Use these links to rapidly review the document
TABLE OF CONTENTS
PART IV

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
For the fiscal year ended December 31, 2010
OR
o		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 333-143236

TECHNISCAN, INC.
(Exact name of registrant as specified in its charter)


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

3216 South Highland Drive, Suite 200,
Salt Lake City, UT 84106
(Address of principal executive offices) (Zip Code)

(801) 521-0444
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 Act: None

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

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 o No ý

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. ý Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 o No o

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

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:

o Large accelerated filer o Accelerated filer o Non-accelerated filer (Do not check if a ~~small~~smaller reporting company) ý Smaller reporting company

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

The aggregate market value of the common stock held by non-affiliates of the registrant, ~~could~~as ~~not~~of beJune 30, ~~computed~~2010, based on the average bid and asked ~~price~~ asprice of ~~June 30,~~$2.50 ~~2009,~~as ~~because~~reported noon ~~active~~the ~~trading~~OTC ~~market~~Bulletin ~~had~~Board ~~been~~on ~~established at~~ that date, was $37,811,735.

According to the records of the registrant's registrar and transfer agent, the number of shares of the registrant's common stock outstanding as of the latest practical date: 8221,~~897~~986,~~454~~944 as of March 1522, ~~2010~~2011.

DOCUMENTS INCORPORATED BY REFERENCE: None

Table of Contents

TABLE OF CONTENTS

PART I		1	1
	ITEM 1. BUSINESS	1	1
	ITEM 1A. RISK FACTORS	17	19
	ITEM 1B. UNRESOLVED STAFF COMMENTS	28	32
	ITEM 2. PROPERTIES	28	32
	ITEM 3. LEGAL PROCEEDINGS	28	32
PART II		29	33
	ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	29	33
	ITEM 6. SELECTED FINANCIAL DATA	30	33
	ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30	33
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37	41
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA	37	41
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES	37	41
	ITEM 9A (T). CONTROLS AND PROCEDURES	37
	ITEM 9A. CONTROLS AND PROCEDURES		42
	ITEM 9B. OTHER INFORMATION	38	42
PART III		39	43
	ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	39	43
	ITEM 11. EXECUTIVE COMPENSATION	43	47
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	46	50
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	48	52
	ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES	51	55
PART IV		52	56
	ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	52
	ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES		56
	SIGNATURES	53	61
	EXHIBIT INDEX

Table of Contents

PART I

Forward-Looking Statements

This Annual Report on Form 10-K ("Annual Report") contains forward-looking statements that have been made pursuant to the provisions of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 and concern matters that involve risks and uncertainties that could cause actual results to differ materially from historical results or from those projected in the forward-looking statements. Discussions containing forward-looking statements may be found in the material set forth under "Business," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in other sections of this Form 10-K. Words such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue" or similar words are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable as of the date of this Annual Report, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from the views and expectations set forth in this Annual Report. We expressly disclaim any intent or obligation to update any forward-looking statements after the date hereof, to conform such statements to actual results or to changes in our opinions or expectations.

Readers should carefully review and consider the various disclosures made by us in this Annual Report, set forth in detail in Item 1A of Part I, under the heading "Risk Factors," as well as those additional risks described in other documents we file from time to time with the Securities and Exchange Commission ("SEC"), which attempt to advise interested parties of the risks, uncertainties, and other factors that affect our business. We undertake no obligation to publicly release the results of any revisions to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.

ITEM 1. BUSINESS

~~Overview~~Corporate History

WeTechniScan, Inc. ~~were~~("we," "us," "our," the "Company," and "TechniScan") was incorporated under the name Castillo, Inc. pursuant to the laws of the State of Nevada on February 2, 2007, and changed ~~our~~its state of incorporation from the State of Nevada to the State of Delaware on October 8, 2009. Until the Merger (described below), we had no substantial business operations and no revenues. On October 9, 2009, TechniScan, Inc., a Utah corporation ("TechniScan Utah"), was first merged into our wholly owned subsidiary, and then immediately merged into us (collectively referred to as the "Merger"). Pursuant to the Merger, we succeeded to the business of TechniScan Utah as our sole line of business and changed our name to "TechniScan, Inc." ~~All~~ In this Annual Report, unless the context specifies otherwise, all references to ~~our~~"we," ~~business~~"us," the "Company" and "TechniScan" refer to the business of TechniScan Utah. Asprior ato ~~result of~~ the Merger, weand ~~are~~TechniScan, Inc., a ~~single~~Delaware ~~entity~~corporation, ~~and~~after ~~are~~the ~~headquartered in Salt Lake City, Utah~~Merger. In addition, unless the context specifies otherwise, all references to "stockholder" or "shares of common stock" refer to ownership of shares of the combined company following the Merger. ~~All references to "we," "us," the "Company" and "TechniScan" refer to the business of TechniScan, Inc., a Delaware corporation.~~

~~In connection~~ ~~with~~Recent the closing of the Merger, Emilia Ochoa, our sole officer and director resigned from each of her positions effective immediately. Following Ms. Ochoa's resignation and pursuant to the Merger Agreement, David C. Robinson was appointed Chief Executive Officer and Chief Financial Officer of the Company and Barry K. Hanover was appointed Chief Operating Officer of the Company. Effective November 9, 2009, Steven K. Passey was appointed Chief Financial Officer and Mr. Robinson ceased serving in that position. Upon the closing of the Merger, our Board consisted of five directors: Mr. Robinson; Kenneth G. Hungerford II; Richard J. Stanley; Gerald A. Richardson; and Cheryl D. Cook. Mr. Hungerford was appointed as Chairman of the Board. Effective December 14, 2009, our Developments

On February 17, 2011, TechniScan and Womens3D, Inc. ("Womens3D") entered into (1) a Manufacturing Agreement of the products developed pursuant to the Product Development Agreement (the "PDA") the parties entered into on January 11, 2011; (2) a Trademark and Copyright License Agreement governing each party's respective use of the other party's marks and copyrights; and (3) a Subscription Agreement to which Womens3D will issue shares of its common stock to us in amounts equal to 20% of the fully diluted equity of Womens3D.

Table of Contents

~~Board~~ On ~~was~~February 14, ~~increased~~2011, towe ~~seven~~issued ~~members~~as part of our private debt offering additional senior secured convertible promissory notes ("Notes") in the principal amount of $75,000 ~~and~~to ~~Joseph~~a member Wof our board of directors ("Board"). ~~Pepper~~As part of the purchase of the Notes, ~~PhD~~we ~~was~~issued ~~appointed~~common asstock apurchase ~~new~~warrants ~~member.~~("Warrants") ~~One~~exercisable ~~Board~~for ~~position~~five ~~remains~~years ~~unfilled~~from the date of grant to purchase an aggregate of 27,986 shares of our restricted common stock ("Shares"), at an exercise price of $2.68 per share.

WeOn ~~are~~January 31, a2011, ~~medical~~we ~~device~~amended ~~company~~the ~~engaged~~Note inand ~~the~~Warrant ~~research~~Purchase Agreement ("Note Purchase Agreement") dated March 30, ~~development~~2010 with Biotex Pharma Investments LLC ("Biotex"), ~~and~~Danal ~~commercialization~~International ofTrading anCorp. ~~ultrasound~~("Danal"), ~~breast~~Kenneth ~~imaging~~G. ~~system~~Hungerford II ("Hungerford"), Michael J. ~~Prior~~Jandernoa ("M. Jandernoa") and Carl Jandernoa ("C. Jandernoa"). Pursuant to the ~~Merger~~amendment, we ~~TechniScan~~issued ~~Utah's~~Notes ~~outstanding securities~~with ~~included~~an ~~common~~aggregate ~~stock~~face ~~and~~value ~~preferred~~of ~~stock~~$275,000 due and ~~warrants~~payable ~~and~~April 15, ~~options~~2011. toAs ~~purchase~~part ~~common~~of ~~stock.~~the ~~The~~issuance ~~outstanding~~of ~~TechniScan~~the ~~Utah~~Notes ~~preferred~~for ~~stock~~cash, ~~was~~we issued asan ~~Series D~~aggregate ~~Preferred~~of ~~Stock and~~27,500 ~~Series E Preferred Stock~~Shares. ~~Immediately~~Also ~~preceding~~as part of the ~~Merger,~~purchase ~~all~~ of the Notes, we issued ~~and~~Warrants ~~outstanding~~exercisable ~~preferred~~for ~~stock~~five ~~and~~years ~~warrants~~from the date of ~~TechniScan~~grant ~~Utah~~to ~~were~~purchase ~~converted~~an ~~into~~aggregate ~~common~~of ~~stock~~102,614 Shares, at an exercise price of ~~TechniScan~~$2.68 per share. The Notes and ~~Utah~~Warrants (issued have the ~~"Conversion").~~same ~~Pursuant~~material toterms as the ~~Conversion,~~amended ~~all~~senior ofsecured ~~TechniScan~~convertible ~~Utah's~~promissory ~~authorized~~notes ~~preferred~~and the amended common stock ~~and~~purchase ~~all~~warrants ~~rights~~("2010 Warrants"), respectively, we issued pursuant to the Note Purchase Agreement and ~~privileges~~other investment documents in connection ~~therewith~~with ~~were~~our ~~extinguished.~~private ~~Pursuant~~debt tooffering ~~the Conversion,~~described ~~each~~in ~~share~~our ofCurrent ~~TechniScan~~Reports ~~Utah's~~on ~~preferred~~Form 8-K ~~stock~~filed ~~and~~with ~~each~~the ~~warrant~~SEC on ~~was~~April 5, ~~converted~~2010, ~~into~~May 14, ~~that~~2010, ~~number~~May 25, of2010, ~~shares~~October 1, of2010, ~~common~~October 12, ~~stock~~2010, ~~based~~October 19, ~~upon~~2010, ~~conversion~~November 3, ~~ratios~~2010 and November 18, 2010.

InEffective ~~connection~~January 31, 2011, with the ~~Conversion,~~cash ~~all~~payment of $229,437 to Biotex and $45,563 to Danal, the ~~TechniScan~~maturity ~~Utah~~date ~~common~~of ~~stock~~all ~~underwent~~our asecured ~~forward~~convertible ~~split~~promissory innotes ~~which~~("Secured ~~each~~Notes") was ~~outstanding~~extended ~~share~~to ofApril 15, ~~common~~2011(the ~~stock~~"Extension"). As part of ~~TechniScan~~the ~~Utah~~Extension, ~~including~~we ~~all shares~~issued ~~deemed~~an ~~issued~~aggregate inof 285,000 Shares. Also as part of the ~~Conversion~~Extension, ~~were~~we ~~exchanged~~issued Warrants exercisable for ~~two~~five ~~shares~~years from the date of ~~TechniScan~~grant ~~Utah~~to purchase 1,063,439 shares of common stock, (at an exercise price of $2:1.68 ~~ratio)~~per share to all current note holders. The Warrants issued to the current note holders have the same material terms as the 2010 Warrants.

~~Since~~On ~~inception, we have incurred net operating losses. As of December~~January 3111, ~~2009~~2011, we ~~had~~entered into an ~~accumulated~~Equity ~~deficit~~Purchase ofAgreement ~~approximately~~with ~~$25.2~~Southridge Partners ~~million.~~II, LP ~~Losses have principally occurred as a result of the substantial resources required for research and development and clinical trials required to develop the WBU~~ (~~as defined below) system for United States Food and Drug Administration (~~"~~FDA~~Southridge"), ~~approval~~pursuant ~~and~~to ~~market~~which ~~launch.~~Southridge ~~Losses~~committed ~~have also been incurred from general and administrative costs associated with our operations. We expect operating losses~~ to ~~continue, mainly~~purchase ~~due~~up to ~~the~~$10,000,000 ~~anticipated expenses associated with the FDA pre-market notification approval process and proposed commercialization~~ of our ~~technology,~~common ~~and~~stock ~~further~~over ~~research~~a ~~and~~two-year ~~development. We will also need to increase our selling costs~~period, ~~marketing~~as ~~activities~~ and ~~general~~when ~~and~~we ~~administration~~determine ~~costs~~appropriate toin ~~market~~accordance ~~and~~with ~~sell~~ the ~~WBU~~terms ~~system in the United States~~ and ~~overseas~~conditions ~~after~~of ~~approval~~the isEquity ~~obtained~~Purchase Agreement.

