





The provision for income taxes for the years ended December 31,
2012 and 2011 differs from the amounts that would result by applying the statutory federal income tax rate to the net losses before
income taxes as follows:





|                                                        |  | 2012 |            | 2011
|------------------------------------------------------- |  | ---- | ---------- | ----
|Expected federal income tax benefit (34%)               |  |      | (1,569,000 | )   
|Expected state tax benefit, net of federal              |  |      | (277,000   | )   
|Research and development credit                         |  |      | (18,900    | )   
|Establishment of net deferred tax asset as of April 15, |  |      |            |     
|2011 due to the reverse merger                          |  |      | —          |     
|Permanent differences                                   |  |      | 685,000    |     
|Change in valuation                                     |  |      | 1,161,000  |     
|Income tax benefit                                      |  | $    | (18,900    | )   







47







The tax effects of temporary differences giving
rise to significant portions of the deferred tax assets as of December 31, 2012 and 2011 are as follows:













|                                              |  | 2012 |            | 2011
|--------------------------------------------- |  | ---- | ---------- | ----
|Deferred tax assets:                          |  |      |            |     
|Net operating loss carry forward              |  | $    | 1,207,000  |     
|Property, equipment and intangible assets     |  |      | 14,000     |     
|Research and development credit               |  |      | 77,000     |     
|Capitalized start-up and organizational costs |  |      | 496,000    |     
|Share-based compensation                      |  |      | 618,000    |     
|Total deferred tax assets                     |  |      | 2,412,000  |     
|Valuation allowance                           |  |      | (2,412,000 | )   
|Deferred tax asset                            |  | $    | —          |     









In assessing the realization of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those
temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment. The Company has recorded a full valuation allowance against
its net deferred tax assets because it is not currently able to conclude that it is more likely than not that these assets will
be realized.







The Company estimates that at December 31, 2012, it has cumulative
federal net operating loss carry forwards of approximately $3,148,000 and research and development credits of approximately $77,000.
Those carry forwards, if not used, will begin to expire in 2021 and continue through 2032. Under the Internal Revenue Code Section
382, certain stock transactions which significantly change ownership, including sale of stock and the granting of options to purchase
stock, could limit the amount of net operating loss carry forwards and credits that may be utilized on an annual basis to offset
taxable income in future periods. Due to the reverse merger on April 15, 2011 and subsequent stock activity, it is likely that
the Company will be subject to a Section 382 limitation. Such limitations could result in the loss carry forwards expiring before
their associated benefits are realized. The Company plans to perform a study once it nears or becomes profitable.









48





17.	EARNINGS (LOSS) PER SHARE



The following table provides a reconciliation of the numerators
and denominators used in calculating basic and diluted earnings (loss) per share for the years ended December 31, 2012 and 2011.





|                                                   |  | 2012 |            | 2011
|-------------------------------------------------- |  | ---- | ---------- | ----
|                                                   |  |      |            |     
|Basic earnings (loss) per share calculation:       |  |      |            |     
|                                                   |  |      |            |     
|Net income (loss) to common stockholders           |  | $    | (4,595,984 | )   
|Weighted average of common shares outstanding      |  |      | 11,413,945 |     
|Basic net earnings (loss) per share                |  | $    | (0.40      | )   
|                                                   |  |      |            |     
|Diluted earnings (loss) per share calculation:     |  |      |            |     
|                                                   |  |      |            |     
|Net income (loss) to common stockholders           |  | $    | (4,595,984 | )   
|Weighted average of common shares outstanding      |  |      | 11,413,945 |     
|Stock options (1)                                  |  |      | —          |     
|Stock warrants (2)                                 |  |      | —          |     
|Convertible debt (3)                               |  |      | —          |     
|Diluted weighted average common shares outstanding |  |      | 11,413,945 |     
|Diluted net income (loss) per share                |  | $    | (0.40      | )   





| | (1) | For the years ended December 31, 2012 and 2011, there were
                                                                common stock equivalents attributable to outstanding stock options
                                                                of 1,130,000 and 1,050,000, respectively. The stock options are
                                                                anti-dilutive for the years ended December 31, 2012 and 2011 and
                                                                therefore, have been excluded from diluted earnings (loss) per
                                                                share.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | For the years ended December 31, 2012 and 2011, there were
                                                                common stock equivalents attributable to warrants of 3,815,264
                                                                and 1,092,288, respectively. The warrants are anti-dilutive for
                                                                the years ended December 31, 2011 and 2010 and therefore, have
                                                                been excluded from diluted earnings (loss) per share.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | For the years ended December 31, 2012 and 2011, there were
                                                                common stock equivalents attributable to conversion shares related
                                                                to the convertible notes and related accrued interest of 7,085,338
                                                                and 532,829, respectively. The conversion shares are anti-dilutive
                                                                for the years ended December 31, 2012, and 2011, and therefore,
                                                                have been excluded from diluted earnings (loss) per share.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18.	COMMITMENTS AND CONTINGENCIES



License Agreement







The Company has a perpetual license agreement with Mayo Foundation
for Education and Research whereby the Company is obligated to make royalty payments aggregating 5% of gross sales relating to
the licensed technology with minimum annual royalties of $100,000 annually. At December 31, 2012, the Company had past due amounts
pursuant to this agreement and had a verbal agreement to make all payments when funding and cash flow allowed (see Note 9).







Agency Selling Agreement



The Company has an agency selling agreement for its second 2012
convertible debt offering. This agreement has selling agent fees that include commissions and expense allowances aggregating 13%
of the gross proceeds and the issuance of warrants to purchase a number of the Company’s common shares equal to 10% of the
aggregate number of shares issuable upon conversion of the notes into common shares. The warrants will be exercisable at a price
of $0.25 per share for a period of five years following issuance.











49

















19.	SUBSEQUENT EVENTS



During the period from January 1, 2013 to March 29, 2013, the
Company issued $272,500 in connection with the continuation of the 2012 a private placement offering of convertible
promissory notes to certain accredited investors. The notes accrue interest at 6% per annum and such interest is payable at
maturity. Each note will mature on the second or third anniversary of its issuance date and is junior to all other debt.



The convertible promissory notes may be converted at the option
of the note holder into shares of the Company’s common stock at a conversion price of $0.25 per share. The debt principal
and any accrued interest will automatically convert into shares of common stock at a conversion price of $0.25 per share, upon
the earlier of a change of control of the Company or the Company earning $500,000 or more in gross revenue during any fiscal quarter.



In connection with the note issuance, the Company granted each
note holder, warrants to purchase a number of shares of common stock equal to the advance amount. The warrants have an exercise
price of $1.25 per share and have a 10 year term from their respective note issuance date.







---





50





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



None.



Item 9A.	     Controls and Procedures.



Evaluation of Disclosure Controls and Procedures



Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness, as of December
31, 2012, of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended, or the Exchange Act. The purpose of this evaluation was to determine whether as of the evaluation date
our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to
disclose in our filings with the Securities and Exchange Commission, or SEC, under the Exchange Act (i) is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated
to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure. Based on their evaluation, our management has concluded, as discussed below, that material weaknesses
existed in our internal control over financial reporting as of December 31, 2012 and as a result, our disclosures controls and
procedures were not effective.  Notwithstanding the material weaknesses that existed as of December 31, 2012, our chief executive
officer and chief financial officer have concluded that the financial statements included in this Annual Report on Form 10-K present
fairly, in all material aspects, the financial position, results of operations and cash flows of the Company in conformity with
accounting principles generally accepted in the United States of America (“GAAP”).



Management’s Annual Report on Internal Control Over
Financial Reporting



Management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a15-(f) and 15d-15(f) under the Securities Exchange Act of
1934. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that:



(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the Company;



(ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of
the Company; and



(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the
financial statements.



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





Under the supervision of our chief executive officer and chief financial
officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework
in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on our assessment and those criteria, management concluded that the Company did not maintain effective internal controls
over financial reporting as of December 31, 2012.   Management identified the continuing material weaknesses that
were previously identified in the 2011 Form 10-K:



51







1. The Company has insufficient internal personnel resources
and technical accounting and reporting expertise within the Company’s financial closing and reporting functions to
completely address complicated convertible debt transactions.



2. Due to our small size, the Company did not maintain effective
internal controls to assure proper segregation of duties as the same employee was responsible for initiating and recording of
transactions, thereby creating a segregation of duties weakness.



This annual filing does not include an attestation report of the
Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject
to attestation by the Company's registered public accounting firm pursuant to an amendment to the Sarbanes-Oxley Act which exempts
Smaller Issuers from the requirements of Section 404(b).



Changes in Internal Controls over Financial Reporting



During the fiscal quarter ended December 31, 2012, there was
no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.



Remediation



Due to the Company’s limited funds at this time, management
believes that the costs of remediation outweigh the benefits. Management continues to discuss additional entity-level controls
it can establish in an effort to address the current lack of segregation of duties.



Inherent Limitation on the Effectiveness of Internal Controls



The effectiveness of any system of internal control over financial
reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing,
operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any
system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide
reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate
for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control
over financial reporting.



Item 9B.	Other Information.



None.



52





PART III

Item 10.	     Directors,
Executive Officers and Corporate Governance.

The names of our current
executive officers and directors, as well as certain information about them, are set forth below:

|Name                  |  |  | Age |  |  |  | Tenure |  |  | Position                                       
|--------------------- |  |  | --- |  |  |  | ------ |  |  | -----------------------------------------------
|                      |  |  |     |  |  |  |        |  |  |                                                
|William T. Cavanaugh  |  |  | 49  |  |  |  | 2010   |  |  | President, Chief Executive Officer and Director
|James P. Marolt       |  |  | 49  |  |  |  | 2012   |  |  | Interim Chief Financial Officer                
|Gus Chafoulias        |  |  | 78  |  |  |  | 2009   |  |  | Director                                       
|Blake Whitney         |  |  | 66  |  |  |  | 2010   |  |  | Director                                       
|Dr. Richard Lindstrom |  |  | 65  |  |  |  | 2010   |  |  | Director                                       
|Tom Tomlinson         |  |  | 50  |  |  |  | 2010   |  |  | Director                                       
|Chris Hafey           |  |  | 40  |  |  |  | 2011   |  |  | Chief Technology Officer                       



William T. Cavanaugh.William Cavanaugh joined OnPoint in February 2010 as its President. In September 2010, Mr. Cavanaugh assumed the role of Chief
Executive Officer and was granted a seat on the Board. Between November 2007 and January 2010, Mr. Cavanaugh was the director
of global sales operations and professional services for Vital Images, a publicly held provider of advanced visualization and
analysis software for medical imaging. From September 2005 to November 2007, he was a director of development and operations at
UnitedHealth Group. Prior to UnitedHealth Group, Mr. Cavanaugh was chief executive officer of Solonis, which he founded in 1991
and grew as a software and professional services business for 11 consecutive years thereafter. Among the experiences, qualifications,
attributes and skills that Mr. Cavanaugh brings to the Board are his leadership capabilities in growing a development stage company,
a solid medical imaging background, and a passion for delivering innovative solutions to the health care industry. Mr. Cavanaugh
has a computer science degree from the University of St. Thomas and MBA from the Kellogg School of Management at Northwestern
University.

James
P. Marolt.Mr. Marolt joined OnPoint in March 2012 as its Interim Chief Financial Officer. Since 1998, Mr. Marolt has
served clients, primarily in the financial services and software industries, as an independent consultant, interim CFO and
business advisor since 1998. Mr. Marolt is a Certified Public Accountant (inactive), with over ten years of public
accounting experience, including over eight years with Ernst and Young. He received his Bachelor of Arts Degree from St.
John’s University (Collegeville, MN) in 1986, and is a member of the American Institute of Certified Public
Accountants.

Gus A. Chafoulias.Mr. Chafoulias has served on the board of OnPoint since February 2009. Mr. Chafoulias is also chairman of the board of Titan
Development and Investments, a company he founded in 1977 consisting of retail liquor, hotels, real estate, office building and
various other investments. He has successfully developed more than 3 million square feet of apartments and commercial real estate
during more than 40 years in the business development business. Mr. Chafoulias is also a United Way Alexis de Tocqueville Society
member, Leadership 100 board member, and Blue Cross Blue Shield Champions of Health award winner. He currently serves as chairman
on the following private company’s boards: Kardia Health Systems, Inc., GMS of Rochester, Inc., TriPrima, LLC, Andy’s
Liquor, Inc., and NISCO, Inc. For the private companies where he serves as chairman, Titan Development and Investments and Andy’s
Liquor are the only private companies that are directly or indirectly controlled by Mr. Chafoulias by virtue of his equity ownership
in such company. From December 2005 through March 2009, he served on the board of Southwest Casino Corp, a once public company.
Among the experiences, qualifications, attributes and skills that Mr. Chafoulias brings to the Board are his extensive leadership
capabilities and a wide variety of business experience with a track record of building successful companies.

Blake Whitney.Mr. Blake Whitney has served on the board of OnPoint since December 2010. Since 2006, Mr. Whitney has acted as the President,
CEO and Chairman of BW Advisors, Inc., a privately held firm providing specialized healthcare advisory services. Prior to 2006,
Mr. Whitney was the President, CEO and Chairman of MDdatacor, Inc., a privately held health data informatics company. Mr. Whitney
currently serves as a

53





director on the following boards: Neurostar
Inc., Gateway Medical Management Systems, Inc., and ERLink. Within the past five years, Mr. Whitney also served on the boards
of the following companies: SendItCertified, dba Privacy Data Systems, and MDdatacor, all of which are privately held firms in
the medical technology business. Mr. Whitney has spent his career in healthcare where his experience has spanned medical devices,
outsourced diagnostic services, medical product distribution, IT enabled services, web-centric health data management, professional
and consumer medical web site, and advisory services to a range of healthcare companies from pre-revenue start-ups to global leaders.
Notably, he was on the founding management team and first president of WebMD. Mr. Whitney has a Bachelor of Science from the University
of Iowa.

Richard L. Lindstrom
MD.Richard L. Lindstrom MD has served on the board of OnPoint since December 2010. Dr. Lindstrom is founder and attending
surgeon at Minnesota Eye Consultants, a 21 year old Ophthalmology practice. He is Chairman of the Board and CEO of Lindstrom Restoration/Environmental,
a 66 year old family owned construction company focused on insurance restoration. He currently serves on the board of one other
public company, Tearlab, a provider of diagnostic systems for eye care practitioners. He also serves on the board of several private
companies including TLCVision, Refractec, Acufocus, WaveTec, Encore, RevitalVision, and Improve Your Vision. Dr. Lindstrom is
also active on several not for profit boards including the Minnesota Medical Foundation, Inner City Tennis, the American Society
of Refractive Surgery and it’s Foundation, the International Society of Refractive Surgery of the American Academy of Ophthalmology,
and the Eye Bank Association of America. Dr. Lindstrom invests widely in startup companies and many, including Intralase, eyeonics
and LenSx, have been successfully divested. He consults in the Ophthalmology industry and for select venture capital companies.

Percy C. (Tom)
Tomlinson.Mr. Tomlinson has served on the board of OnPoint since December 2010. Our Board has designated Mr. Tomlinson
as our “audit committee financial expert” as those terms are defined by the regulations of the Securities and Exchange
Commission and the NASDAQ listing standards. Mr. Tomlinson currently services as the CEO for Midwest Dental, a privately held
company. From May 2011 to September 2012, he was the President and CEO of Center for Diagnostic Imaging, Inc., or CDI where he
was responsible for the organization’s information technology, marketing, sales and clinical operations functions, which
included 59 medical imaging centers in ten states.. After joining CDI in 2002, he held several executive level positions, including
CFO and COO. Prior to joining CDI in 2002, Mr. Tomlinson was Executive VP and CFO of Department 56, a publicly traded wholesale
and retail consumer products company. From 1995 through 1999 Mr. Tomlinson held several executive roles within Apogee Enterprises
including; President of Harmon Solutions Group, CFO for the Automotive Group, and Corporate Treasurer. Apogee is a publicly traded
company. Throughout his career Mr. Tomlinson has also held a number of finance and business development positions in investment
banking and the airline industry. Mr. Tomlinson is also an active investor with ownership interests in a number of finance, real
estate, and industrial companies. He is also actively involved in the community having served on the boards of Special Olympics
Minnesota and Inner City Christian Ministries. He holds an M.B.A. from Columbia University and a B.A. from the University of St.
Thomas.

Chris Hafey.Mr. Hafey joined OnPoint in May 2011 as its Chief Technology Officer.  Prior to joining OnPoint, Mr. Hafey
was Chief Architect for Vital Images, a publicly held provider of advanced visualization and analysis software for medical imaging,
from February 2007 through May 2011.  From January 2006 to December 2006, Mr. Hafey was Chief Technology
Officer for QiGO, a privately held company.  Prior to QiGO, Mr. Hafey was Director of Engineering at Stentor, Inc.
where he lead development of the iSite PACS workstation software from its genesis until the company was acquired by Philips Medical
Systems.  He brings a proven track record of leading new development projects as well as extensive experience in the healthcare
information technology domain.  Mr. Hafey earned a Bachelor of Science degree in Computer Engineering from California
State University Chico.

Qualifications of Directors

In its assessment
of each potential candidate, the Board considers the nominee’s judgment, integrity, experience, independence, understanding
of the Company’s business or other related industries and such other factors the Board determines are pertinent in light
of the current needs of the Board. The Board also takes into account the ability of a Director to devote the time and effort necessary
to fulfill his or her responsibilities to the Company.

54





The Board requires
that each Director be a recognized person of high integrity with a proven record of success in his or her field. Each Director
must demonstrate respect for and an ability and willingness to learn corporate governance requirements and practices, an appreciation
of multiple cultures and a commitment to ethical business practices. In addition to the qualifications required of all Directors,
the Board assesses intangible qualities including the individual’s ability to ask difficult questions and, simultaneously,
to work collegially.

The Board does not
have a specific diversity policy, but considers diversity of professional and academic experiences in evaluating candidates for
Board membership. Diversity is important because a variety of points of view contribute to a more effective decision-making process.

Qualifications, Attributes, Skills and Experience to
be Represented on the Board as a Whole

The Board has identified
particular qualifications, attributes, skills and experience that are important to be represented on the Board as a whole, in
light of the Company’s current needs and business priorities. The Company is a U.S. public company that, following the Merger,
has commercialized Magnetic Resonance Imaging quality assurance software technologies. Therefore, the Board believes that a diversity
of professional experiences in this software industry, specific knowledge of marketing medical imaging technologies, and knowledge
of building start-up companies and of U.S. accounting and financial reporting standards should be represented on the Board.