WeOn ~~developed~~January 11, a2011, ~~unique~~we ~~ultrasound~~entered ~~technology~~into ~~platform,~~the ~~known~~PDA aswith ~~the~~Womens3D, ~~Warm~~pursuant ~~Bath~~to ~~Ultrasound~~which ~~imaging~~we ~~system~~will ~~("WBU")~~design, ~~which~~jointly ~~utilizes~~with ~~computational~~Womens3D, ~~software~~and todevelop ~~produce~~ultrasound ~~high~~products ~~resolution~~for ~~images and~~sale ~~unique~~by ~~information~~Womens3D ~~about~~to providers ~~the~~of ~~bulk~~women's ~~properties~~healthcare ofservices ~~tissues~~and products in the ~~breast.~~United ~~The~~States ~~WBU~~and iscertain ~~formerly~~countries ~~known~~in as the ~~Whole~~ ~~Breast~~Middle ~~UltrasoundTM.~~East ~~WBU~~who isperform abreast ~~flexible~~imaging, ~~automated~~other ~~breast~~than ~~imaging~~providers ~~system~~(1) registered ~~that~~with ~~produces~~and/ ~~images~~or licensed ~~using~~by ~~both~~the ~~reflection~~United States Food and ~~transmission~~Drug ~~properties~~Administration of("FDA") ~~ultrasound.~~that ~~The~~derive ~~images~~at ~~produced~~least ~~by WBU~~51% ~~are~~of ~~unique,~~their ~~three-dimensional,~~annual ~~whole~~revenue from breast ~~images~~cancer screening and ~~are~~diagnostic ~~expected~~imaging tounder ~~provide~~the ~~radiologists,~~Mammography ~~surgeons~~Quality Standards Act ("MQSA"); and ~~oncologists~~(2) that ~~with~~derive ana ~~effective~~material ~~imaging~~portion ~~tool~~of ~~for~~their ~~managing~~annual ~~diagnostic~~revenue ~~imaging~~from ofcosmetic ~~the~~surgery involving breast implants.

~~The WBU~~ system produces three unique images based on both traditional B-mode (reflective) and transmission ultrasound. Traditional reflection ultrasound images are created from the reflected sound waves and transmission ultrasound images are created using the speed and attenuation of sound data that are generated as the sound waves travel through the breast tissue. In particular, WBU uses proprietary, patented software algorithms that utilize the mathematics of inverse scattering to produce transmission images based on the speed and attenuation of sound through the breast. The WBU imaging platform also incorporates a three-dimensional version of B-mode ultrasound (or reflective ultrasound). The reflection images are refraction corrected by utilizing the transmission data—the speed of sound—traveling through human breast tissue. We believe that the unique combination of these refraction corrected reflection images into a three-dimensional volume will provide physicians with a new way of viewing and interpreting ultrasound images, especially when combined with the quantitative information about the bulk tissue properties of the breast provided by the numerical transmission data. Overview

We are ~~developing~~a ~~support~~medical ~~for~~device ~~clinical~~company ~~users~~engaged ofin the ~~WBU~~research, development, and commercialization of an ultrasound breast imaging system. ~~through~~We developed a unique ultrasound technology platform, known as the ~~TechniScan~~Warm ~~Imaging~~Bath ~~Network~~Ultrasound imaging system ("~~TIN~~WBU"), which utilizes computational software to produce high resolution images and unique information about the bulk properties of tissues in the breast. WBU is a ~~suite~~flexible, automated breast imaging system that produces images using both reflection and transmission properties of ~~tools~~ultrasound. Traditional reflection ultrasound images are created from the reflected sound waves and ~~applications~~transmission ~~designed~~ultrasound toimages, ~~enhance~~representing the ~~value~~ speed and attenuation of sound, are created using data that are generated as the sound waves travel through the breast tissue.

Table of Contents

~~capabilities~~The ofimages ~~the~~produced ~~system.~~by WeWBU ~~believe~~are ~~that TIN will offer a reliable and secure method of providing physicians~~unique, ~~administrators~~three-dimensional, ~~payers~~whole ~~and~~breast ~~patients~~images ~~with timely access to their diagnostic studies~~ and ~~reports,~~ ~~while~~are ~~ensuring that all data is disclosed only to those with permission to access it. TIN is~~ expected to ~~optimize~~provide ~~the use of diagnostic information by healthcare providers by providing a common platform to store~~radiologists, ~~archive,~~surgeons ~~correlate, analyze~~ and~~/or~~ ~~collaborate~~oncologists ~~about~~with ~~cases,~~an ~~giving~~effective ~~the~~imaging ~~physician~~tool ~~ultimate~~for ~~control~~diagnosing ~~of the diagnostic process. We believe that TIN also will allow healthcare~~and ~~professionals~~managing abreast ~~flexible, fully customizable, environment in which they can develop and store their own data or access anonymized data from other related images~~disease.

We ~~have~~are ~~not~~developing ~~yet~~support ~~begun~~for ~~selling~~clinical ~~our~~users ~~product~~of orthe ~~services~~WBU ~~commercially.~~system Wethrough ~~plan to enter~~ the ~~United~~TechniScan ~~States~~Imaging ~~and~~Network ~~European~~("TIN"), ~~markets.~~which Weis ~~anticipate installing initial WBU systems on~~ a ~~subscription~~ ~~basis~~suite ~~beginning in the fourth quarter~~ of ~~2010~~tools ~~with~~and ~~commercial~~applications ~~release~~designed ofto enhance the ~~WBU~~ value and ~~TIN~~capabilities ~~in the first quarter~~ of ~~2011. We expect that~~ the ~~WBU~~ system ~~will be marketed as a B-mode (i~~.~~e. handheld)~~ ~~and~~Our ~~automated~~business ~~reflection~~objectives ~~tomography~~are ~~ultrasonic system for imaging of a patient's whole breast. We plan~~ to commercialize our ~~products~~product developed to aid in the detection and diagnosis of breast cancer and to further expand our services in the same area. WeOur ~~believe that our~~ technology ~~provides~~was ~~for~~developed athrough ~~painless~~years ~~and~~of ~~efficient~~research ~~method~~supported, ~~which~~in ~~does not require breast compression or ionizing radiation~~part, ~~and~~by ~~the~~federal ~~procedure~~research ~~also~~grants ~~provides unique information to help radiologists differentiate cancerous from benign~~ and ~~normal~~private ~~tissues. We plan to enter our product into the breast cancer screening~~ and ~~detection~~government ~~market~~research ascontracts. aTo ~~diagnostic device that would be used by radiologists~~date, ~~physicians,~~our ~~hospitals~~revenues ~~and~~have ~~screening~~been ~~centers as an adjunct to mammography to provide them with~~from ~~additional~~government ~~information~~grants ~~that may influence decisions relating to the need for further invasive or surgical testing, examination,~~ and~~/or~~ ~~treatment~~other ~~for~~research ~~lesions or tumors~~partners.

WePursuant ~~expect~~to ~~that~~FDA ~~TIN~~regulations, ~~will~~we bemust ~~able~~obtain either a 510(k) clearance or Pre Market Authorization ("PMA") prior to ~~provide~~marketing usour ~~with~~products in the United States. The 510(k) submission is a premarket ~~recurring~~submission ~~revenue~~made ~~stream~~to the FDA to demonstrate that the device to be marketed is at least as safe and effective, ~~allowing~~or ussubstantially equivalent ("SE"), as a legally marketed device that is not subject to ~~charge~~PMA. ~~for~~The WBU system ~~use~~will be cleared for marketing in the United States onupon receipt of a ~~subscription~~letter ~~basis~~from the FDA which finds the WBU system SE or upon PMA. We ~~also~~have ~~plan~~been toworking ~~sell~~with ~~TIN~~Esaote asS.p.A. ("Esaote"), an Italian ultrasound equipment manufacturer, and The Anson Group, a ~~subscription~~regulatory ~~service~~consulting group, in ~~Europe~~connection ~~through~~with our submission of a 510(k) application. A 510(k) application to the FDA for the WBU system was submitted on May 11, 2009 to InterTek, a qualified FDA third-party ~~sales~~reviewer, ~~channel~~on our behalf by Esaote. ~~TIN~~On isAugust 13, ~~being~~2009, ~~developed~~InterTek asforwarded anour application ~~"open~~to ~~ended~~the ~~development~~FDA ~~system"~~with ~~that~~a ~~allows~~recommendation ~~users,~~for ~~researchers,~~an ~~and~~SE ~~other~~finding. ~~software~~The ~~developers~~FDA responded to our application with a request for additional clinical information. Since the third-party review program does not ~~integrate~~provide ~~their~~for ~~own~~a ~~applications~~review ~~through~~of ~~our~~clinical ~~network~~data, ~~providing~~the usFDA ~~with~~further ~~significant~~requested ~~development~~that ~~resources~~the third-party submission be withdrawn and ~~continuing~~resubmitted ~~access~~directly to ~~new~~the ~~applications~~FDA. ItOn isNovember 25, ~~designed~~2009, towe ~~allow~~submitted ~~them~~a 510(k) application to ~~archive~~the ~~and retrieve,~~FDA ~~compare~~for ~~images~~the toWBU ~~other~~system ~~similar~~that included clinical data ~~sets~~in support of the application. The submission again was made by Esaote on our behalf, ~~store~~using ~~their~~The ~~own~~Anson ~~images~~Group ~~and~~as ~~diagnostic~~the ~~notes;~~510(k) preparation ~~collaborate~~consultant. ~~with~~In ~~others~~February 2010, ~~and~~the ~~correlate~~FDA ~~information~~provided Esaote with ~~diagnostic~~another ~~results~~request for additional data to clarify the submission and ~~outcomes~~provide additional clinical data in support of the submission. The response was made by Esaote on our behalf on May 18, 2010.

~~Our~~On ~~technology was developed through years of research supported~~August 9, ~~in part~~2010, bywe ~~federal~~were ~~research~~notified ~~grants~~by ~~and~~Esaote ~~private~~that ~~and~~the ~~government~~FDA ~~research~~had ~~contracts.~~issued Toa ~~date,~~finding ~~our~~for ~~revenues~~the ~~have~~MyLab70-XVG ~~been~~Whole ~~from government~~Breast ~~grants~~Ultrasound ~~and~~Model ~~other research partners~~6100. ~~Pursuant~~The to FDA ~~regulations,~~determined wethat ~~must~~the clinical ~~obtain~~data ~~either~~submitted awas ~~510(k)~~not ~~clearance~~adequate orto ~~pre-marketing~~show ~~approval~~that ~~("PMA")~~the ~~prior~~subject todevice ~~marketing~~is ~~our~~SE ~~products~~to in the ~~United~~predicate ~~States.~~device ~~The~~designated ~~WBU~~in ~~system~~the ~~will~~submission ~~only~~documents. beIn ~~cleared~~light ~~for~~of ~~marketing~~this indetermination, the ~~United~~subject ~~Sates~~device ~~upon~~was automatically ~~receipt~~classified ofas a ~~letter~~Class III ~~from~~device ~~the~~and ~~FDA~~therefore ~~which~~subject ~~finds the WBU system~~ to bean ~~substantially~~approved ~~equivalent~~PMA ~~("SE").~~or Wean ~~have submitted~~additional a 510(k) ~~application~~submission tosupported ~~the~~by ~~FDA~~clinical ~~and~~case westudies ~~anticipate~~prior ~~that~~to ~~the~~legally ~~FDA~~marketing ~~will issue a final ruling on our application for~~ the device ~~WBU system sometime~~ in the ~~third~~United ~~quarter of 2010~~States. InWe ~~order~~intend to ~~sell~~file a ~~our products within the European Union~~ 510(~~"EU"~~k), ~~companies~~or ~~are~~PMA ~~required~~that toincludes ~~achieve~~both ~~compliance with requirements of~~ the ~~European~~reflection ~~Union Medical Device Directive~~ and ~~affix~~transmission aproperties ~~"CE"~~of ~~marking~~the onWBU ~~their~~by ~~products to demonstrate such compliance. The "CE" mark is a mandatory conforming mark on many products marketed in~~ the ~~EU.~~first Itquarter ~~certifies~~of ~~that a product has met EU consumer safety, health or environmental requirements~~2012.

Sales of ~~Our~~medical ~~Market~~devices ~~Opportunity~~ outside of the United States are subject to foreign regulatory requirements that vary widely from country to country. The time required to obtain approval for sale in foreign countries may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ. In order to sell our products within the European Union ("EU"), we are required to achieve compliance with requirements of the European Union Medical Device Directive and affix a "CE" marking on our products to demonstrate such compliance. The CE mark is a mandatory conforming mark on many products marketed in the EU. It certifies that a product has met EU consumer safety, health or environmental requirements. We have performed compliance testing for CE mark certification and must make two modifications to bring the WBU system into compliance. We anticipate that those modifications will be completed during the first half of 2011.