Set forth below is
a tabular disclosure summarizing some of the specific qualifications, attributes, skills and experiences of our directors.

|Director                  | Title                                               | Material
    Qualifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------------------------- | --------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|William
    T. Cavanaugh  | President,
    Chief Executive Officer and Director | •Experience
                                                                                                                                   building
                                                                                                                                   a
                                                                                                                                   profitable
                                                                                                                                   business
                                                                                                                                   from
                                                                                                                                   start-up
        •High level of financial literacy
        •Software and medical imaging experience
        •Experience managing and leading diverse teams                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Gus
    Chafoulias        | Chairman
    and Director                           | •Extensive
                                                                                                                                   business
                                                                                                                                   development
                                                                                                                                   experience
                                                                                                                                   working
                                                                                                                                   with
                                                                                                                                   major
                                                                                                                                   medical
                                                                                                                                   institutions
        •Experience building medical technology companies
        •Track record of building successful businesses                                                                                                                                                                                                                                                                                                                                                       
|Blake
    Whitney         | Director                                            | •Experience
                                                                                                                                   securing
                                                                                                                                   capital
                                                                                                                                   and
                                                                                                                                   executing
                                                                                                                                   exit
                                                                                                                                   strategies
                                                                                                                                   in
                                                                                                                                   the
                                                                                                                                   healthcare
                                                                                                                                   marketplace
        •Selling and marketing products to the healthcare industry
        •Extensive business development experience
        •Relevant President/CEO experience                            
|Dr.
    Richard Lindstrom | Director                                            | •Experience
                                                                                                                                   investing
                                                                                                                                   in
                                                                                                                                   and
                                                                                                                                   providing
                                                                                                                                   guidance
                                                                                                                                   to
                                                                                                                                   CEO’s
                                                                                                                                   of
                                                                                                                                   start-up
                                                                                                                                   companies
        •Experience as Chairman and CEO of companies with over $20 million in revenues
        •Extensive board of director experience with public companies
        •High level of financial literacy
|Tom
    Tomlinson         | Director                                            | •Performed
                                                                                                                                   as
                                                                                                                                   Chief
                                                                                                                                   Financial
                                                                                                                                   Officer
                                                                                                                                   of
                                                                                                                                   a
                                                                                                                                   publicly
                                                                                                                                   traded
                                                                                                                                   company
        •Extensive operational and leadership experience leading a medical imaging company
        •High level of financial literacy
        •Business development experience                                                                                                                                                                        



Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the
Exchange Act requires the Company’s directors and executive officers, and persons who own more than 10% of the Company’s
equity securities which are registered pursuant to Section 12 of the

55





Exchange Act, to file with the SEC initial
reports of ownership and reports of changes in ownership of equity securities of the Company. Officers, directors and greater
than 10% stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports they file.

Based solely upon
a review of the Forms 3, 4 and 5 (and amendments thereto) furnished to the Company for the fiscal year ended December 31, 2012,
other than as set forth below, the Company has determined that the Company’s directors, officers and greater-than-10% beneficial
owners complied with all applicable Section 16 filing requirements.

Gus Chafoulias filed
a Form 4 on February 2, 2012 to report his acquisition of shares of common stock and warrants to purchase common stock on November
17, 2011. Whitney Blake, Gus Chafoulias, Dr. Richard Lindstrom and Percy Tomlinson each filed a Form 4 on May 1, 2012 to report
his acquisition of a stock option to purchase shares of common stock on April 26, 2012. James Marolt filed a Form 3 on September
6, 2012 to report his position as a reporting person commencing on May 12, 2012. Blake Whitney, Gus Chafoulias and Dr. Richard
Lindstrom each filed a Form 4 on October 4, 2012 to report his acquisition of shares of common stock on September 28, 2012.



Code of Ethics

We have adopted a
written code of business conduct and ethics that applies to our principal executive officer and principal financial and accounting
officer, or persons performing similar functions. We intend to disclose any amendments to, or waivers from, our code of business
conduct and ethics that are required to be publicly disclosed pursuant to rules of the SEC and the NASDAQ Global Market by filing
such amendment or waiver with the SEC.

Item 11.	     Executive
Compensation.

Executive Officers and Compensation

The following table
sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to our current Chief Executive
Officer, our Interim Chief Financial Officer, and our other executive officers, for services rendered in all capacities during
the noted periods.

Summary Compensation Table



|                                      |  |      |      |  |  |            |         |           |  |         |         |         |  | Non-Equity     |        |              |  |       
|------------------------------------- |  | ---- | ---- |  |  | ---------- | ------- | --------- |  | ------- | ------- | ------- |  | -------------- | ------ | ------------ |  | ------
|                                      |  |      |      |  |  |            |         |           |  | Stock   |         | Option  |  | Incentive Plan |        | All Other    |  |       
|                                      |  |      |      |  |  |            |         |           |  | Awards  |         | Awards  |  | Compensation   |        | Compensation |  | Totals
|Name                                  |  | Year |      |  |  | Salary ($) |         | Bonus ($) |  | ($) (1) |         | ($) (1) |  | ($)            |        | ($) (2)      |  | ($)   
|William T. Cavanaugh, Chief Executive |  |      | 2012 |  |  |            |         |           |  | $       | 240,000 |         |  | $              | 36,000 |              |  | $     
|Officer and President                 |  |      | 2011 |  |  |            |         |           |  | $       | 234,712 |         |  | $              | —      |              |  | $     
|                                      |  |      |      |  |  |            |         |           |  |         |         |         |  |                |        |              |  |       
|Chris Hafey, Chief Technology         |  |      | 2012 |  |  |            | (3      | )         |  | $       | 190,000 |         |  | $              | 10,000 |              |  | $     
|Officer                               |  |      | 2011 |  |  |            |         |           |  | $       | 117,445 |         |  | $              | —      |              |  | $     
|                                      |  |      |      |  |  |            |         |           |  |         |         |         |  |                |        |              |  |       
|James P. Marolt, Chief Financial      |  |      | 2012 |  |  |            | (4      | )         |  | $       | —       |         |  | $              | —      |              |  | $     
|Officer                               |  |      | 2011 |  |  |            |         |           |  | $       | —       |         |  | $              | —      |              |  | $     
|                                      |  |      |      |  |  |            |         |           |  |         |         |         |  |                |        |              |  |       
|Mark Steege, Interim Chief Financial  |  |      | 2012 |  |  |            |         |           |  | $       | —       |         |  | $              | —      |              |  | $     
|Officer                               |  |      | 2011 |  |  |            | (5), (6 | )         |  | $       | —       |         |  | $              | —      |              |  | $     
|                                      |  |      |      |  |  |            |         |           |  |         |         |         |  |                |        |              |  |       





|    |                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------
|(1) | Represents the grant date fair value of
    the related stock or option award in accordance with FASB ASC Topic 718.
|    |                                                                                                                     

56







|(2) | Other  compensation
    in the form of perquisites and other personal benefits or property have been omitted in those instances where such perquisites
    and other personal benefits or property constituted less than $10,000 in the aggregate for the fiscal year.                                                                                                                                                                                                                    
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(3) | Mr. Hafey joined OnPoint in May 2011.  OnPoint has agreed to pay Mr. Hafey an annual salary of $190,000 per year, and he received a grant of options to purchase 200,000 shares of common stock in May 2011.                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(4) | On May 16, 2012, Mr. Marolt was appointed
    Chief Financial Officer and Principal Financial Officer of the Company. Mr. Marolt is paid consulting fees pursuant to a consulting
    agreement with the Company.                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(5) | On April 15, 2011, in connection with
    the Merger, Mr. Steege became the Interim Chief Financial Officer, Treasurer and Secretary of the Company.  Prior
    to April 15, 2011, Mr. Steege joined OnPoint in November 2010 and agreed to act as Interim Chief Financial Officer, Treasurer
    and Secretary, without compensation from OnPoint, until such time as the Board appoints a new Chief Financial Officer, Treasurer
    and Secretary. Mr. Steege resigned on May 16, 2012.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(6) | Mr. Steege received
    a grant of options to purchase 20,000 shares of common stock in May 2011.                                                                                                                                                                                                                                                                                                                                                                                         



Long-Term Incentive Plan

There are no arrangements
or plans in which the Company provides pension, retirement or similar benefits for directors or executive officers. The Company
does not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to
our directors or executive officers.

Compensation of Directors

The following table shows amounts earned by each director
not also serving as an officer during the year ended December 31, 2012.



|                            |     |         |  |         |  |         |  |                |  | Change in    |  |              |  |       
|--------------------------- | --- | ------- |  | ------- |  | ------- |  | -------------- |  | ------------ |  | ------------ |  | ------
|                            |     |         |  |         |  |         |  |                |  | Pension      |  |              |  |       
|                            |     | Fees    |  |         |  |         |  |                |  | Value and    |  |              |  |       
|                            |     | Earned  |  |         |  |         |  | Non-Equity     |  | Nonqualified |  |              |  |       
|                            |     | or Paid |  | Stock   |  | Option  |  | Incentive Plan |  | Deferred     |  | All Other    |  |       
|                            |     | in Cash |  | Awards  |  | Awards  |  | Compensation   |  | Compensation |  | Compensation |  | Totals
|Name and Principal Position |     | ($)     |  | ($) (1) |  | ($) (1) |  | ($)            |  | Earnings ($) |  | ($)          |  | ($)   
|Gus Chafoulias              |     | -       |  | -       |  | 17,835  |  | -              |  | -            |  | -            |  | 17,835
|George Danko                | (2) | -       |  | -       |  | -       |  | -              |  | -            |  | -            |  | -     
|Blake Whitney               |     | -       |  | -       |  | 17,835  |  | -              |  | -            |  | -            |  | 17,835
|Dr. Richard Lindstrom       |     | -       |  | -       |  | 17,835  |  | -              |  | -            |  | -            |  | 17,835
|Tom Tomlinson               |     | -       |  | -       |  | 17,835  |  | -              |  | -            |  | -            |  | 17,835



| | (1) | Represents the grant date fair value of the related stock
                                                                 or option award in accordance with FASB ASC Topic 718.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Mr. Danko resigned from his position as a director of the
                                                                 Company effective as of March 16, 2012.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the
year ended December 31, 2012 and 2011, the Company did not pay any director fees in cash for each meetingattended
by such director. Directors who are also employees receive no compensation for serving on the Board. The
Company’s non-employee directors receive options to purchase shares of common stock at the market price on the date
they are granted, reimbursement of expenses incurred consequential to their service and may receive additional options at the
discretion of the Board. There was no monetary compensation paid to our non-employee directors during the year ended December
31, 2012 or 2011.

57









On April 26, 2012,
each non-employee director of the Company’s subsidiary OnPoint received options to purchase up to 20,000 shares of common
stock from OnPoint for their service on OnPoint’s Board of Directors for the fiscal year ended December 31, 2012.

The Company is reviewing
its compensation policies for non-employee directors and anticipates that it may adjust the compensation paid to its non-employee
directors in the near future.

Bonuses and Deferred Compensation

Except for the compensation
and 2011 Stock Plan disclosed herein, the Company does not have any bonus, deferred compensation or retirement plan.

Equity Compensation Plan

Prior to the Merger,
OnPoint maintained the 2011 Stock Plan providing for the issuance of up to 1,600,000 shares of its common stock and had issued
under such Plan options to purchase 450,000 shares of its common stock. Following the Merger, outstanding grants under the 2011
Stock Plan continued in effect in accordance with their terms. Upon the close of the Merger, the Company adopted and assumed OnPoint’s
2011 Stock Plan.

The purpose of our
2011 Stock Plan is to attract and retain employees, non-employee directors and consultants and advisors. Our 2011 Stock Plan provides
for the issuance of incentive stock options, nonqualified stock options, stock awards, stock units, performance units, SARs and
other stock-based awards. Our 2011 Stock Plan also provides for the issuance of annual bonus awards, intended to qualify as “qualified
performance-based compensation” for purposes of Section 162(m) of the Code, to selected executive employees. Our 2011 Stock
Plan is intended to provide an incentive to participants to contribute to our economic success by aligning the economic interests
of participants with those of our stockholders.

Administration.Our 2011 Stock Plan may be administered by our Board of Directors or by a committee appointed by our Board of Directors,
which we refer to as the Committee. The Committee will determine all of the terms and conditions applicable to grants under our
2011 Stock Plan. The Committee will also determine who will receive grants under our 2011 Stock Plan and the number of shares
of common stock that will be subject to grants, except that grants to members of the Committee must be authorized by a disinterested
majority of our Board of Directors. To the extent that our Board of Directors administers the 2011 Stock Plan, references to the
“Committee” herein refer to our Board of Directors.

Awards.
Our 2011 Stock Plan authorizes the issuance or transfer of up to 1,600,000 shares of common stock. During the term of our 2011
Stock Plan, the share reserve will automatically increase on the first trading day in January each calendar year, beginning in
calendar year 2012, by an amount equal to the lesser of 20% of the total number of outstanding shares of common stock on the last
trading day in December in the prior calendar year or 1,000,000 shares.

In addition, if any
shares of our common stock are surrendered in payment of the exercise price of an option or stock appreciation right, the number
of shares available for issuance under our 2011 Stock Plan will be reduced only by the net number of shares actually issued upon
exercise and not by the total number of shares under which such option or stock appreciation right is exercised. If shares of
our common stock otherwise issuable under our 2011 Stock Plan are withheld in satisfaction of the withholding taxes incurred in
connection with the issuance, vesting or exercise of any grant or the issuance of our common stock, then the number of shares
of our common stock available for issuance under our 2011 Stock Plan shall be reduced by the net number of shares issued, vested
or exercised under such grant. If any grants are paid in cash, and not in shares of our common stock, any shares of our common
stock subject to such grants will also be available for future grants.

Our 2011 Stock Plan
also contains annual limits of shares for all individual grants measured in 500,000 shares of common stock and $1,000,000, for
all grants measured in cash dollars. Both limits are subject to adjustment as described in our 2011 Stock Plan.

58





Adjustments.In connection with stock splits, stock dividends, recapitalizations and certain other events affecting common stock, the
Committee will make adjustments as it deems appropriate in the maximum number of shares of common stock reserved for issuance
as grants, the maximum number of shares of common stock that any individual participating in our 2011 Stock Plan may be granted
in any year, the number and kind of shares covered by outstanding grants, the kind of shares that may be issued or transferred
under our 2011 Stock Plan, and the price per share or market value of any outstanding grants.

Eligibility.All of our employees are eligible to receive grants under our 2011 Stock Plan. In addition, our non-employee directors
and consultants and advisors who perform services for us may receive grants under our 2011 Stock Plan.

Vesting.
The Committee determines the vesting of awards granted under our 2011 Stock Plan.

Options.
Under our 2011 Stock Plan, the Committee will determine the exercise price of the options granted and may grant options to purchase
shares of common stock in such amounts as it determines. The Committee may grant options that are intended to qualify as incentive
stock options under Section 422 of the Code, or nonqualified stock options, which are not intended to so qualify. Incentive stock
options may only be granted to employees. Anyone eligible to participate in our 2011 Stock Plan may receive a grant of nonqualified
stock options. The exercise price of a stock option granted under our 2011 Stock Plan cannot be less than the fair market value
of a share of our common stock on the date the option is granted. If an incentive stock option is granted to a 10% stockholder,
the exercise price cannot be less than 110% of the fair market value of a share of our common stock on the date the option is
granted. The exercise price for any option is generally payable in cash; in certain circumstances as permitted by the Committee,
by the surrender of shares of our common stock with an aggregate fair market value on the date the option is exercised equal to
the exercise price; by payment through a broker in accordance with procedures established by the Federal Reserve Board; by surrender
of the vested portion of the option to us for an appreciation distribution payable in shares of our common stock with a fair market
value at the time of the option surrender equal to the dollar amount by which the then fair market value of the shares of our
common stock subject to the surrendered portion exceeds the aggregate exercise price. The term of an option cannot exceed ten
years from the date of grant, except that if an incentive stock option is granted to a 10% stockholder, the term cannot exceed
five years from the date of grant.

Except as provided
in the grant instrument or as otherwise determined by the Committee, an option may only be exercised while a grantee is employed
by or providing service to us or during an applicable period after termination of employment or service.

Stock Awards.Under our 2011 Stock Plan, the Committee may grant stock awards. A stock award is an award of our common stock that may
be subject to restrictions as the Committee determines. The restrictions, if any, may lapse over a specified period of employment
or based on the satisfaction of pre-established criteria, in installments or otherwise, as the Committee may determine. Except
to the extent restricted under the grant instrument relating to the stock award, a grantee will have all of the rights of a stockholder
as to those shares, including the right to vote and the right to receive dividends or distributions on the shares. All unvested
stock awards are forfeited if the grantee’s employment or service is terminated for any reason, unless the Committee determines
otherwise.

Stock Units.Under our 2011 Stock Plan, the Committee may grant stock units to anyone eligible to participate in our 2011 Stock Plan.
Stock units are phantom units that represent shares of our stock. Stock units become payable on terms and conditions determined
by the Committee and will be payable in cash or shares of our stock as determined by the Committee. All unvested stock units are
forfeited if the grantee’s employment or service is terminated for any reason, unless the Committee determines otherwise.

Performance
Units. Under our 2011 Stock Plan, the Committee may grant performance units to anyone eligible to participate in our 2011
Stock Plan. Performance units represent a participating interest in a special bonus pool tied to the attainment of pre-established
corporate performance objectives based on one or more performance goals or the right to receive a targeted dollar amount tied
to the attainment of pre-established corporate performance objectives based on one or more performance goals. The amount of the
bonus pool and the targeted dollar amounts may vary based on the level at which the applicable performance objectives are attained.
The value of each

59





performance unit which becomes due and
payable upon the attained level of performance shall be determined by dividing the amount of the resulting bonus pool, if any,
by the total number of performance units issued and outstanding at the completion of the applicable performance period or based
on the threshold, target and maximum amounts that may be paid if the performance goals are met. Performance units become payable
on the attainment of the applicable performance objectives as determined by the Committee and will be payable in cash, in shares
of common stock, or in a combination of cash and shares of common stock, as determined by the Committee. All unvested performance
units are forfeited if the grantee’s employment or service is terminated for any reason, unless the Committee determines
otherwise.

Other Stock-Based
Awards. Under our 2011 Stock Plan, the Committee may grant other types of awards that are based on, measured by or payable
to anyone eligible to participate in our 2011 Stock Plan in shares of common stock, including SARs. The Committee will determine
the terms and conditions of such awards, including the base amount of a SAR, which will not be less than the fair market value
of a share of our common stock on the date the SAR is granted. Other stock-based awards may be payable in cash, shares of common
stock or a combination of the two.

Dividend Equivalents.Under our 2011 Stock Plan, the Committee may grant dividend equivalents in connection with grants of stock units or other
stock-based awards made under our 2011 Stock Plan. Dividend equivalents entitle the grantee to receive amounts equal to ordinary
dividends that are paid on the shares underlying a grant while the grant is outstanding. The Committee will determine whether
dividend equivalents will be paid currently or credited to a bookkeeping account as a dollar amount or in the form of stock units.
Dividend equivalents may be paid in cash, in shares of common stock or in a combination of the two. The Committee will determine
whether dividend equivalents will be conditioned upon the exercise, vesting or payment of the grant to which they relate and the
other terms and conditions of the grant.

Qualified Performance-Based
Compensation. Our 2011 Stock Plan permits the Committee to impose performance goals that must be met with respect to grants
of stock awards, stock units, performance units, other stock-based awards and dividend equivalents that are intended to meet the
exception for qualified performance-based compensation under Section 162(m) of the Code. Prior to or soon after the beginning
of a performance period, the Committee will establish the performance goals that must be met, the applicable performance periods,
the amounts to be paid if the performance goals are met and any other conditions.