We believe that the key to success in this targeted market is reimbursement which, because of the way the WBU system produces images (i.e., computed tomography ("CT")), we project to be significantly higher than traditional ultrasound. Currently, CT is reimbursed at a higher rate than ultrasound and there is expected to be additional reimbursement for image reconstruction that is not

Table of Contents

~~available~~ Since inception, we have incurred net operating losses. As of December 31, 2010, we had an accumulated deficit of approximately $30.5 million, negative working capital of $4.9 million and minimal revenues. Losses have principally occurred as a result of the substantial resources required for ~~traditional~~research ~~ultrasound~~and development and clinical trials required to develop the WBU system for FDA approval and market launch. Losses have also been incurred from general and administrative expenses associated with our operations. We expect operating losses to continue, mainly due to the ~~synergy~~anticipated ofexpenses ~~ease~~associated with the regulatory approval process and proposed commercialization of ~~use~~our technology, research and ~~higher~~development. ~~reimbursement~~We will ~~help~~also ~~physicians~~need ~~see~~to ~~immediate~~increase ~~benefits,~~our ~~both~~selling and ~~for~~marketing ~~patient~~activities ~~care~~and general and ~~financially,~~administrative ~~for~~expenses ~~implementing~~ to market and sell the WBU system ~~into~~in ~~their~~the ~~practices~~United States and overseas after approval is obtained.

WeOur ~~expect~~continuing tolosses, ~~pursue~~among ~~marketing~~other ~~strategies~~things, ~~aimed~~have atcaused ~~both~~our ~~the~~independent ~~general~~registered ~~consumer~~public ~~and~~accounting ~~the~~firm ~~clinical marketplace that are focused on the enhanced diagnostic capability of the WBU system. We intend~~ to ~~provide~~add ~~our~~an ~~product~~explanatory ~~offerings~~paragraph to ~~screening~~its ~~centers~~audit ~~and~~report ~~hospitals,~~on ~~radiologists~~our ~~and~~2010 ~~physicians~~ and ~~technical~~2009 financial ~~personnel~~statements ~~within~~indicating ~~the~~that ~~United~~there ~~States~~is ~~and~~substantial ~~Europe.~~doubt Weabout ~~expect~~our toability ~~do this by deploying systems~~ to ~~clinical~~continue ~~sites~~as ~~supported~~a bygoing ~~key~~concern. ~~opinion~~Although ~~leaders~~we ~~and~~are ~~leveraging~~focused ~~the~~on ~~clinical~~our ~~results~~research, ~~images~~development, and ~~luminary~~commercialization ~~testimonials~~of ~~to educate our target market and customer base about~~ the ~~scanner and~~WBU ~~patient benefits~~system, ~~using~~there ancan ~~aggressive~~be ~~marketing~~no ~~campaign~~reasonable ~~via~~assurance ~~presentations,~~that ~~hands-on~~such ~~workshops,~~efforts ~~professional society meetings, publications and targeted advertising. Our future success~~ will beresult ~~driven~~in ~~primarily~~the byestablishment ~~our~~of ~~ability~~predictable ~~to attract new customers, develop sustainable revenues~~ and toscalable ~~continue~~sources toof ~~develop our product~~revenue.

~~With a~~ ~~well-identified~~Industry customer base made up of centers licensed by the FDA under the Mammography Quality Standards Act ("MQSA") and the leading cancer research and teaching facilities, we plan to build a core sales team as a direct sales force to market the WBU system. We expect to focus on geographic regions based upon "buying power index" of the best opportunities for sale. We partnered with Esaote S.p.A., an Italian ultrasound manufacturer ("Esaote"), and also a stockholder of ours, to provide exclusive marketing and sales of the WBU system in Europe. We plan to use Esaote's existing sales force to introduce the WBU system within the EU. Similar to the United States market strategy, the European market introduction strategy will focus on geographic areas with a higher than average use of ultrasound for breast cancer screening and diagnosis. Background

~~Our~~Despite the massive attention given to breast cancer prevention and treatment, the American Cancer Society projected that in 2009, 254,650 women would be diagnosed with invasive and in situ (early stage) breast cancer, and breast cancer will claim the lives of 40,170 women. The American Cancer Society further estimates that one out of every eight women will develop breast cancer at some point during her life time and one in every 42 women who turn 50 today will have a diagnosis of breast cancer before she turns 60. We believe that high visibility media coverage combined with effective public education and a continued focus on women's health issues in the medical community have resulted in a rapidly growing market for breast cancer screening. The breast cancer detection and diagnostic technologies market (including mammography, MRI, and ultrasound, as well as genetic testing and minimally invasive breast biopsy) totaled approximately $1.5 billion in the United States in 2008, and ~~European~~is ~~market~~expected ~~entry~~to ~~strategy~~grow ~~will~~at bea ~~driven~~compounded byannual ~~seeking~~rate of 5% over the next five years according to ~~attain~~Medtech ~~four~~Insight. According ~~primary~~to ~~goals:~~a Center for Disease Control National Health Interview Survey in 2005, the percentage of women age 40 and older who reported having a mammogram within the two years prior to the study rose from 29% in 1987 to just over 65% in 2005. We believe that this trend will result in significant continued growth in the diagnostic imaging market segment.

Currently, there ~~Our~~are ~~Strengths~~ several dominant screening and diagnostic technologies in the medical industry that are used both dependently and independently of each other in an effort to locate cancers at an early stage, which improves treatment outcomes; each of the currently available non-surgical modalities for breast cancer detection has various clinical limitations. Industry methods and technologies include:

•: breast self-examination and clinical breast examination;
•: mammography, including screening mammography and diagnostic mammography;
•: full field digital mammography;
•: computer aided detection;
•: conventional diagnostic ultrasound; and
•: breast biopsy.

~~Our proprietary, patented, computational software~~ Mammography is the ~~key~~dominant ~~component~~imaging ofmodality the WBU system, which we believe makes it different from, and better than, current ultrasound technology. The software relies on complex, patented algorithms to calculate the actual speed and attenuation of sound at each point in ~~the~~today's ~~breast.~~standard ~~We believe the complexity~~ of ~~the algorithms~~care, ~~especially~~but ~~the~~still ~~algorithm~~has ~~for~~significant ~~inverse~~limitations ~~scattering,~~as ~~creates~~ a ~~significant~~diagnostic ~~barrier~~imaging ~~to entry for potential competitors~~device. WeBreast are not aware of any competitor capable of solving the wave propagation inverse scattering problem efficiently and accurately enough to be medically valuable. During the breast cancer screening and diagnosis processtissue, ~~ultrasound~~unlike isother ~~currently~~body ~~used as an adjunct to mammography. In its currently used form~~organs, ~~reflection ultrasound~~ is ~~highly~~composed ~~dependent on the skill~~ of atissue ~~trained operator, and it does not show how much of the breast has been imaged. We believe~~ that ~~the~~fluctuates ~~WBU~~regularly ~~system~~and ~~will~~can be ~~sensitive~~significantly ~~enough~~different tofrom ~~detect~~person ~~most~~to ~~breast~~person. ~~cancers~~

Table of Contents

inThe ~~the~~breast ~~early~~structure ~~stages~~is ofinfluenced ~~development~~by several factors, including age, functional changes (i.e., breast ~~Additionally~~feeding, ~~because~~pregnancy, ofpre/post ~~the~~menopause, ~~unique~~etc.), ~~information~~genetic ~~about~~predisposition ~~bulk~~and ~~tissue~~hormone replacement ~~properties~~therapy, ~~contained~~along inwith ~~the~~a ~~WBU~~variety ~~system's~~of ~~speed~~other internal factors like hemoglobin concentration, oxygen saturation, and ~~attenuation~~water fraction, all of ~~sound~~which ~~images~~fluctuate wedaily. ~~expect~~One toresult ~~be able~~of tothe ~~provide~~uncertainty ~~radiologists~~of mammography ~~with~~screening ~~information~~is that ~~allows~~radiologists ~~them~~have tobecome much more ~~clearly~~careful, ~~distinguish~~often ~~between~~recommending ~~cancerous~~immediate workups—additional diagnostic imaging and ~~benign~~possibly needle or ~~normal~~surgical ~~tissues,~~biopsy. Mammography ~~thereby~~is ~~significantly~~also ~~reducing~~problematic ~~the~~in ~~rate~~women who have breast implants. Problems include crushed implants, painful mammograms, delayed detection of ~~unnecessary~~cancer from interference in imaging breast tissue, and an ~~biopsies~~inability to perform mammograms due to fear of implant rupture or capsular contracture.

We believe that the WBU system offers a painless and efficient method, without ionizing radiation, to screen and diagnose the breast and provide unique information about bulk tissue properties that may aid in the effective diagnosis of breast cancer. We anticipate that the WBU system will accurately calculate the speed and attenuation of sound throughout the breast. We believe that these properties will provide radiologists with unique information about the actual tissue properties at each point of the breast, allowing them to more accurately distinguish between cancerous tumors and benign or normal tissues.

Our Strengths

Our proprietary, patented, computational software is the key component of the WBU system, which we believe makes it different from, and better than, current ultrasound technology. The software relies on complex algorithms to calculate the actual speed and attenuation of sound at each point in the breast. We believe the complexity of the algorithms, especially the algorithm for inverse scattering, creates a significant barrier to entry for potential competitors. We are not aware of any competitor capable of solving the wave propagation inverse scattering problem efficiently and accurately enough to be medically valuable. During the breast cancer screening and diagnosis process, ultrasound is currently used as an adjunct to mammography. In its currently used form, reflection ultrasound is highly dependent on the skill of a trained operator, and it does not show how much of the breast has been imaged. We believe that the WBU system will be sensitive enough to detect most breast cancers in the early stages of development. Additionally, because of the unique information about bulk tissue properties contained in the WBU system's speed and attenuation of sound images, we expect to be able to provide radiologists with information that allows them to more clearly distinguish between cancerous and benign or normal tissues, thereby significantly reducing the rate of unnecessary biopsies.

We believe that images produced by the WBU system possess important advantages over traditional ultrasound methods including:

•: standardized, high-quality images that are generated independent of operator skill;
•: images that are accurately registered in three-dimensional format;
•: images that are of high spatial resolution and low noise that allow for accurate localization of lesions and calculation of mass size; and
•: images that show either coronal slices of the total breast or a complete three-dimensional representation of the section imaged, rather than a small "flashlight view" of the breast as shown by traditional ultrasound.

Since the technology is relatively operator- independent, the cost of implementation is low and it does not expose patients to ionizing radiation or discomfort. We ~~also~~ expect that radiologists could be able to more accurately monitor changes in breast tissue over a period of time in the same individual. We also expect to be able to pinpoint the exact location of a tumor for biopsy. We believe that present ultrasound technology has a limited field of view. It displays only a small portion of the breast at one ~~time. Our technology is designed to image the entire breast at one time, with uniform spatial resolution throughout the breast.~~

Table of Contents

time. Our technology is designed to image the entire breast at one time, with uniform spatial resolution throughout the breast.

Our Strategy

Our regulatory strategy includes:

•: Obtaining marketing clearance of WBU through the FDA's 510(k) or PMA program.
•: Delivery of a WBU system by the first half of 2012 that meets European mandatory CE Mark requirements to Esaote for manufacture. As a CE Approved Manufacturer, Esaote will seek to ensure that the system meets regulatory requirements in the countries covered by our distribution agreement with Esaote.

Our clinical testing strategy includes the following:

•: We expect to determine the inter-reader variability and performance of the WBU system using a well-controlled, blinded review process.
•: We expect to develop a pilot study to address inter-reader variability and expected improvement over handheld ultrasound in order to determine the number of readers and cases necessary to conduct a larger pivotal trial that will address the regulatory question of substantial equivalence.
•: We believe that currently available clinical data will be sufficient for the pilot study; however, we will require a blinded and well-controlled analysis of these cases by several radiologist reviewers.
•: We anticipate the pilot study, including case validation, and design of a larger pivotal trial, based on the result of the pilot study, to be completed during the second quarter of 2011.
•: We expect to submit to the FDA our pivotal trial protocol as part of a pre-investigational defice exemption ("IDE") meeting package in anticipation of obtaining agreement from the FDA regarding the design, statistical plan including number of readers/cases, and whether the endpoints are consistent with the proposed indications and intended use of the WBU system, which should provide guidance on the type of submission required.
•: We anticipate using the pivotal trial results, which we anticipate to begin in the second quarter of 2011, to submit a complete 510(k) or PMA application.
•: We believe that current clinical sites are expected to yield sufficient data for the 510(k) or PMA application.
•: We expect that current clinical sites in the United States will begin clinical evaluation of the next generation of the WBU system, including specific evaluation of speed and attenuation as diagnostic measures, as well as system enhancements such as larger receiver arrays for improved transmission imaging.
•: We expect that clinical sites in Europe will be supported by Esaote to assist them in developing a market introduction strategy and clinical utility statements based on clinical data from their target markets.