The performance goals,
to the extent designed to meet the requirements of Section 162(m) of the Code, will be based on one or more of the following criteria:
cash flow; earnings (including gross margin, earnings before interest and taxes, earnings before taxes, earnings before interest,
taxes, depreciation, amortization and charges for stock-based compensation, earnings before interest, taxes, depreciation and
amortization, and net earnings); earnings per share; growth in earnings or earnings per share; stock price; return on equity or
average stockholder equity; total stockholder return or growth in total stockholder return either directly or in relation to a
comparative group; return on capital; return on assets or net assets; revenue, growth in revenue or return on sales; income or
net income; operating income, net operating income or net operating income after tax; operating profit or net operating profit;
operating margin; return on operating revenue or return on operating profit; regulatory filings; regulatory approvals, litigation
and regulatory resolution goals; other operational, regulatory or departmental objectives; budget comparisons; growth in stockholder
value relative to established indexes, or another peer group or peer group index; development and implementation of strategic
plans and/or organizational restructuring goals; development and implementation of risk and crisis management programs; improvement
in workforce diversity; compliance requirements and compliance relief; accreditation goals; safety goals; project goals; productivity
goals; workforce management and succession planning goals; economic value added (including typical adjustments consistently applied
from generally accepted accounting principles required to determine economic value added performance measures); growth and innovation
of technologies or delivery methods; growth of customer or subscriber base; measures of customer satisfaction, employee satisfaction
or staff development; development or marketing collaborations, formations of joint ventures or partnerships or the completion
of other similar transactions intended to enhance the Corporation’s revenue or profitability or enhance its customer base;
merger and acquisitions; and other similar criteria consistent with the foregoing. If dividend equivalents are granted as qualified
performance-based compensation, the maximum amount of dividend equivalents that may be accrued by a grantee in a calendar year
is $1.0 million.

60





Change of Control.If we experience a change of control, unless the Committee determines otherwise, all outstanding options and SARs will
automatically accelerate and become fully exercisable, the restrictions and conditions on all outstanding stock awards will immediately
lapse and all grantees holding stock units, performance units, dividend equivalents and other equity-based awards will receive
a payment in settlement of such grants in an amount determined by the Committee. The Committee may also provide that:

| | • | Grantees
                                                                                                                        will be
                                                                                                                        required
                                                                                                                        to surrender
                                                                                                                        their
                                                                                                                        outstanding
                                                                                                                        stock
                                                                                                                        options
                                                                                                                        and SARs
                                                                                                                        in exchange
                                                                                                                        for a
                                                                                                                        payment,
                                                                                                                        in cash
                                                                                                                        or shares
                                                                                                                        of common
                                                                                                                        stock,
                                                                                                                        equal
                                                                                                                        to the
                                                                                                                        difference
                                                                                                                        between
                                                                                                                        the exercise
                                                                                                                        price
                                                                                                                        and the
                                                                                                                        fair market
                                                                                                                        value
                                                                                                                        of the
                                                                                                                        underlying
                                                                                                                        shares
                                                                                                                        of common
                                                                                                                        stock;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | After
                                                                                                                        grantees
                                                                                                                        have the
                                                                                                                        opportunity
                                                                                                                        to exercise
                                                                                                                        their
                                                                                                                        stock
                                                                                                                        options
                                                                                                                        and SARs,
                                                                                                                        any unexercised
                                                                                                                        stock
                                                                                                                        options
                                                                                                                        and SARs
                                                                                                                        will be
                                                                                                                        terminated
                                                                                                                        on the
                                                                                                                        date determined
                                                                                                                        by the
                                                                                                                        Committee;
                                                                                                                        or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | All
                                                                                                                        outstanding
                                                                                                                        stock
                                                                                                                        options
                                                                                                                        and SARs
                                                                                                                        not exercised
                                                                                                                        will be
                                                                                                                        assumed
                                                                                                                        or replaced
                                                                                                                        with comparable
                                                                                                                        options
                                                                                                                        or rights
                                                                                                                        by the
                                                                                                                        surviving
                                                                                                                        corporation
                                                                                                                        (or a
                                                                                                                        parent
                                                                                                                        or subsidiary
                                                                                                                        of the
                                                                                                                        surviving
                                                                                                                        corporation)
                                                                                                                        and other
                                                                                                                        outstanding
                                                                                                                        grants
                                                                                                                        will be
                                                                                                                        converted
                                                                                                                        to similar
                                                                                                                        grants
                                                                                                                        of the
                                                                                                                        surviving
                                                                                                                        corporation
                                                                                                                        (or a
                                                                                                                        parent
                                                                                                                        or subsidiary
                                                                                                                        of the
                                                                                                                        surviving
                                                                                                                        corporation)
                                                                                                                        as determined
                                                                                                                        by the
                                                                                                                        Committee.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In general terms,
a change of control under our 2011 Stock Plan occurs if:

| | • | A
                                                                                                                        person,
                                                                                                                        entity
                                                                                                                        or affiliated
                                                                                                                        group,
                                                                                                                        with certain
                                                                                                                        exceptions,
                                                                                                                        acquires
                                                                                                                        more than
                                                                                                                        50% of
                                                                                                                        our then
                                                                                                                        outstanding
                                                                                                                        voting
                                                                                                                        securities;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | We
                                                                                                                        merge
                                                                                                                        into another
                                                                                                                        entity
                                                                                                                        unless
                                                                                                                        the holders
                                                                                                                        of our
                                                                                                                        voting
                                                                                                                        shares
                                                                                                                        immediately
                                                                                                                        prior
                                                                                                                        to the
                                                                                                                        merger
                                                                                                                        have at
                                                                                                                        least
                                                                                                                        50% of
                                                                                                                        the combined
                                                                                                                        voting
                                                                                                                        power
                                                                                                                        of the
                                                                                                                        securities
                                                                                                                        in the
                                                                                                                        merged
                                                                                                                        entity
                                                                                                                        or its
                                                                                                                        parent;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | We
                                                                                                                        merge
                                                                                                                        into another
                                                                                                                        entity
                                                                                                                        and the
                                                                                                                        members
                                                                                                                        of the
                                                                                                                        Board
                                                                                                                        of Directors
                                                                                                                        prior
                                                                                                                        to the
                                                                                                                        merger
                                                                                                                        would
                                                                                                                        not constitute
                                                                                                                        a majority
                                                                                                                        of the
                                                                                                                        board
                                                                                                                        of the
                                                                                                                        merged
                                                                                                                        entity
                                                                                                                        or its
                                                                                                                        parent;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | We
                                                                                                                        sell or
                                                                                                                        dispose
                                                                                                                        of all
                                                                                                                        or substantially
                                                                                                                        all of
                                                                                                                        our assets;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | We
                                                                                                                        are liquidated
                                                                                                                        or dissolved;
                                                                                                                        or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | A
                                                                                                                        majority
                                                                                                                        of the
                                                                                                                        members
                                                                                                                        of our
                                                                                                                        Board
                                                                                                                        of Directors
                                                                                                                        is replaced
                                                                                                                        during
                                                                                                                        any 12-month
                                                                                                                        period
                                                                                                                        or less
                                                                                                                        by directors
                                                                                                                        whose
                                                                                                                        appointment
                                                                                                                        or election
                                                                                                                        is not
                                                                                                                        endorsed
                                                                                                                        by a majority
                                                                                                                        of the
                                                                                                                        incumbent
                                                                                                                        directors.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash Bonus Awards.Our 2011 Stock Plan authorizes the Committee to grant cash bonus awards, which are intended to qualify as “qualified
performance-based compensation” for purposes of Section 162(m) of the Code, to executive employees as selected by the Committee.
The Committee will impose and specify the performance goals that must be met with respect to the grant of cash bonus awards and
the performance period for the performance goals. To satisfy the requirements of Section 162(m) of the Code for qualified performance-based
compensation, the Committee will establish in writing the performance goals that must be met in order to receive payment for the
bonus award, the maximum amounts to be paid if the performance goals are met, performance threshold levels that must be met to
receive payment for the bonus award, and any other conditions the Committee determines and to be consistent with the requirements
of Section 162(m) of the Code.

The Committee will
use performance goals based on one or more criteria as described above for qualified performance-based compensation.

Separate and apart
from the cash bonus awards, the Committee may also grant to selected executive employees other bonuses which may be based on individual
performance, our performance or such other criteria as determined by the Committee.

Deferrals.
The Committee may permit or require grantees to defer receipt of the payment of cash or the delivery of shares of common stock
that would otherwise be due to the grantee in connection with a grant under our 2011 Stock Plan. The Committee will establish
the rules and procedures applicable to any such deferrals, consistent with the requirements of Section 409A of the Code.

61





Repricing.
The Committee may cancel, with the consent of the affected holders, any or all of the outstanding options or SARs, and in exchange
for (i) new options or SARs with an exercise price or base amount per share not less than the fair market value per share of our
common stock on the new grant date or (ii) cash or shares of our common stock. The Committee shall also have the authority, with
the consent of the affected holders, to reduce the exercise price or base amount of one or more outstanding options or SARs to
the then current fair market value per share of our common stock or issue new options or SARs with a lower exercise price or base
amount.

Amendment; Termination.Our Board of Directors may amend or terminate our 2011 Stock Plan at any time; except that our stockholders must approve
any amendment if such approval is required in order to comply with the Code, applicable laws, or applicable stock exchange requirements.
Unless terminated sooner by our board or extended with stockholder approval, our 2011 Stock Plan will terminate on the day immediately
preceding the tenth anniversary of the date on which the underwriting agreement related to this offering is signed.

Foreign Participants.If any individual who receives a grant under our 2011 Stock Plan is subject to taxation in countries other than the U.S.,
our 2011 Stock Plan provides that the Committee may make grants to such individuals on such terms and conditions as the Committee
determines appropriate to comply with the laws of the applicable countries.

Clawback Right.The 2011 Stock Plan authorizes the Committee to provide in a grant instrument that, if a participant breaches any restrictive
covenant agreement or otherwise engages in activities that constitute cause, all grants shall terminate, and the Company may rescind
the exercise of an option or SAR and the vesting of any other grant and delivery of shares upon such exercise or vesting.

Employment Contracts,
Termination of Employment and Change of Control Arrangements

We do not have any employment
agreements with key executives.