We also plan to develop a strong brand for the WBU system. Our objectives for creating the brand for the WBU system are to:

•: identify, in a unique way, both the imaging and subscription services platforms;
•: confirm our credibility to both consumers and physicians;
•: connect target prospects emotionally to the product and the positive messages about dignified breast cancer detection;
•: motivate the buyer—both clinical and consumer (patient); and
•: create user loyalty.

Table of Contents

Industry Background

Despite the massive attention given to breast cancer prevention and treatment, the American Cancer Society projects that in 2009—254,650 women will be diagnosed with invasive and in situ (early stage) breast cancer, and breast cancer will claim the lives of 40,170 women. The American Cancer Society further estimates that one out of every eight women will develop breast cancer at some point during her lifetime, and one in every 42 women who turn 50 today will have a diagnosis of breast cancer before she turns 60. We believe that high visibility media coverage combined with effective public education, and a continued focus on women's health issues in the medical community have resulted in a rapidly growing market for breast cancer screening. The breast cancer detection and diagnostic technologies market (including mammography, MRI, and ultrasound, as well as genetic testing and minimally invasive breast biopsy) totaled approximately $1.5 billion in the United States in 2008, and is expected to grow at a compounded annual rate of 5% over the next five years according to Medtech Insight. According to a Center for Disease Control National Health Interview Survey in 2005, the percentage of women age 40 and older who reported having a mammogram within the two years prior to the study rose from 29% in 1987 to just over 65% in 2005. We believe that this initiative will result in significant continued growth in the diagnostic imaging market segment.

Currently, there are several dominant screening and diagnostic technologies in the medical industry that are used both dependently and independently of each other in an effort to locate cancers before they are fatal; each of the currently available non-surgical modalities for breast cancer detection has various clinical limitations. Industry methods and technologies include:

Mammography is the dominant imaging modality in today's standard of care, but still has significant limitations as a diagnostic imaging device. Breast tissue, unlike other body organs, is composed of tissue that fluctuates regularly and can be significantly different from person to person. The breast structure is influenced by several factors, including age, functional changes (i.e., breast feeding, pregnancy, pre/post menopause, etc.), genetic predisposition and hormone replacement therapy, along with a variety of other internal factors like hemoglobin concentration, oxygen saturation, and water fraction, all of which fluctuate daily. Our research has found that since much of what can be seen in a mammogram is interpretation, consistent, effective diagnosis using one primary imaging tool is inconsistent, if not impossible. One result of the uncertainty of mammography screening is that radiologists have become much more careful, often recommending immediate workups—additional diagnostic imaging and possibly needle or surgical biopsy. Mammography is also problematic in women who have breast implants. Problems include crushed implants, painful mammograms, delayed detection of cancer from interference in imaging breast tissue, and an inability to perform mammograms due to fear of implant rupture or capsular contracture.

Table of Contents

Products and Services

WBU. The WBU system is comprised of several individual subsystems that support patient imaging, data management and image display. The physical system is a collection of modular components that control the electrical and mechanical systems, gather and manage the ultrasound data,; imaging software that produces images of both reflection and transmission ultrasound,; and workstation software that allows users to access the images in standard digital medical workstation software ("DICOM") format. The system is designed to allow easy plug-and-play modification and/or upgrade of the physical system as well as remote query, system diagnosis, and upgrades. Included in the system are hand-held probes that physicians can utilize to image closer to the chest wall and for guidance in conducting breast biopsies.

The WBU system produces three unique images based on both traditional B-mode (reflective) ultrasound and on transmission ultrasound. WBU uses proprietary, patented software ~~algorithms~~methodologies that utilize the mathematics of inverse scattering to produce transmission images of the speed and attenuation of sound through the breast. We have incorporated a three-dimensional version of B-mode ultrasound (or reflective ultrasound) into the WBU imaging platform. The reflection images are refraction corrected by utilizing the transmission data—the speed of sound—traveling through human breast tissue. The unique combination of these refraction corrected reflection images into a three-dimensional volume are designed to provide physicians with a new way of viewing and interpreting ultrasound images, especially when combined with the quantitative information about the bulk tissue properties of the breast provided by the numerical transmission data. Images are produced and data are recorded in successive "slices" of the breast. This information is used to develop two-dimensional inverse scattering images that are then stacked and interpolated to provide an initial approximation for imaging in all three dimensions.

Studies have demonstrated that the unique properties of sound speed and attenuation may be effective in assisting radiologists to distinguish between normal or benign tissues and many types of cancers. We expect that our scanner will provide women of all ages and breast densities with an effective test for the presence of breast cancer.

We ~~believe~~have ~~that~~incorporated ~~images~~a ~~produced~~three-dimensional byversion of B-mode ultrasound (or reflective ultrasound) into the WBU ~~system~~imaging ~~possess~~platform. ~~important~~There ~~advantages~~are ~~over~~significant differences between traditional ~~ultrasound~~hand-held ~~methods~~B-mode ~~including~~reflection images and the reflection tomography images produced by the WBU system:

•: WBU reflection tomography images are obtained automatically and largely independently of operator skill.
•: Traditional hand-held B-mode ultrasound only captures individual images of small, targeted areas of the breast, making consistent whole breast exams extremely difficult to perform and document, and highly dependent upon the skill of the sonographer or radiologist. WBU reflection tomography images the entire three-dimensional breast volume, which is stored and reviewed simultaneously, and in exact registration with the transmission images on the viewing station.
•: WBU reflection tomography images are obtained from three transducers working together at relatively low frequencies. WBU compounds data from all sides of the stationary breast in order to produce image resolution comparable to hand-held B-mode images, but at greater tissue depths, in full three-dimensional format, by using these lower ultrasound frequencies.
•: WBU reflection tomography imaging removes much of the speckle inherent in B-mode imaging to further enhance image quality. Some artifacts of B-mode images which provide valuable diagnostic information, such as attenuation shadowing, are replaced with quantitative three-dimensional attenuation values obtained from WBU transmission images.

Additionally, we have incorporated a three-dimensional version of B-mode ultrasound (or reflective ultrasound) into the WBU imaging platform. There are significant differences between

Table of Contents

traditional hand-held B-mode reflection images and the reflection tomography images produced by the WBU system.

The procedure is non-invasive and does not require breast compression or ionizing radiation, and the procedure provides unique information to help radiologists differentiate cancerous from benign and normal tissues. The WBU system maintains the breast in a pendant and fixed position, within a water bath, without compression or other breast tissue disturbances during scanning. Maintaining the position and shape of the breast allows for the tumor or lesion to be more easily localized, and re-localized in follow-up examinations, and allows the potential for three-dimensional guidance of treatment instruments. In an exam, the patient lies face down on the scanning table with one breast placed through a hole in the table and into a water bath at body temperature. The ultrasound transducers rotate around the breast, gathering data that is used to reconstruct multiple cross-sectional images of the breast's internal structures. Due to the suspension of the breast in the WBU system scanning tank, and the ability of the ultrasonic arrays to image the breast from the chest wall to the nipple, data can be collected for the entire breast. The WBU system (incorporating both transmission and reflection ultrasound) can obtain true undistorted reflection ultrasound images of the female breast. For calculating reflection ultrasound characteristics of the female breast, the reflection images are refraction-corrected by utilizing the speed of sound traveling through human breast tissue. We believe that the resulting information will provide radiologists with increased accuracy in lesion location, as well as unique information about tissue properties to aid in the specificity of a diagnosis and the existence and extent of breast disease. We believe that this is not currently possible in any other modes where compression, physical pressure, or other measures are used which change or distort breast tissue during the exam.

~~Since the~~ WBU ~~technology~~Workstation. While ~~is relatively operator-independent,~~ the ~~cost~~WBU ofsystem ~~implementation~~ is ~~low,~~designed ~~and~~to itmeet ~~does~~currently ~~not~~available ~~expose~~commercial ~~patients~~DICOM tostandards, ~~ionizing~~TechniScan ~~radiation~~is ~~or discomfort. We~~ also ~~expect~~developing a ~~that~~dedicated ~~radiologists~~image ~~could~~viewing beworkstation ~~able~~ to ~~monitor~~allow ~~changes~~clinicians into ~~breast~~better ~~tissue~~utilize ~~over~~the afull ~~period~~spectrum of ~~time~~the ininformation available from the ~~same~~WBU ~~individual~~system. WeOver ~~also~~time, we expect to becollect ~~able~~clinical toinformation ~~pinpoint~~from ~~the~~WBU ~~exact~~exams conducted ~~location~~at ofuser asites ~~tumor~~allowing ~~for~~us ~~biopsy.~~to ~~Present ultrasound~~enhance ~~technology~~the ~~has~~value ~~a limited field~~ of ~~view.~~the Itdiagnostic ~~displays~~data ~~only~~and agenerate ~~small~~additional ~~portion~~recurring ofrevenues ~~the~~by ~~breast~~selling ata ~~one~~library ~~time.~~of ~~Our~~aggregated ~~technology~~information ~~will~~for ~~image~~volumetric ~~the entire~~ breast atdensity, and ~~one~~other ~~time,~~uniquely ~~with~~measured ~~uniform~~data ~~spatial~~such ~~resolution throughout~~as ~~the~~speed ~~breast~~and attenuation.

WBU ~~Workstation~~Handheld Probe. ~~While~~The ~~the~~ WBU system is ~~designed~~integrated towith ~~work~~the ~~with~~Esaote ~~currently~~top ~~available~~of ~~commercial~~the ~~DICOM~~line ~~standards~~handheld ultrasound system MyLab70XVG, ~~TechniScan~~which isprovides a complementary ~~also~~option for the physician. The ~~developing~~MyLab a70 handheld system includes high frequency linear hand-held ultrasound probes developed by Esaote, which can be used for conducting area specific examinations using standard ~~dedicated~~B-mode ~~image~~ultrasound. ~~viewing~~The ~~workstation~~handheld toprobes ~~allow~~can ~~clinicians~~be toused ~~better~~for ~~utilize~~conducting ~~the~~area ~~full~~specific ~~spectrum~~examinations ofand/or ~~the~~ultrasound-guided ~~information~~biopsies ~~available~~using ~~from~~standard B-mode ultrasound. After scanning the patient with the WBU system. ~~Over~~and ~~time~~localizing a suspicious lesion, wethe ~~expect~~physician tocan ~~collect~~ask ~~clinical~~the ~~information~~patient ~~from WBU~~to ~~exams~~roll ~~conducted~~over atin ~~user~~order ~~sites~~to ~~allowing~~perform handheld ultrasound procedures.

The ultrasound-guided biopsy procedure minimizes the need to remove tissue surgically and there is no radiation exposure compared to using an x-ray to locate a lesion for biopsy. The physician places the ultrasound probe over the site of the breast lesion and, using local anesthesia, guides a biopsy needle directly into the lesion to take a tissue sample. Additionally, the WBU handheld probes will include an optional proprietary biopsy guidance tool to assist physicians in conducting accurate biopsies of identified areas of concern.

TIN. TIN is being developed to provide users of the WBU system with a suite of tools and applications to enhance the value and capabilities of the system over time. TIN is intended to provide users with a reliable and secure method of providing physicians, administrators, payers, and patients with timely access to their diagnostic studies and reports, while ensuring that all data is disclosed only to those with permissions to access it. TIN is anticipated to optimize the use of diagnostic information by healthcare providers by providing a common platform to store, archive, correlate, analyze and/or collaborate about cases, giving the physician ultimate control of their diagnostic process. TIN is also

Table of Contents

usexpected to ~~enhance~~allow ~~the~~healthcare ~~value~~professionals ofa ~~the~~flexible, ~~diagnostic~~fully ~~data~~customizable, ~~and~~environment ~~generate~~in ~~additional~~which ~~recurring~~they ~~revenues~~can bydevelop ~~selling~~and astore ~~library~~their ofown ~~aggregated~~data ~~information~~or ~~for~~access ~~volumetric~~anonymized ~~breast~~data ~~density,~~from ~~and~~ other ~~uniquely~~related ~~measured data such as speed and attenuation~~images.

WBU Handheld Probe. The WBU system is integrated with the Esaote top of the line handheld ultrasound system MyLab70XVG, which provides a complementary option for the physician. The MyLab 70 handheld system includes high frequency linear hand-held ultrasound probe developed by Esaote, which can be used for conducting area specific examinations using standard B-mode ultrasound. The handheld probes can be used for conducting area specific examinations and/or ultrasound-guided biopsies using standard B-mode ultrasound. After scanning the patient with the WBU system and localizing a suspicious lesion, the physician can ask the patient to roll over in order to perform handheld ultrasound procedures.

The ultrasound-guided biopsy procedure minimizes the need to remove tissue surgically and there is no radiation exposure compared to using an x-ray to locate a lesion for biopsy. The physician places the ultrasound probe over the site of the breast lesion and, using local anesthesia, guides a biopsy needle directly into the lesion to take a tissue sample. Additionally, the WBU handheld probes will include an optional, proprietary biopsy guidance tool to assist physicians to conduct accurate biopsies of identified areas of concern.

TIN. TIN is being developed to be able to provide users of the WBU system with a suite of tools and applications to enhance the value and capabilities of the system over time. TIN is intended to provide users with a reliable and secure method of providing physicians, administrators, payers, and patients with timely access to their diagnostic studies and reports, while ensuring that all data is disclosed only to those with permissions to access it. TIN is anticipated to optimize the use of diagnostic information by healthcare providers by providing a common platform to store, archive, correlate, analyze and/or collaborate about cases, giving the physician ultimate control of their diagnostic process. TIN is also expected to allow healthcare professionals a flexible, fully customizable, environment in which they can develop and store their own data or access anonymized data from other related images.

It is expected that TIN will be able to provide us with a recurring revenue stream, allowing us to charge for system use in the United States on a subscription basis, similar to the business model used by cell phones. We also plan to sell TIN as a subscription service in Europe through a third-party sales channel. TIN will be developed as an "open ended development system" that allows users, researchers, and other software developers to integrate their own applications through our network providing us with significant development resources and continuing access to new applications. It will allow them to archive and retrieve, compare images to other similar data sets, store their own images and diagnostic notes, collaborate with others, and correlate information with diagnostic results and outcomes.

Testing

WeThe ~~conducted laboratory testing to validate the speed and attenuation values produced by its inverse scattering technology; that is, the imaging algorithms that underlie the~~ WBU system. ~~The~~has ~~manufacturer's~~been ~~speed~~tested ~~and attenuation specifications~~ for ~~all~~algorithm ~~objects~~development, ~~within~~comparison ~~the phantom were reliably reproduced by our inverse scattering technology. The first in vivo testing was designed~~ to ~~assess~~other ~~the~~imaging ~~ability~~modalities ofsuch ~~the~~as ~~system~~handheld toultrasound ~~accurately~~and ~~image identifiable characteristics in the~~ breast ~~that~~MRI, ~~are~~understanding ~~visible~~how ~~in traditional mammography. The results showed that~~ the ~~WBU~~unique system ~~was~~characteristics ~~able~~fit tointo ~~reliably~~current ~~produce~~clinical ~~images~~practice, inand ~~which~~for ~~characteristics~~safety ~~(including~~testing ~~lesions)~~related ~~detectable~~to inUnited aStates ~~patient's~~and ~~mammogram were~~European ~~also~~regulatory ~~visible in the WBU image~~requirements. ~~Next~~The wetesting ~~designed a short series~~ of ~~tests to evaluate~~ the ~~reliability and repeatability of the WBU~~ system ~~over~~has aoccurred ~~period~~at ofdifferent ~~time~~testing ~~that~~facilities, ~~would~~on ~~encompass~~subjects ~~normally occurring~~both ~~physical~~with ~~changes.~~and ~~Results~~without ~~demonstrated~~benign ~~that~~and/or ~~the~~malignant ~~WBU~~breast ~~system~~findings, ~~images are consistent across repeated testing~~ and ~~are~~on ~~not~~a ~~significantly~~variety ~~affected~~of byphantom ~~common~~breast ~~physiological changes~~models.

Clinical Testing

Clinical testing is currently ongoing or planned at three locations:

•: University of California San Diego ("UCSD"), Moores Cancer Center;
•: The University of Freiberg Women's Clinic, Freiberg, Germany; and
•: Mayo Clinic ("Mayo"), Rochester, Minnesota.

Clinical testing—United States

In the United States, clinical testing is currently ongoing at UCSD and Mayo. The protocols for these sites are designed to provide us with a comprehensive set of clinical data that will support comparative evaluation of competitive technologies such as breast MRI and handheld ultrasound as well as evaluate the diagnostic value of the unique quantitative data sets obtained from transmission imaging. These clinical studies are being conducted under a grant from the National Institutes of Health—National Cancer Institute (NIH/NCI). There have been over 100 patients enrolled and scanned at UCSD under the current protocol.

Clinical Testing—Europe

Esaote has recently deployed a WBU imaging system to the University of Freiberg and clinical studies were started in the second half of 2009. The clinical strategy with this deployment is to perform additional testing at a clinical site as well as perform studies on a significant number of cancer patients to test the clinical utility and image quality of the system in this particular patient group. There have been over 50 patients scanned at Freiburg. Esaote is responsible for paying the costs associated with clinical studies in Freiburg under a European Market Development Agreement ("Market Agreement") including a planned system upgrade scheduled during 2011.

Table of Contents

~~To assess~~ ~~the~~Comparison ~~capability of the WBU system~~ to ~~differentiate cancerous from benign or normal tissue, we conducted a proof~~Hand-~~of-concept~~Held ~~test~~Ultrasound from which a predictive hypothesis could be developed from the unique characteristics of sound speed and attenuation, using 26 living volunteers. Results of biopsies were compared with the speed and attenuation values collected from the WBU system. Mean comparisons indicated higher attenuation values for malignant lesions than for benign abnormalities. ("HHUS")

~~Between October~~A ~~and~~preliminary ~~December~~study ~~2008,~~was 34conducted ~~women~~to ~~were~~compare ~~scanned~~HHUS atto the ~~Breast~~WBU ~~Care &~~system. ~~Imaging~~To ~~Center~~conduct ofthis ~~Orange County in Orange~~comparison, ~~California.~~a ~~The~~Gammex ~~results~~429 ofBreast ~~these~~Biopsy ~~studies were provided to~~Phantom ~~Esaote~~(www.gammex.com) ~~and~~was ~~also~~ used ~~for presenting representative case studies to physicians at the 2008 Radiological Society of North America meeting in Chicago, Illinois~~. The ~~valuable~~phantom ~~insights~~contained ~~gained from this deployment within a clinical diagnostic center were integrated into the production prototypes~~11 - 7mm, ~~which~~10mm ~~were~~and ~~deployed~~15mm tospheres ~~another~~containing ~~clinical~~either ~~investigation~~water ator ~~the~~low ~~University~~or ofhigh ~~San~~density ~~Diego, Moores Cancer Center in June 2009~~materials.

We used an experienced, independent ultrasound technician to perform an HHUS on the Gammex phantom. A WBU scan was also performed to compare lesion identification, size and location between HHUS and WBU. All 11 targets were identified on the HHUS and WBU, therefore, sensitivity was established at 100% for both methods.

For accuracy, comparison of target dimensions was completed and average error from the value given by the manufacturer was determined. Accuracy of the measurement test was 95% for the WBU and 85% for HHUS, and the difference was considered statistically significant.

Specificity was also calculated wherein both HHUS and WBU correctly located and identified all of the cysts (100% specificity for each). Specificity for mass density was 100% for WBU (using the speed data to determine density) and 72% for HHUS. We believe these results indicate that when the WBU speed of sound values are used, it is better than HHUS at determining the internal "structure" or "density" of a given mass.

WBU Bench Test Data

Bench testing of the WBU system has been performed as part of the FDA submission to show that it can identify and localize lesions and breast features in 3D. Recently, the FDA requested additional bench test data to provide supporting, quantitative evidence for the validity of the information content of the tomographic images produced by the WBU system.

In response to the FDA, a breast phantom was scanned using both WBU and MRI imaging modalities so that the accuracy of the WBU system could be demonstrated and the location and size of the lesions could be validated and compared statistically between the two imaging modalities.

An MRI was chosen as a comparison modality because it uses a similar scanning orientation as the WBU system and therefore images can be registered in all three planes with the WBU. MRI has also been validated for accurately identifying size and location of breast lesions and has been clinically validated and approved for breast imaging. Specifically, the purpose of the bench testing discussed in the FDA submission is not to compare the WBU and MRI image quality, but rather to validate the size and location of the lesions on the WBU system relative to the MRI. Current clinical testing will build on this data by providing a subset of patients who will be scanned with both WBU and MRI.

The results of the testing showed that the average lesion size for each plane of measurement was not statistically different between the MRI and WBU for any of the three planes. There were, however, differences between the MRI and WBU for individual lesion measurements, which was due to small intra-observer variability on both the MRI and WBU measurements. In contrast, the inter-observer variability between MRI and WBU measurements were similar. The largest difference in average measurement between the MRI and WBU for any individual lesion was 2.32 mm, with the majority of differences being less than 1 mm. We concluded that the data presented validate the ability of the WBU to accurately demonstrate lesion location and size, as well as consistent lesion characteristics, using MRI as a reference. Additionally, this validates the intended use of the WBU to produce 2D ultrasound image slices of the breast in a full 360 degree, tomographic view.

Table of Contents

Clinical Relevance Data for Regulatory Submissions

In the FDA submission that included the WBU, clinical data were contained that demonstrated the clinical utility and intended use of the WBU system. To demonstrate this, the clinical relevance report contained data from 15 representative WBU cases and their associated hand-held ultrasound images. Of the 15 cases, there were 5 simple cysts, 1 complex cyst, 5 benign masses, and 4 cancers. These images were believed to demonstrate the clinical relevance as well as substantial equivalence to the predicate device.

In February 2010, the FDA responded to our submission with a request for additional information. One of the questions focused on providing additional clinical information to support the intended use of the WBU system. To respond to this question, 34 consecutive cases from the Freiburg trial were reviewed to obtain 29 usable cases from a well-controlled clinical investigation. These images were presented, along with mammography images for the same patients and provided to the FDA in a response sent May 18, 2010.

Each patient in the Freiburg trial had a hand-held ultrasound performed while most also had a mammogram, followed by a WBU scan. The mammogram and hand-held ultrasound images were used to identify breast features and/or lesions. The WBU scan was then performed to provide 3D visualization of the entire breast and further identify breast features, consistent with its intended use.

Of the 34 consecutive cases reviewed, three patients did not undergo a mammogram and two patients were initially believed to meet the inclusion criteria, but were later determined to be outside the breast size criteria for the WBU scan. Thus, 29 cases were reviewed and were provided in the FDA submission, leaving 29 cases for review. Of the 29 consecutive cases, 10 patients had negative mammograms and of the 19 cases with mammographic findings, all but one patient had findings that were correlated with features visible on the WBU images. The images are believed to provide further validation of the intended use of the WBU component and substantial equivalence to the predicate device.

Marketing and Distribution

We expect to pursue marketing strategies aimed at both the general consumer and the clinical marketplace that are focused on the enhanced 3D, automated imaging capability of the WBU system. We intend to provide our product offerings to screening centers and hospitals, radiologists and physicians and technical personnel within the United States and Europe. We expect to do this by deploying systems to clinical sites supported by key opinion leaders and leveraging the clinical results, images and luminary testimonials to educate our target market and customer base about the scanner and patient benefits. This will be accomplished using an aggressive marketing campaign via presentations, hands-on workshops, professional society meetings, publications and targeted advertising. Our future success will be driven primarily by our ability to attract new customers, develop sustainable revenues and to continue to develop our product.

With a very well-identified customer base made up of centers licensed by the FDA under the MQSA and the leading cancer research and teaching facilities, we plan to build a core sales team as a direct sales force to market the WBU system to the MQSA licensed breast cancer screening centers. As of October 1, 2008, the FDA reported that there were 8,814 MQSA-certified mammography facilities in the United States with 12,813 accredited mammography units. To arrive at target areas, we developed a Buying Power Index ("BPI") that identifies geographical locations with the best opportunities for sales. The BPI is based on federal data available on the number of medical procedures per metropolitan area in the United States. Selecting mammography exams or breast ultrasounds, for example, and applying a ratio of the number of WBU systems to the number of exams will allow us to set quotas and maximize sales representative efforts.