Outstanding Equity Awards at Fiscal Year-End

The following table provides a summary
of equity awards outstanding at December 31, 2012 for each of our named executive officers.



|                            |  |             |  |               |  | Incentive   |  |             |  |            |  |           |  |           |  | Number of |  | Value of
|--------------------------- |  | ----------- |  | ------------- |  | ----------- |  | ----------- |  | ---------- |  | --------- |  | --------- |  | --------- |  | --------
|                            |  |             |  |               |  | Plan        |  |             |  |            |  |           |  | Market    |  | Unearned  |  | Unearned
|                            |  |             |  |               |  | Awards:     |  |             |  |            |  | Number of |  | Value of  |  | Shares,   |  | Shares, 
|                            |  | Number of   |  | Number of     |  | Number of   |  |             |  |            |  | Shares or |  | Shares or |  | Units or  |  | Units or
|                            |  | Securities  |  | Securities    |  | Securities  |  |             |  |            |  | Units of  |  | Units of  |  | Other     |  | Other   
|                            |  | Underlying  |  | Underlying    |  | Underlying  |  |             |  |            |  | Stock     |  | Stock     |  | Rights    |  | Rights  
|                            |  | Unexercised |  | Unexercised   |  | Unexercised |  | Option      |  | Option     |  | That      |  | That      |  | That      |  | That    
|                            |  | Options     |  | Options       |  | Unearned    |  | Exercise    |  | Expiration |  | Have Not  |  | Have Not  |  | Have Not  |  | Have Not
|Name and Principal Position |  | Exercisable |  | Unexercisable |  | Options     |  | Price       |  | Date       |  | Vested    |  | Vested    |  | Vested    |  | Vested  
|William T. Cavanaugh        |  | 300,000     |  | 300,000       |  | -           |  | $      1.00 |  | 2/1/2020   |  | -         |  | -         |  | -         |  | -       
|Chris Hafey                 |  | 87,500      |  | 112,500       |  | -           |  | $      1.00 |  | 5/31/2021  |  | -         |  | -         |  | -         |  | -       



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

The following table
sets forth, as of March 29, 2013 certain information with respect to the beneficial ownership of the Company’s Common Stock
by:

62





| | • | each
                                                                                                                        stockholder
                                                                                                                        known
                                                                                                                        by the
                                                                                                                        Company
                                                                                                                        to be
                                                                                                                        the beneficial
                                                                                                                        owner
                                                                                                                        of more
                                                                                                                        than 5%
                                                                                                                        of the
                                                                                                                        Company’s
                                                                                                                        outstanding
                                                                                                                        securities;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | each
                                                                                                                        current
                                                                                                                        director
                                                                                                                        and each
                                                                                                                        nominee
                                                                                                                        for director
                                                                                                                        of the
                                                                                                                        Company;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | each
                                                                                                                        of the
                                                                                                                        named
                                                                                                                        executive
                                                                                                                        officers
                                                                                                                        of the
                                                                                                                        Company
                                                                                                                        listed
                                                                                                                        below
                                                                                                                        in the
                                                                                                                        table
                                                                                                                        under
                                                                                                                        the caption
                                                                                                                        “Executive
                                                                                                                        Compensation”;
                                                                                                                        and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | all
                                                                                                                        current
                                                                                                                        directors,
                                                                                                                        nominee
                                                                                                                        directors
                                                                                                                        and executive
                                                                                                                        officers
                                                                                                                        as a group.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Unless otherwise specified,
the address of each of the persons set forth below is in care of OnPoint Medical Diagnostics, 7760 France Avenue South, 11thFloor, Minneapolis, MN 55435.



|                              |  | Number of Shares |           |              
|----------------------------- |  | ---------------- | --------- | -------------
|                              |  | Beneficially     |           | Common       
|Name and Principal Position   |  | Owned (1)        |           | Stock (%) (2)
|William T. Cavanaugh (3)(4)   |  |                  | 1,150,000 |              
|Gus Chafoulias (3) (5)        |  |                  | 1,243,719 |              
|Blake Whitney (3) (6)         |  |                  | 92,500    |              
|Dr. Richard Lindstrom (3) (7) |  |                  | 1,982,094 |              
|Tom Tomlinson (3) (8)         |  |                  | 70,000    |              
|Chris Hafey (3) (9)           |  |                  | 87,500    |              
|Total Directors and Executive |  |                  |           |              
|Officers                      |  |                  | 4,625,813 |              
|5% Stockholders               |  |                  | —         |              
|Mayo Foundation for Medical   |  |                  |           |              
|Education and Research        |  |                  | 1,111,000 |              



*Less than 1%



---

|   
|---
|   
|(1)
|   
|(2)
|   
|(3)
|(4)
|   
|(5)

63







|    |                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Includes 22,500 warrants and 70,000 shares issuable pursuant to presently exercisable options
    or options which will become exercisable within sixty (60) days after March 21, 2013.                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                             
|(7) | Includes 1,326,877 shares of common stock held by Lindstrom Family Limited Partnership #2,
    335,217      shares held by Dr. Lindstrom, 50,000 shares issuable pursuant to
    presently exercisable     options or options which will become exercisable within sixty (60) days after March 21, 2013, and
    250,000 warrants held by     Dr. Lindstrom.
|    |                                                                                                                                                                                                                                                                                                                                                             
|(8) | Includes 70,000 shares issuable pursuant to presently exercisable options or options which will
    become exercisable within sixty (60) days after March 21, 2013.                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                             
|(9) | Includes 87,500 shares issuable pursuant to presently exercisable options or options which will
    become exercisable within sixty (60) days after March 21, 2013.                                                                                                                                                                                         



Equity Compensation Plan Information



The following table provides information as of December 31, 2012
with respect to shares of our common stock that may be issued under our existing equity compensation plans.





|                                         |  | Number of securities |           | Weighted-average  |  | Number of securities remaining    
|---------------------------------------- |  | -------------------- | --------- | ----------------- |  | ----------------------------------
|                                         |  | to be issued upon    |           | exercise price of |  | available for future issuance     
|                                         |  | exercise of          |           | outstanding       |  | under equity compensation plans   
|                                         |  | outstanding options, |           | options, warrants |  | (excluding securities reflected in
|Plan Category                            |  | warrants and rights  |           | and rights        |  | column (a))                       
|                                         |  |                      | (a)       |                   |  |                                   
|Equity compensation plans that have been |  |                      |           |                   |  |                                   
|approved by security holders             |  |                      | —         |                   |  | $                                 
|                                         |  |                      |           |                   |  |                                   
|Equity compensation plans not approved   |  |                      |           |                   |  |                                   
|by security holders                      |  |                      | 1,130,000 |                   |  | $                                 
|                                         |  |                      |           |                   |  |                                   
|Total                                    |  |                      | 1,130,000 |                   |  | $                                 





Item 13.	     Certain Relationships
and Related Transactions, and Director Independence.

Certain Relationships
and Related Transactions

We believe that material
affiliated transactions and loans, and business relationships entered into by us with certain of our officers, directors and principal
shareholders or their affiliates were on terms no less favorable than we could have obtained from independent third parties. Any
future transactions between us and our officers, directors or affiliates will be subject to approval by a majority of disinterested
directors or shareholders in accordance with Florida law.

The following is a
description of transactions to which the Company has been a party, in which the amount involved in the transaction exceeds the
lesser of $120,000 or one percent of the average of the Company’s total assets at year end, and in which any of the Company’s
directors, executive officers or holders of more than 5% of the Company’s capital stock had or will have a direct or indirect
material interest, other than compensation, termination and change in control arrangements, which are described herein. The Company
believes the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described
below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.

64





Convertible Note Financing

In the fourth quarter
of 2010 and through March 2, 2011, we offered and sold 10% convertible promissory notes, referred to herein as the Promissory
Notes, to accredited investors and raised a total of $1,347,500. Dr. Lindstrom, one of our Board members, participated in the
convertible note offering, whereby he purchased an aggregate of $400,000 of convertible promissory notes.

As of December
31, 2012,the    outstanding aggregate principal amount on this note was $0 and we had not made any payments of principal or
interest thereunder. During 2012 and 2011, the balance of the notes totaling $1,347,500 was converted into our common stock
at $0.65 to $0.62 per share.

Private Placement
Financing

On
November 17, 2011, we completed the initial closing of a private placement of 10,000 units, at a purchase price of $1.00 per unit,
for approximately $10,000 in gross proceeds. Each unit consisted of one share of common stock, par value $0.001 per share and
a warrant to purchase 0.5 shares of Common Stock. Mr. Chafoulias, one of our Board members, participated in the initial closing,
whereby he purchased 10,000 units for approximately $10,000 and received warrants to purchase 5,000 shares of Common Stock at
an exercise price of $2.00 per share.

November 2011 Bridge Financing

On November 25, 2011,
we issued a promissory note to Dr. Lindstrom, a member of our Board of Directors, whereby we may borrow, from time to time, up
to $200,000 from Dr. Lindstrom. Upon the execution of the note, Dr. Lindstrom remitted $50,000 to us. Prior to the maturity of
the note, we may request that Dr. Lindstrom advance additional funds to us in increments of $10,000 up to the maximum loan amount.
The note accrues interest at a rate of 12% per annum and such interest is payable in quarterly installments beginning on January
1, 2012 until the note is repaid in full. The note will mature on November 25, 2013. In connection with each advance, we will
issue Dr. Lindstrom a ten-year warrant to purchase a number of shares of our common stock equal to the quotient of the amount
of such advance divided by $1.00. These warrants have an exercise price of $1.00 per share.

As of December 31,
2012, the outstanding aggregate principal amount of this note was $0, and we had not made any payments of principal or interest
thereunder. The balance of the note totaling $100,000 was converted into common stock at $0.25 per share.



December 2011 Bridge Financing

On December 30, 2011,
we issued $165,000 in promissory notes to certain investors. Three of our Board members participated in this note offering: Richard
Lindstrom, who purchased $100,000 of notes; Gus Chafoulias, who purchased $25,000 of notes; and Blake Whitney, who purchased $15,000
of notes. These notes accrue interest at a rate of 15% per annum and such interest is payable in quarterly installments beginning
on January 1, 2012 until the notes are repaid in full. These notes will mature on December 30, 2013. In connection with the issuance
of these notes, we also issued to the investors ten-year warrants to purchase, in the aggregate, 210,000 shares of our common
stock. These warrants have an exercise price of $1.00 per share.