We also partnered with Esaote to provide exclusive marketing and sales of the WBU system in Europe. Esaote's existing sales force will be used to introduce the WBU system into the EU market. Similar to the United States market strategy, the European market introduction strategy will focus on geographic areas with a higher than average use of ultrasound for breast cancer screening and diagnosis. 11

We plan to have an initial phase clinical release of the current prototype WBU system by the end of the first quarter 2010 with a pre-commercial release phase between the second and third quarter of 2010 and the final phase commercial release in the first quarter of 2011.

Currently six prototypes of the WBU imaging system are in use. Two of the prototypes are being used for advanced development testing at the UCSD Moores Cancer Center in San Diego, California and the Mayo Breast Cancer Clinic in Rochester, Minnesota under our Fast Track Small Business Innovation Research Grant. The third clinical system is located at the University of Freiberg in Freiberg, Germany. The three others are all being used as development systems; one at Esaote's main production facility in Genoa and the two remaining systems are at our offices in Salt Lake City, Utah. The current prototype systems now in use will form the basis of the clinical testing program for the next six to eight months and possibly longer. These systems will provide us with valuable data about

Table of Contents

~~potential~~ Even ~~methods~~though ~~for~~our ~~improving~~target ~~image~~market ~~quality~~is ~~and~~MQSA ~~other~~licensed ~~key~~breast ~~design~~cancer ~~elements~~screening incenters, ~~next~~there ~~generation~~are ~~systems.~~several ~~These~~segments ~~systems include all~~ of the ~~features~~overall ~~and~~market ~~capabilities~~that ofwe ~~the~~will ~~pre-commercial release~~have ~~systems~~to ~~but~~address in aorder ~~first~~to ~~generation~~effectively market ~~form.~~the WBU system, including:

•: screening centers and hospitals;
•: radiologists;
•: physicians and technical personnel; and
•: patients.

~~Preliminary~~Overall ~~compliance~~market ~~testing~~penetration ~~for~~will CEdepend ~~Marketing requirements was carried out at a certified test facility~~ on ~~one~~our ofability ~~the clinical release prototype systems~~ to ~~determine~~market ~~if design changes would be needed in order to meet~~ the ~~requirements necessary for CE mark certification. There were 11~~ key ~~tests~~advantages ~~carried out and the system passed nine in its current configuration. Two~~ of the ~~tests, static~~WBU ~~discharge~~system; ~~susceptibility and radiated emissions~~namely, ~~require~~improved ~~design~~diagnostic ~~modifications~~confidence toin ~~bring~~ the ~~system~~management ~~into~~of ~~compliance.~~breast ~~These~~disease ~~changes are now underway and are expected to be completed in time to~~by ~~support~~providing: ~~the proposed development schedule.~~

•: Three-dimensional tomographic images of the breast;
•: Images that are developed automatically, largely independent of operator skill;
•: Non-invasive, safe and comfortable images of the entire breast; and
•: Point-of-care imaging that improves patient flow and quality of care.

During the first eight months of 2010, during the pre-commercial release, we expect that some minor design changes will be integrated into the system that will be designed to improve performance and image quality which will be the result of several short duration design projects. We expect that these changes will have a positive effect on image quality and breast coverage near the chest wall, patient comfort, CE compliance, system flexibility, image generation time, and address any other issues related to overall system performance and reliability which have been identified through the testing discussed in the previous section.

The first step in the development plan for TIN will be to develop a protocol for gathering information for later use in comparing and correlating image data with diagnostic results. To accomplish this, we intend to utilize the prototype systems at our three current clinical installations to test the protocol for inputting the clinical data, storing and retrieving images and other clinical data, and checking scan status of each system. The pre-commercial release of the subscription software will begin to implement the addition of users and analytical feature sets for users to use with image data sets. This phase will integrate user input from the clinical sites and will be deployed through the initial installations of the WBU systems.

We plan to enter the United States market by the fourth quarter of 2010 with our first product, the WBU system, during the commercial release phase. The output of the pre-production development program will be WBU systems ready for installation at various user sites. Eight units are planned to be built by manufacturing, with six shippable at the conclusion of pre-commercial release phase. We expect that Esaote personnel will participate in all phases of the development of the commercial release of the product including the transfer to manufacturing of the documentation necessary to produce the systems in its facility. We believe that market penetration will be dependent on key advantages of the WBU system; namely, improved diagnostic confidence in the management of breast disease by providing:

The WBU system has been designed to join the suite of existing diagnostic and other imaging technologies currently used between a screening mammogram and biopsy. While other imaging modalities provide one or more of the benefits noted above, we believe that only the WBU system offers all of these benefits in one system.

~~While~~We ~~the~~partnered ~~target~~with ~~market~~Esaote ~~described~~to ~~above~~provide isexclusive ~~narrowly~~marketing ~~defined,~~and ~~there~~sales ~~are~~of ~~several~~the ~~segments~~WBU ofsystem ~~the~~in ~~overall~~Europe. ~~market~~Esaote's ~~that~~existing wesales force will ~~have~~be used to ~~address~~introduce inthe ~~order~~WBU system into the EU market. Similar to the ~~effectively~~United States market strategy, the ~~WBU~~European ~~system. They~~market ~~include:~~introduction strategy will focus on geographic areas with a higher than average use of ultrasound for breast cancer screening and diagnosis.

11 We partnered with Womens3D, under a PDA, to develop and manufacture a lower cost version of the WBU system ("Pre-Production System"). Womens3D will be responsible for marketing, sales, and service of the Pre-Production Systems to providers of women's healthcare services and products in the United States and certain countries within the Middle East who perform breast imaging, other than providers (1) registered with and/or licensed by the FDA that derive at least 51% of their annual revenue from breast cancer screening and diagnostic imaging under the MQSA; and (2) that derive a material portion of their annual revenue from cosmetic surgery involving breast implants.

We also entered into (1) a Manufacturing Agreement governing manufacturing of the products developed pursuant to the PDA; (2) a Trademark and Copyright License Agreement (the "Trademark Agreement") governing each party's respective use of the other party's marks and copyrights; and (3) a Subscription Agreement pursuant to which Womens3D issued 200,000 shares of its common stock to us in an amount equal to 20% of the fully diluted equity of Womens3D. Pursuant to the PDA, we agreed to design, jointly with Womens3D, and develop ultrasound products (the "Product(s)") for sale by Womens3D to providers of women's healthcare services and products in the United States and certain countries within the Middle East (collectively, the Territory") who perform breast imaging, other than providers (1) registered with and/or licensed by the FDA that derive at least fifty-one percent (51%) of their annual revenue from breast cancer screening and diagnostic imaging under the MQSA; and (2) that derive a material portion of their annual revenue from cosmetic surgery involving breast implants ("Field of Use").

Subject to the terms and conditions of the Manufacturing Agreement, we will be the exclusive manufacturer and supplier of the Product to Womens3D and Womens3D cannot promote, market, distribute, offer to sell or sell in or outside the Territory any products of any party other than those provided by us that enable a person to compete with the Product(s) or the other technology to be

Table of Contents

~~The~~developed ~~WBU scanner has been designed in a modular fashion and includes off-the-shelf purchased items, piece parts designed and controlled~~ by ~~our~~us ~~drawings~~ and ~~schematics,~~ ~~and~~incorporated ~~several~~into ~~mechanical and electro-mechanical sub-assemblies. The modular design of~~ the ~~product~~Product ~~allows for flexibility for~~ (the ~~manufacture~~"Product ~~and~~Technology") ~~service~~within of the ~~scanner. As~~Field ~~part~~ of ~~our~~Use; ~~manufacturing~~provided, ~~strategy~~however, weafter ~~plan~~termination toof ~~outsource~~ the ~~production~~Manufacturing ~~build~~Agreement, ~~and~~Womens3D ~~functional~~is ~~test~~entitled ofto manufacture the ~~WBU~~Products ~~scanner~~itself toor ahave ~~qualified~~the ~~original~~Products ~~equipment~~manufactured ~~manufacturing~~for ~~("OEM")~~Womens3D ~~supplier~~by ofa ~~high technology~~third ~~medical equipment~~party. The ~~OEM~~Manufacturing ~~supplier~~Agreement ~~identified~~has toan ~~build~~initial ~~the~~term ~~scanner~~of ~~will~~five ~~have~~years ~~regulatory~~with ~~certifications~~automatic ~~for~~successive ~~both~~one ~~European~~year renewals, ~~and~~unless ~~domestic~~either ~~production~~party ~~and~~provides ~~will~~notice ~~be capable~~ of ~~building~~its ~~and~~intent ~~testing complex~~to ~~medical~~cancel ~~devices.~~90 days ~~Currently~~prior ~~we are working together with Esaote~~ to ~~identify~~ the ~~process~~end ~~by which Esaote will become the primary manufacturer~~ of the ~~system.~~applicable ~~The~~term ~~initial agreement has been laid out in a letter of intent, as described below~~("Term").

WeIn ~~expect~~connection ~~that~~with athe ~~production~~Manufacturing ~~run~~Agreement, and based on Womens3D's commitment to purchase not less than $10 million of ~~six~~Products during the 36-month period commencing upon FDA approval of the Product (the "Sales Commitment"), we granted Womens3D the non-exclusive right and license to ~~eight~~promote, ~~scanners~~market, ~~will~~distribute, beoffer ~~assembled~~to sell, sell and support ~~tested~~the asProducts ~~our~~in ~~first~~the ~~lot~~Territory in the Field of ~~initial~~Use ~~systems~~during the Term (the "License"). ~~These~~Upon payment ~~systems~~of a minimum of $1.5 million in connection with our initial design and development of the Product (the "Initial Development Fee"), and so long as Womens3D has satisfied its Sales Commitment for the applicable calendar year and is not in breach of the Manufacturing Agreement, the License will be ~~built~~royalty-free ~~jointly~~and exclusive during the Term. If the Manufacturing Agreement is terminated by ~~both~~Womens3D due to a breach by us, and ~~our~~Womens3D ~~OEM supplier~~has paid the Initial Development Fee, ~~using~~the aLicense ~~combination~~shall ofcontinue ~~both~~following ~~Company~~the ~~resources~~end of the Term and ~~vendors.~~shall ~~After~~be exclusive for a period of seven years from the ~~initial~~date ~~system~~of ~~production~~such ~~run~~termination. Furthermore, if the PDA is ~~completed~~terminated because a competitor of Womens3D acquires us, then the ~~OEM~~License ~~supplier~~shall ~~should~~continue ~~have~~following the ~~skill~~end of the Term; provided, ~~knowledge~~however, ~~and~~the ~~expertise~~License toshall ~~build~~become ~~all future~~exclusive ~~production~~if ~~requirements~~Womens3D pays the Initial Development Fee within 12 months from the date of such termination.

InWomens3D ~~February~~may ~~2008,~~terminate wethe ~~entered~~Manufacturing ~~into~~Agreement anwith ~~Original~~90 days ~~Equipment~~prior ~~Manufacturing~~written ~~Agreement~~notice ~~and~~if ~~Engineering~~Womens3D ~~Support~~reasonably ~~Agreement~~determines ~~with~~that ~~Esaote,~~it ~~supplemented~~can bymanufacture the ~~Supplement~~Product ~~Number~~or ~~One~~have tothe ~~Original~~Product ~~Equipment~~manufactured ~~Manufacturing Agreement~~ and ~~Engineering~~delivered ~~Support~~to ~~Agreement,~~Womens3D ~~dated~~ in ~~December~~substantially ~~2009,~~the ~~whereby~~same ~~Esaote~~quality isfor ~~providing~~a ~~engineering~~price ~~and~~that ~~design~~is ~~support~~at ~~and~~least ~~original~~20% ~~equipment~~below ~~manufacturing~~the ~~prototype equipment~~as-delivered ~~and~~price ~~supplies~~Womens3D tois then paying us. Infor ~~addition,~~the inProduct ~~February~~so ~~2008,~~long weas Womens3D ~~entered~~takes ~~into~~delivery aof ~~Distribution~~any ~~Agreement~~binding ~~with~~purchase ~~Esaote~~orders ~~and~~issued in ~~October~~accordance ~~2008,~~with wethe ~~entered~~terms ~~into~~of athe ~~European~~Manufacturing ~~Marketing Development~~ Agreement. ~~with Esaote,~~Womens3D ~~whereby~~may ~~Esaote~~also isterminate ~~assisting~~the usManufacturing ~~with~~Agreement ~~completion~~for ofany ~~the~~reason ~~regulatory~~with 90 days ~~approval~~prior ~~process~~written innotice ~~Europe,~~once ~~and~~it ishas ~~appointed~~paid tothe ~~exclusively~~Initial ~~promote,~~Development ~~market,~~Fee. ~~sell~~If ~~and~~Womens3D ~~distribute~~terminates the ~~WBU~~Manufacturing ~~system~~Agreement infor ~~the~~any ~~European Union~~reason, ~~Switzerland, Norway, Ukraine~~ and ~~the CIS~~ (~~Russian~~1) it ~~Federation~~is ofnot ~~related~~in ~~countries).~~breach ~~In December 2009~~thereof, (2) it wehas ~~entered~~paid ~~into~~the aInitial ~~Letter~~Development ofFee, ~~Intent~~and ~~with~~(3) we ~~Esaote,~~have inbeen ~~connection~~offered ~~with~~ a ~~production~~reasonable ~~and~~opportunity ~~supply agreement~~to ~~between~~match ~~us and Esaote concerning~~ the ~~manufacturing~~pricing of(and ~~the~~any ~~WBU~~revised ~~system.~~pricing Weon doterms ~~not~~materially ~~expect~~more favorable to ~~negotiate~~ the manufacturer) ~~supply~~of ~~agreement~~any ~~until~~replacement ~~June~~manufacturer ~~2010~~of at the ~~earliest~~Products, ~~and~~the ifLicense ~~agreed~~shall ~~upon,~~continue wefollowing ~~expect to execute~~ the ~~agreement~~end onof orthe ~~before October 1, 2010~~Term.