As of December 31,
2011, the outstanding aggregate principal amount of these notes was $0, and we had not made any cash payments of principal or
interest thereunder.  The balance of the note totaling $165,000 was converted into common stock at $0.25 per share.

Second 2012
Convertible Debt Financing

On December 31, 2012,
we issued  $150,000 in convertible promissory notes to one Board member, Gus Chafoulias. This note will accrue interest at a rate
of 6% per annum, and mature on December 31, 2015. In connection with the issuance of this note, we also issued ten-year warrants
to purchase 150,000 shares of our common stock. These warrants have an exercise price of $1.25 per share.

Director Independence



65





The Board currently consists of Mr. William
T. Cavanaugh, Mr. Gus Chafoulias, Mr. Blake Whitney, Dr. Richard Lindstrom and Mr. Tom Tomlinson.  In
addition, our Board has an audit committee, a compensation committee and a nominating and corporate governance committee. 
Each committee consists solely of independent directors.  Our Board has determined that each of Mr. Gus Chafoulias,
Mr. Blake Whitney, Dr. Richard Lindstrom and Mr. Tom Tomlinson are independent.  Mr. Cavanaugh is not
independent because he is also an officer of the Company.  The determination of independence of directors has been made using
the definition of “independent director” contained under Rule 5605(a)(2) of the Rules of NASDAQ stock
market.



Item 14.	     Principal
Accounting Fees and Services.

We engaged Moquist Thorvilson Kaufmann LLC
("MTK") to serve as our independent registered public accountants for the fiscal year ending December 31, 2012 and 2011.



Fees paid to Moquist Thorvilson Kaufmann LLC
were as follows:





|                       |  | 2012 |        | 2011
|---------------------- |  | ---- | ------ | ----
|Audit Fees (1)         |  | $    | 64,270 |     
|Audit-Related Fees (2) |  |      | 671    |     
|Tax Fees               |  |      | 10,735 |     
|All Other Fees         |  |      | —      |     
|Total Fees             |  | $    | 75,676 |     





|(1) | The amount billed to us for professional services related to the audit of our annual
    financial     statements as of December 31, 2012 and 2011 and included our quarterly reports on Form 10-Q during 2012 and
    2011.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | This amount was billed to us for professional services provided primarily in connection
    with the Form 8-K that we filed in connection with the reverse acquisition of OnPoint.  This included the billed services
    addressing the SEC comments received for the filing.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Board of Directors has considered whether
the provision of the non-audit services described above by an external auditor is compatible with maintaining the auditor’s
independence, and determined that these non-audit services are compatible with the required independence.  The Board
of Directors pre-approves all services to be provided to our Company by the independent auditors.  This includes the
pre-approval of (i) all audit services, and (ii) any significant (i.e., not de minimis) non-audit services.  Before
granting any approval, the Board of Directors gives due consideration to whether approval of the proposed service will have a
detrimental impact on the auditor’s independence.  All services provided by and fees paid to our independent auditors
in 2012 and 2011 were pre-approved by the Board of Directors.



Item 15.	     Exhibits,
Financial Statement Schedules.

(a)(1)	Financial
Statements. The financial statements filed as part of this report are listed on the Index to the Consolidated Financial Statements.

(a)(2)	Financial
Statement Schedules. Schedules are omitted because they are not applicable or the required information is shown in the consolidated
financial statements or notes thereto.

(a)(3)	Exhibits.Reference is made to the Exhibit Index. The exhibits are included, or incorporated by reference, in the Annual Report on Form
10-K and are numbered in accordance with Item 601 of Regulation S-K.

66





SIGNATURES



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

|                      |  |     |  |                                                                   
|--------------------- |  | --- |  | ------------------------------------------------------------------
|                      |  |     |  | VERTICAL HEALTH SOLUTIONS, INC.                                   
|                      | 
|Dated: March 29, 2013 |  | By: |  | /s/ William T. Cavanaugh                                          
|                      |  |     |  | William T. Cavanaugh
        President and Chief Executive Officer
|                      |  |     |  |                                                                   

Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
in the capacities and on the dates indicated.

|                          | Signature |                                                 |  |                | Title |  |  |  | Date | 
|------------------------- | --------- | ----------------------------------------------- |  | -------------- | ----- |  |  |  | ---- | 
|/s/ William
    Cavanaugh |           | President, Chief Executive Officer and Director |  | March 29, 2013
|William T. Cavanaugh      |           | (Principal Executive Officer)                   |  |               
|/s/ JAMES
    P. MAROLT   |           | Interim Chief Financial Officer                 |  | March 29, 2013
|James P. Marolt           |           | (Principal Financial and Accounting Officer)    |  |               
|/s/ Gus
    Chafoulias    |           | Director                                        |  | March 29, 2013
|Gus Chafoulias            |           |                                                 |  |               
|/s/ Blake
    Whitney     |           | Director                                        |  | March 29, 2013
|Blake Whitney             |           |                                                 |  |               
|/s/ Richard
    Lindstrom |           | Director                                        |  | March 29, 2013
|Richard Lindstrom         |           |                                                 |  |               
|/s/ Tom
    Tomlinson     |           | Director                                        |  | March 29, 2013
|Tom Tomlinson             |           |                                                 |  |               



67





EXHIBIT INDEX



|Exhibit
    Nos. |  |                                                                                                                                                                                                                                                                                                                                     
|---------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 |  |                                                                                                                                                                                                                                                                                                                                     
|2.1              |  | Agreement and Plan of Merger, dated as of February 1, 2011, by and among OnPoint Medical
    Diagnostics, Inc., on the one hand, and Vertical Health Solutions, Inc. and Vertical HS Acquisition Corp. (incorporated herein
    by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on February 7, 2011).
|                 |  |                                                                                                                                                                                                                                                                                                                                     
|3.1              |  | Amended and Restated Articles of Incorporation of Vertical
    Health Solutions, Inc., filed with the Florida Department of State on February 28, 2002 (incorporated herein by reference
    to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on September 20, 2011).                                               
|                 |  |                                                                                                                                                                                                                                                                                                                                     
|3.2              |  | Certificate of Amendment to Articles of Incorporation of Vertical
    Health Solutions, Inc., filed with the Florida Department of State on June 21, 2002 (incorporated herein by reference to Exhibit
    3.2 of the Company’s Current Report on Form 8-K filed on September 20, 2011).                                            
|                 |  |                                                                                                                                                                                                                                                                                                                                     
|3.3              |  | Certificate of Amendment to Articles of Incorporation of Vertical
    Health Solutions, Inc., filed with the Florida Department of State on December 16, 2005 (incorporated herein by reference
    to Exhibit 3.3 of the Company’s Current Report on Form 8-K filed on September 20, 2011).                                        
|                 |  |                                                                                                                                                                                                                                                                                                                                     
|3.4              |  | Certificate of Amendment to Articles of Incorporation of Vertical
    Health Solutions, Inc., filed with the Florida Department of State on November 14, 2007 (incorporated herein by reference
    to Exhibit 3.4 of the Company’s Current Report on Form 8-K filed on September 20, 2011).                                        
|                 |  |                                                                                                                                                                                                                                                                                                                                     
|3.5              |  | Certificate of Amendment to Articles of Incorporation of Vertical
    Health Solutions, Inc., filed with the Florida Department of State on March 31, 2011 (incorporated herein by reference to
    Exhibit 3.5 of the Company’s Current Report on Form 8-K filed on September 20, 2011).                                           
|                 |  |                                                                                                                                                                                                                                                                                                                                     
|3.6              |  | By-Laws of Vertical Health Solutions, Inc. (incorporated herein
    by reference to Exhibit 3.2 to Form SB-2, File No. 333-74766).                                                                                                                                                                                                  
|                 |  |                                                                                                                                                                                                                                                                                                                                     
|3.7              |  | Certificate of Incorporation of OnPoint Medical Diagnostics,
    Inc. (incorporated herein by reference to Exhibit 3.7 of the Company’s Current Report on Form 8-K filed on September
    20, 2011).                                                                                                                                
|                 |  |                                                                                                                                                                                                                                                                                                                                     
|3.8              |  | Bylaws of OnPoint Medical Diagnostics, Inc. (incorporated herein
    by reference to Exhibit 3.8 of the Company’s Current Report on Form 8-K filed on September 20, 2011).                                                                                                                                                          
|                 |  |                                                                                                                                                                                                                                                                                                                                     
|4.1              |  | Specimen Stock Certificate (incorporated herein by reference
    to Exhibit 4.1 to Amendment No. 1 to Form SB-2, File No. 333-74766).                                                                                                                                                                                               
|                 |  |                                                                                                                                                                                                                                                                                                                                     
|4.2              |  | Form of OnPoint Convertible Promissory Notes (incorporated
    herein by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on September 20, 2011).                                                                                                                                                         
|                 |  |                                                                                                                                                                                                                                                                                                                                     
|4.3              |  | Form of OnPoint Warrant (incorporated herein by reference to
    Exhibit 4.3 of the Company’s Current Report on Form 8-K filed on September 20, 2011).                                                                                                                                                                              
|                 |  |                                                                                                                                                                                                                                                                                                                                     
|4.4              |  | Form of Bridge Note (incorporated herein by reference to Exhibit 4.1 of the Company’s
    Current Report on Form 8-K filed on December 1, 2011).                                                                                                                                                                                    
|                 |  |                                                                                                                                                                                                                                                                                                                                     
|4.5              |  | Form of Bridge Note Warrant (incorporated herein by reference to Exhibit 4.2 of the Company’s
    Current Report on Form 8-K filed on December 1, 2011).                                                                                                                                                                            
|                 |  |                                                                                                                                                                                                                                                                                                                                     
|4.6              |  | Form of Bridge Note (incorporated herein by reference to Exhibit 4.1 of the Company’s
    Current Report on Form 8-K filed on January 6, 2012).                                                                                                                                                                                     