Subject to the issuance of a binding purchase order and forecasts in accordance with the terms of the Manufacturing Agreement, Womens3D also has the right to purchase up to 30 units of our existing automated ultrasound imaging equipment including the accompanying object code version of software (the "Pre-Existing Equipment") at our then current list price, which units shall count towards the $10 million of Products to be purchased under the Sales Commitment. The Pre-Existing Equipment is noncommercial equipment and Womens3D is restricted to using such Pre-Existing Equipment only for lab, experimental and clinical trials testing solely in the United States and solely within the Field of Use.

If we terminate the Manufacturing Agreement due to a breach by Womens3D, Womens3D owes us the lesser of the amount of: (1) the Tooling and Set-Up Costs which Womens3D has not reimbursed or paid to us or a third party, or (2) the amount not yet paid to date to satisfy the Initial Development Fee. As used herein, "Tooling and Set-Up Costs" means the following costs and expenses incurred by us in connection with the development, testing or manufacture of the Products to the extent not included in the Initial Development Fee: (i) the actual out-of-pocket cost of all tools, fixtures, moulds, materials, cases and other tooling items acquired by us not otherwise paid for or reimbursed by Womens3D, (ii) all direct labor and overhead costs for such direct labor at the Defense Contract Audit Agency rates, and (iii) all other out-of-pocket costs and expenses incurred by us in connection with the development, testing or manufacture of the Products not otherwise paid for or reimbursed by Womens3D. Any disputes related to the Manufacturing Agreement are to be settled by arbitration.

Table of Contents

Under the Trademark Agreement Womens3D granted us a limited, irrevocable (subject to the termination provisions of the Trademark Agreement), non-exclusive, nontransferrable, non-sublicensable (except to subcontractors and sub-manufacturers permitted by the PDA or the Manufacturing Agreement), royalty-free license to use the Womens3D trademarks set forth in the agreement on and in connection with the design, development, manufacture and/or distribution of the Products. The license granted to us continues for so long as (1) we are Womens3D's sole manufacturer and supplier in accordance with the Manufacturing Agreement, (2) we are manufacturing and supplying Womens3D with Products, or (3) we have a license to certain pre-existing Womens3D technology under the PDA. Under the terms of the Trademark Agreement, we also granted Womens3D a limited, irrevocable (subject to the termination provisions of the Trademark Agreement), non-exclusive, non-transferrable, non-sublicensable (except to subcontractors and sub-manufacturers permitted by the PDA or the Manufacturing Agreement), royalty-free license to use our trademarks and certain collateral materials set forth in the agreement on and in connection with the promotion, marketing, distribution and/or sale of Products ordered by Womens3D, subject to (1) the Specifications (as defined in the PDA) or our prior written approval, and (2) our marketing and trademark guidelines and in accordance with applicable trademark law. The term of the licenses granted under the Trademark Agreement continue until expiration or termination of the last to expire or terminate of the PDA and the Manufacturing Agreement, unless terminated earlier in accordance with the terms set forth in the Trademark Agreement.

Under the Subscription Agreement, we cannot transfer the common stock from Womens3D, without Womens3D written approval, unless six months have elapsed since we incurred a change in control and Womens3D did not repurchase the Shares. The transfer restrictions terminate if Womens3D consummates an underwritten initial public offering of its common stock with gross proceeds of at least $35 million. Furthermore, at any time after payment in full of the Initial Development Fee, or a change in control of us or a termination of the PDA for any reason other than for material breach of the PDA by Womens3D, Womens3D shall have the right to repurchase the Shares for "fair value" (based on the methodology for determining "fair value" set forth in the PDA).

We currently have six prototypes of the WBU system: One prototype is being used for advanced development testing at the UCSD Moores Cancer Center in San Diego, California. Another prototype is being used at the Mayo Breast Cancer Clinic in Rochester, Minnesota under our Fast Track Small Business Innovation Research Grant. A third prototype is being used at the University of Freiburg in Freiburg, Germany. These three prototypes will form the basis of the clinical testing program for the next six to 12 months, and possibly longer, and will provide us with valuable data about potential methods for improving image quality and other key design elements in next generation systems. These three prototypes include all of the features and capabilities of our planned Pre-Production System.

The other three prototypes are being used as development systems; one by Esaote, at its main production facility in Genoa, Italy and two at our offices in Salt Lake City, Utah. One of our two prototypes is being used to develop the Pre-Production System for Womens3D. The other prototype is being used for preliminary compliance testing for CE marking requirements to determine if design changes are needed in order to meet the requirements necessary for CE mark certification. There are 11 key tests and the prototype passed nine in its current configuration. Two of the tests, static discharge susceptibility and radiated emissions, require design modifications to bring the prototype into compliance for CE mark certification. These changes are now underway and are expected to be completed during the 2^nd quarter of 2011.

We also expect to make other minor design changes to the current prototypes in connection with our development of the Pre-Production System, which will be integrated into the production version of the WBU system. These design changes should have a positive effect on image quality and breast coverage near the chest wall, patient comfort, CE mark certification, system flexibility, and image

Table of Contents

generation time. The changes also address other issues related to the overall performance and reliability of the WBU system.

The first step in the development plan for TIN will be to develop a protocol for gathering information for later use in comparing and correlating image data with diagnostic results. To accomplish this, we intend to utilize the prototypes at the three current clinical installations to test the protocol for inputting the clinical data, storing and retrieving images and other clinical data, and checking scan status of each system. The software included in the Pre-Production Systems will enable users to analyze multiple image data sets, including data obtained from the three prototypes used at the clinical sites.

The WBU system has been designed in a modular fashion and includes off-the-shelf purchased items, piece parts designed and controlled by our drawings and schematics, and several mechanical and electro-mechanical sub-assemblies. The modular design allows for flexibility in manufacturing and servicing the WBU system. As part of our manufacturing strategy, we plan to eventually outsource all production and functional testing of the WBU system to a qualified original equipment manufacturer ("OEM") of high technology medical equipment.

We plan to enter the United States market in the first half of 2012 with up to six Pre-Production Systems, and another two to nine Pre-Production Systems in the second half of 2012. The Pre-Production Systems will be assembled and tested jointly by us and our OEM supplier, using both of our resources and vendors. Upon completing the assembly and testing of the Pre-Production Systems, the OEM supplier should have the skill, knowledge and expertise to assemble and test all future production requirements of the WBU system. The OEM supplier identified to assemble and test the WBU systems will have regulatory certifications for both European and domestic production, and will be capable of assembling and testing complex medical devices. We expect that Esaote personnel will participate in all phases of the development of the commercial release of the product, including the transfer to manufacturing of the documentation necessary to produce the systems in its facility.

Currently, we are working with Esaote to identify the process by which Esaote will become OEM supplier of the WBU system. In February 2008, we entered into an Original Equipment Manufacturing Agreement and Engineering Support Agreement with Esaote ("Esaote OEM Agreement"), supplemented by Supplement Number One to the Esaote OEM Agreement dated December 2, 2009 ("Supplement One") and Supplement Number Two to the Esaote OEM Agreement dated September 2, 2010 ("Supplement Two"). In addition, in February 2008, we entered into a Distribution Agreement with Esaote ("Distribution Agreement") and in October 2008, we entered into a Market Agreement with Esaote. On December 2, 2009, we entered into a non-binding Manufacturing Letter of Intent with Esaote dated November 12, 2009 ("Letter of Intent"). See "Certain Relationships and Related Party Transactions—Transactions with Related Persons—Esaote" for a discussion of the agreements we have entered into with Esaote.

Third-Party Reimbursement

We believe that adequate third-party reimbursement arrangements will be essential to achieving commercial acceptance of the WBU system. in the United States. We plan to sell the WBU system primarily to screening centers, clinics, hospitals and other medical institutions that bill various third-party payers, such as Medicare, Medicaid, other government programs and private insurance plans, for the health care services provided to their patients for using our product. Additionally, managed care organizations and insurance companies directly pay for services provided to their patients. Four potential reimbursement codes can be utilized to obtain reimbursement from third-party insurance or Medicare for a WBU scan. However, there is no code that specifically describes the testing and scan of the WBU system and certain codes have lower reimbursement rates than others. Ultimately, the correct coding for any procedure is a decision made by the medical provider and the payer reimbursing for the procedure. Medical reimbursement rates are unpredictable, and we cannot project the extent to which our business may be affected by future legislative and regulatory developments, including by reducing reimbursement rates.

1215

Table of Contents

procedure. Medical reimbursement rates are unpredictable, and we cannot project the extent to which our business may be affected by future legislative and regulatory developments, including a reduction in reimbursement rates.

Competition

We believe that established product lines, FDA clearance, know-how and reputation in the industry are key competitive factors in the market for breast specific ultrasound. Additionally, although there is a recognized need for a system that supplements the sensitivity of mammography with a greater specificity, the vast majority of practices today still use a second mammogram or reflective ultrasound for the diagnostic exam. As such, we believe our device, which fits into this somewhat unique market segment, is likely to compete for capital dollars with both mammography and biopsy. We also expect to compete directly with conventional ultrasound systems, including high definition ultrasound systems, and other new entrants into this unique market segment.

Currently, mammography is widely used and we expect that sales of the WBU system will, in large part, be dependent on our ability to demonstrate the clinical utility of the WBU system. We believe our primary competitors are likely to be those firms that dominate the current market for mammography equipment including both film and full-field digital mammography units. These large medical products companies offer current technologies (mammography and ultrasound) that are widely used in the industry. These companies could also serve as potential partners for us if and when the WBU system is approved for sale in the United States.

The market for breast specific ultrasound is difficult to assess since most general-purpose ultrasound devices can be used for breast exams. The competition for developing a commercial device utilizing ultrasound is difficult to ascertain given the proprietary nature of the technology and the fact that, to our knowledge, there is no device that serves this specific market. There are a number of academic institutions involved in various areas of research involving high definition ultrasound and other methods that may provide information about tissue properties. Other companies are engaged in developing products to detect and aid in the diagnosis of breast cancer using various technologies. Some of these companies have already commenced FDA clinical testing and will release their products ahead of ours.

We believe that within this specific breast cancer imaging segment of the medical imaging market, the primary competitive factors are technological innovation, image quality, and reliability. We believe that our technological expertise provides us with a competitive advantage. We believe that inverse scattering imaging is the only ultrasound imaging method that is capable of making quantitative, high-spatial resolution images of acoustical tissue properties. Utilizing our proprietary inverse scattering algorithms, we have achieved fast imaging speeds, provided higher spatial and contrast resolutions, and have used a higher number of independent imaging parameters for diagnosis than currently available screening methods in our informal testing. We expect our patent protection for inverse scattering to create a significant barrier to entry for competing technologies.

Intellectual Property

We currently have ~~six~~eight patents that were primarily invented by our founders and employees.

In addition, we have ~~eight~~seven U.S. patents pending, ~~two~~one U.S. application allowed, ~~two provisional patents~~ and ~~two~~four pending foreign applications. Some of the inventors listed on the patents are our current ~~officers~~ officers and directors and some are previous directors. All of these inventors have assigned their rights in the patents to us except for the University of Utah, which has granted to us an exclusive, irrevocable and permanent world-wide license to the intellectual property, pursuant to an Amended and Restated License Agreement, dated January 10, 2002. Pursuant to the agreement, the University of Utah received stock in TechniScan Utah in lieu of a right to a royalty payment. Notwithstanding the license from the University of Utah, most of the intellectual property developed by us since 1984, and particularly in the last five years, has been developed independently of the University of Utah and is not subject to the Amended and Restated License Agreement. To date, we have not engaged in any litigation or other

1316

Table of Contents

~~proceedings~~University of Utah, most of the intellectual property developed by us since 1984, and particularly in the last five years, has been developed independently of the University of Utah and is not subject to the Amended and Restated License Agreement. To date, we have not engaged in any litigation or other proceedings challenging the scope or application of any of our patents, nor have we contested any patent filing by another party.