68







|      |  |                                                                                                                                                                                                                                                                                                                      
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.7   |  | Form of Bridge Note Warrant (incorporated herein by reference to Exhibit 4.2 of the Company’s
    Current Report on Form 8-K filed on January 6, 2012).                                                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                      
|10.1+ |  | Restated and Amended License Agreement, effective as of November 12, 2010, between Mayo Foundation
    for Medical Education and Research and OnPoint Medical Diagnostics, Inc. (incorporated herein by reference to Exhibit 10.1
    of the Company’s Current Report on Form 8-K filed on January 25, 2012).        
|      |  |                                                                                                                                                                                                                                                                                                                      
|10.2  |  | Form of Note Amendment Agreement (incorporated by reference to Exhibit 10.1 to the Company’s
    Current Report on Form 8-K, filed on February 7, 2011).                                                                                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                                      
|10.3  |  | 2011 Omnibus Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.2
    of the Company’s Current Report on Form 8-K filed on April 21, 2011).                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                      
|10.4  |  | Form of 2011 Omnibus Incentive Compensation Plan Nonqualified Stock Option Grant Agreement
    (incorporated herein by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on April 21, 2011).                                                                                               
|      |  |                                                                                                                                                                                                                                                                                                                      
|10.5  |  | Form of 2011 Omnibus Incentive Compensation Plan Incentive Stock Option Grant Agreement (incorporated
    herein by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on April 21, 2011).                                                                                                  
|      |  |                                                                                                                                                                                                                                                                                                                      
|10.6  |  | Share Escrow Agreement, dated April 15, 2011, by and among the Company, OnPoint and Private
    Bank Minnesota (incorporated herein by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed on
    April 21, 2011).                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                      
|10.7  |  | Form of Subscription Agreement (incorporated herein by reference to Exhibit 10.1 of the Company’s
    Current Report on Form 8-K filed on June 13, 2011).                                                                                                                                                            
|      |  |                                                                                                                                                                                                                                                                                                                      
|10.8  |  | Form of Registration Rights Agreement (incorporated herein by reference to Exhibit 10.2 of
    the Company’s Current Report on Form 8-K filed on June 13, 2011).                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                      
|10.9  |  | Placement Agency Agreement, dated March 3, 2011, by and between OnPoint Medical Diagnostics,
    Inc. and Emergent Financial Group, Inc. (incorporated herein by reference to Exhibit 10.3 of the Company’s Current Report
    on Form 8-K filed on June 13, 2011).                                                  
|      |  |                                                                                                                                                                                                                                                                                                                      
|10.10 |  | PIPE Escrow Agreement, dated March 3, 2011, by and among Vertical Health Solutions, Inc.,
    OnPoint Medical Diagnostics, Inc. and Private Bank Minnesota (incorporated herein by reference to Exhibit 10.4 of the Company’s
    Current Report on Form 8-K filed on June 13, 2011).                                
|      |  |                                                                                                                                                                                                                                                                                                                      
|10.11 |  | Form of Bridge Note Conversion Agreement (incorporated herein by reference to Exhibit 10.5
    of the Company’s Current Report on Form 8-K filed on June 13, 2011).                                                                                                                                                  
|      |  |                                                                                                                                                                                                                                                                                                                      
|10.12 |  | Final Amendment to the Selling Agency Agreement, dated June 28, 2011, by and among OnPoint
    Medical Diagnostics, Inc., Vertical Health Solutions, Inc. and Emergent Financial Group, Inc. (incorporated herein by reference
    to Exhibit 1.1 of the Company’s Current Report on Form 8-K filed on July 5, 2011).
|      |  |                                                                                                                                                                                                                                                                                                                      
|10.13 |  | Summary of Terms of Oral Loan Agreement between the Company
    and Vitality Systems, Inc. (incorporated herein by reference to Exhibit 10.6 of the Company’s Current Report on Form
    8-K filed on September 20, 2011).                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                      
|10.14 |  | Summary of Terms of Oral Loan Agreement between the Company
    and Steve Watters (incorporated herein by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K filed
    on September 20, 2011).                                                                                                    

69







|      |  |                                                                                                                                                                                                                                                                                                    
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15 |  | Summary of Terms of Oral Agreement between Gus Chafoulias and
    Mark Steege (incorporated herein by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K filed on September
    20, 2011).                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                    
|10.16 |  | Summary of Terms of Oral Agreement between the Company and
    Healthcare IP Partners, LLC (incorporated herein by reference to Exhibit 10.9 of the Company’s Current Report on Form
    8-K filed on September 20, 2011).                                                                         
|      |  |                                                                                                                                                                                                                                                                                                    
|10.17 |  | Summary of Terms of Oral Agreement between the Company and
    Rainwater Capital Partners, LLC (incorporated herein by reference to Exhibit 10.10 of the Company’s Current Report on
    Form 8-K filed on September 20, 2011).                                                                    
|      |  |                                                                                                                                                                                                                                                                                                    
|10.18 |  | Form of Subscription Agreement for 2009 Common Stock Offering
    (incorporated herein by reference to Exhibit 10.11 of the Company’s Current Report on Form 8-K filed on September 20,
    2011).                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                    
|10.19 |  | Form of Subscription Agreement for Private Placement of Convertible
    Notes (incorporated herein by reference to Exhibit 10.12 of the Company’s Current Report on Form 8-K filed on September
    20, 2011).                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                    
|10.20 |  | Selling Agency Agreement for Private Placement of Convertible
    Notes (incorporated herein by reference to Exhibit 10.13 of the Company’s Current Report on Form 8-K filed on September
    20, 2011).                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                    
|10.21 |  | Placement Agency Agreement, dated October 31, 2011, by and between OnPoint Medical
    Diagnostics,     Inc. and Emergent Financial Group, Inc., (incorporated herein by reference to Exhibit 10.21 of the
    Company’s Annual  Report on Form 10-K for   the period ended December     31, 2011).
|      |  |                                                                                                                                                                                                                                                                                                    
|10.22 |  | Form of Subscription Agreement (Incorporated herein by reference to Exhibit 10.22 of the
    Company’s Annual      Report on Form 10-K for the period ended December     31, 2011).                                                                                                                
|      |  |                                                                                                                                                                                                                                                                                                    
|10.23 |  | Form of Registration Rights   Agreement (incorporated herein by reference to Exhibit 10.23
    of the     Company’s Annual Report on Form 10-K for the period ended December 31, 2011).                                                                                                            
|     

|         |  |                                                                                                                                                                                                                                                                                                             
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  |                                                                                                                                                                                                                                                                                                             
|10.24    |  | Form of Subscription Agreement for 2012 Private Placement (incorporated herein by reference to Exhibit 10.1
of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2012).                                                                                                             
|         |  |                                                                                                                                                                                                                                                                                                             
|10.25    |  | Placement Agency Agreement, dated August 1, 2012, by and between Vertical Health Solutions, Inc. (doing business
as OnPoint Medical Diagnostics) and Emergent Financial Group, Inc. (incorporated herein by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K filed on August 27, 2012).
|         |  |                                                                                                                                                                                                                                                                                                             
|10.26    |  | Consulting Agreement, effective as of May 16, 2012, by and between Vertical Health Solutions, Inc. d/b/a OnPoint
Medical Diagnostics and James P. Marolt (incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report
on Form 8-K filed on September 5, 2012).                         
|         |  |                                                                                                                                                                                                                                                                                                             
|10.27    |  | Form of Conversion Agreement (incorporated herein by reference to Exhibit 10.1 of the Company’s Current
Report on Form 8-K filed on October 4, 2012).                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                             
|21.1     |  | List of Subsidiaries, filed herewith.                                                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                             
|31.1     |  | Certification of Principal Executive Officer under Rule 13a-14(a) and Rule 15d-14(a), filed
    herewith.                                                                                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                                                                             
|31.2     |  | Certification of Principal Financial Officer and Principal Accounting Officer under Rule
    13a-14(a)     and Rule     15d-14(a),     filed     herewith.                                                                                                                                                  
|         |  |                                                                                                                                                                                                                                                                                                             
|32.1     |  | Certifications of the Principal Executive Officer,  Principal Financial Officer and
    Principal Accounting Officer under     18     USC 1350, furnished herewith.                                                                                                                                         
|         |  |                                                                                                                                                                                                                                                                                                             
|101.INS* |  | XBRL Instance Document.                                                                                                                                                                                                                                                                                     
|         |  |                                                                                                                                                                                                                                                                                                             
|101.SCH* |  | XBRL Taxonomy Extension Schema Document.                                                                                                                                                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                                                                             
|101.CAL* |  | XBRL Taxonomy Extension Calculation Linkbase Document.                                                                                                                                                                                                                                                      
|         |  |                                                                                                                                                                                                                                                                                                             
|101.DEF* |  | XBRL Taxonomy Extension Definition Linkbase Document.                                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                             
|101.LAB* |  | XBRL Taxonomy Extension Label Linkbase Document.                                                                                                                                                                                                                                                            
|         |  |                                                                                                                                                                                                                                                                                                             
|101.PRE* |  | XBRL Taxonomy Extension Presentation Linkbase Document.                                                                                                                                                                                                                                                     



+ Confidential Treatment Requested. Confidential Materials
omitted and filed separately with the Securities and Exchange Commission.

*Previously filed
with the Company’s Annual Report on Form 10-K for the period ended December 31, 2012 filed on March 29, 2013.



70





SIGNATURES

In
accordance with the requirements of the Exchange Act, the registrant caused this report on Form 10-K/A to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                     |  |     |  |                                                                   
|-------------------- |  | --- |  | ------------------------------------------------------------------
|                     |  |     |  | VERTICAL HEALTH SOLUTIONS, INC.                                   
|                     | 
|Dated: April 2, 2013 |  | By: |  | /s/ William T. Cavanaugh                                          
|                     |  |     |  | William T. Cavanaugh
        President and Chief Executive Officer