Our patent rights, proprietary know-how, and similar intellectual property are material to our competitive position. We plan to use reasonable efforts to safeguard this intellectual property against piracy or infringement. We enter into confidentiality and intellectual property agreements with our employees. These agreements generally provide that all innovations, ideas, discoveries, improvements and copyrightable material made or conceived by the individual arising out of the employment or consulting relationship and all confidential information developed or made known to the individual during the term of the relationship will be our property.

In addition to our patents, we have a registered trademark in the United States for "TechniScan Medical Systems." We conduct business with trademarks of SVARA Warm Bath Ultrasound imaging system, SVARA, Whole Breast Ultrasound system and WBU. At this time we have not applied for registration of these marks.

Government Regulation

~~United~~ ~~States Regulation. The FDA has regulatory authority over the design processes, testing, manufacturing, and commercial distribution of medical devices in the~~ United States. Because the WBU system is a medical device, it is subject to the relevant provisions of the Federal Food, Drug and Cosmetic Act ("FD&C Act") and its implementing regulations. Pursuant to the FD&C Act, the FDA regulates, among other things, the manufacture, labeling, distribution, and promotion of the WBU system in the United States. The FD&C Act requires that a medical device must (unless specifically exempted by regulation) be cleared or approved by the FDA through either a 510(k) clearance or pre-marketing approval before being commercially distributed in the United States. The FD&C Act also requires that manufacturers of medical devices comply with specific labeling and manufacturing requirements and manufacture devices in accordance with Current Good Manufacturing Processes ("CGMP") set forth in 21C.F.R. Part 820. CGMP requires, among other things, that companies manufacture their products and maintain related documentation in a conformed manner with respect to manufacturing, testing, and quality control activities. The FDA inspects medical device manufacturers and has broad authority to order recalls of medical devices, to seize non-complying medical devices, to enjoin and/or impose civil penalties, and to criminally prosecute violators. Regulation

~~A 510(k)~~The ~~application~~FDA tohas ~~the~~regulatory ~~FDA~~authority ~~for~~over the ~~WBU~~design ~~system~~processes, ~~was submitted on May 11~~testing, ~~2009 by InterTek~~manufacturing, inand ~~behalf~~commercial distribution of ~~Esaote~~medical ~~through~~devices in the ~~third-party~~United ~~review process~~States. OnBecause ~~August 13, 2009,~~the ~~InterTek~~WBU ~~forwarded~~system ~~our~~is ~~application~~a tomedical ~~the~~device, ~~FDA~~it ~~with~~is asubject ~~recommendation~~to ~~for~~the anrelevant SEprovisions ~~finding.~~of ~~The~~the ~~FDA~~Federal ~~responded~~Food, toDrug ~~our~~and ~~application~~Cosmetic ~~with~~Act a("FD&C ~~request~~Act") ~~for~~and ~~additional~~its ~~clinical~~implementing ~~information~~regulations. Pursuant ~~Since~~to the ~~third-party~~ ~~review~~FD&C ~~program does not provide for a review of clinical data~~Act, the FDA ~~further~~regulates, ~~requested~~among ~~that~~other ~~the~~things, ~~third party submission be withdrawn and resubmitted directly to~~ the ~~FDA.~~manufacture, ~~On November 25~~labeling, ~~2009~~distribution, weand ~~submitted~~promotion aof ~~510(k) application to~~ the ~~FDA for the~~ WBU system ~~that included clinical data~~ in ~~support of~~ the ~~application~~United States. The ~~submission~~FD&C ~~again~~Act ~~was~~requires ~~made~~that bya ~~Esaote~~medical device onmust ~~our~~(unless ~~behalf,~~specifically ~~using~~exempted ~~the~~by ~~Anson Group as the 510(k~~regulation) ~~preparation~~ ~~consultant.~~be Incleared ~~February~~or ~~2010,~~approved by the FDA ~~provided~~through ~~Esaote~~either ~~with~~a an510(k) ~~informal~~clearance ~~communication~~or ~~request~~PMA ~~for~~before ~~additional~~being ~~data~~commercially todistributed ~~clarify~~in the ~~submission~~United ~~and~~States. ~~provide~~The ~~additional~~FD&C Act ~~clinical~~also ~~data~~requires inthat ~~support~~ manufacturers of ~~the~~medical ~~submission.~~devices ~~This~~comply ~~response~~with isspecific ~~now~~labeling inand ~~process~~manufacturing requirements and ismanufacture ~~expected~~devices toin beaccordance ~~completed~~with ~~before~~Current ~~the~~Good ~~end~~Manufacturing ofProcesses ("CGMP") ~~the~~set ~~first~~forth ~~quarter~~in of21C.F.R. ~~2010~~Part 820. ~~Based~~CGMP onrequires, ~~the~~among ~~timing~~other ~~of our current response~~things, ~~we anticipate~~ that ~~the~~companies ~~FDA will~~manufacture ~~issue~~their aproducts ~~final~~and ~~ruling~~maintain onrelated ~~our~~documentation ~~application for the WBU system sometime during~~ in ~~the~~a ~~third~~conformed ~~quarter~~manner ofwith ~~2010.~~respect Ifto manufacturing, ~~we receive an SE finding by the FDA~~testing, ~~the~~and ~~510(k)~~quality ~~approval~~control byactivities. ~~the~~The FDA ~~will~~inspects bemedical ~~issued~~device ~~in the~~manufacturers ~~name of Esaote,~~ and ~~Esaote~~has ~~under~~broad ~~our~~authority ~~manufacturing~~to ~~agreement~~order ~~will~~recalls ~~either~~of ~~assign~~medical ~~the~~devices, ~~510(k)~~to ~~approval~~seize ~~for~~non-complying medical ~~product~~devices, to usenjoin and/or ~~finalize~~impose ~~plans~~civil topenalties, ~~become~~and ~~the~~to ~~manufacturer~~criminally ~~for~~prosecute ~~both Europe and the United States~~violators.

~~The~~A ~~federal~~510(k) ~~Anti-Kickback~~application ~~Statute~~to ~~prohibits~~the ~~persons~~FDA ~~from~~for ~~knowingly~~the ~~and~~WBU ~~willfully~~system ~~soliciting~~was submitted on May 11, ~~offering~~2009 to InterTek, ~~receiving~~a orqualified ~~providing~~FDA ~~remuneration~~third-party reviewer, on our behalf by Esaote. On August 13, 2009, InterTek forwarded our application to the FDA with a recommendation for an SE finding. The FDA responded to our application with a request for additional clinical information. Since the third-party review program does not provide for a review of clinical data, the FDA further requested that the third-party submission be withdrawn and resubmitted directly orto ~~indirectly~~the FDA. On November 25, 2009, we submitted a 510(k) application to the FDA for the WBU system that included clinical data in support of the ~~exchange~~application. The submission again was made by Esaote on our behalf, using The Anson Group as the 510(k) preparation consultant. In February 2010, the FDA provided Esaote with another request for additional ordata to ~~induce~~clarify ~~either~~the submission and provide additional clinical data in support of the submission. The response was made by Esaote on our behalf on May 18, 2010.

14 On August 9, 2010, we were notified by Esaote that the FDA had issued a finding for the MyLab70-XVG Whole Breast Ultrasound Model 6100. The FDA determined that the clinical data submitted was not adequate to show that the subject device is SE to the predicate device designated in

Table of Contents

the ~~referral~~submission ofdocuments. anIn ~~individual,~~light orof ~~the~~this ~~furnishing or arranging for a good or service~~determination, ~~for~~the ~~which~~subject ~~payment~~device ~~may~~was beautomatically ~~made~~classified ~~under~~as a ~~federal~~Class III ~~healthcare~~device ~~program such as the Medicare~~ and ~~Medicaid~~therefore ~~programs. Several~~subject ~~courts have interpreted the statute's intent requirement~~ to ~~mean~~an ~~that~~approved ifPMA ~~any~~or ~~one purpose of~~ an ~~arrangement~~additional ~~involving remuneration is to induce referrals of federal healthcare covered business,~~510(k) ~~the~~submission ~~statute~~supported ~~has~~by ~~been~~clinical ~~violated.~~case ~~The~~studies ~~Anti-Kickback~~prior ~~Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Many states have also adopted laws similar~~ to ~~the~~legally ~~federal~~marketing ~~Anti-Kickback Statute, some of which apply to~~ the ~~referral~~device ofin ~~patients for healthcare items or services reimbursed by any source, not only~~ the ~~Medicare~~United ~~and Medicaid programs~~States.

We believe that the FDA review did not consider the proposed Indications for Use and Intended Clinical Use that were clearly stated in the submission. The proposed Indications for Use and Intended Use of the WBU component are similar to the predicate iVU Sofia device and the Intended Use clearly delineates the intent of the WBU component to provide 3D localization of breast lesions and features. However, in the FDA's determination letter, the WBU image quality was compared to mammography, without consideration for the stated intent of the WBU component images. The FDA noted in its letter that in only 4 of the 34 cases could a lesion be clearly observed in the WBU images with confidence. This is in direct contrast to our own findings, where trained readers found all of the subject lesions, indicating that there is a disparity in the ability of the FDA reviewers to interpret the tissue characteristics and features of the WBU images. The FDA also indicated that the WBU component cannot distinguish between benign and cancerous masses, which is the reported "standard of care" for handheld ultrasound. While this statement is not disputed, an important consideration is the fact that only one handheld ultrasound system is known to actually be cleared for distinguishing cystic from solid lesions. Handheld breast ultrasound systems are generally cleared for small parts imaging with no declaration of being able to distinguish cysts from solid masses. Additionally, there was no acknowledgement from the FDA that the subject device actually includes a handheld component that meets this standard of care for handheld breast imaging.

After careful consideration of the deficiencies noted by the FDA and evaluating the data which support our belief that they did not fully consider the indications and intent of the subject device, we intend to file a 510(k) or PMA that includes both the reflection and transmission properties of the WBU by the first quarter of 2012. It is our belief that the current performance of the WBU systems already installed at clinical sites in the United States and Europe is sufficient to demonstrate that WBU performs at a level that will allow a large scale clinical evaluation of WBU by a number of radiologists who are trained to evaluate our images. In our in-house evaluations, trained readers are able to distinguish solid from cystic lesions 100% of the time when both reflection and transmission images are used in the evaluation.

The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs. Several courts have interpreted the statute's intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Many states have also adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs.

The Federal False Claims Act prohibits persons from knowingly filing or causing to be filed a false claim to, or the knowing use of false statements to obtain payment from, the federal government. Various states have also enacted laws modeled after the Federal False Claims Act.

In addition to the laws described above, the Health Insurance Portability and Accountability Act of 1996 created two new federal crimes: healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

Foreign Regulation. Sales of medical devices outside of the United States are subject to foreign regulatory requirements that vary widely from country to country. The time required to obtain approval for sale in foreign countries may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ. In order to sell our products within the European Union ("EU"), companies are required to achieve compliance with requirements of the European Union Medical Device Directive and affix a "CE" marking on their products to attest such compliance. The "CE" mark is a mandatory conforming mark on many products marketed in the EU. It certifies that a product has met EU consumer safety, health or environmental requirements. 18

Table of Contents

Foreign Regulation

Sales of medical devices outside of the United States are subject to foreign regulatory requirements that vary widely from country to country. The time required to obtain approval for sale in foreign countries may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ. In order to sell our products within the EU, companies are required to achieve compliance with requirements of the European Union Medical Device Directive and affix a "CE" marking on their products to demonstrate such compliance. The "CE" mark is a mandatory conforming mark on many products marketed in the EU. It certifies that a product has met EU consumer safety, health or environmental requirements.

Research and Development

Research and development expenses for fiscal year ~~2009~~2010 and ~~2008~~2009 were $1,~~610~~589,~~562~~269 and $21,~~817~~610,~~754~~562, respectively. In connection with our research and development, we entered into contracts with research facilities regarding testing on our technology. Our technology was developed through years of research supported, in part, by federal research grants and private and government research contracts. Technological changes play an important part in the advancement of our industry. We intend to continue to devote substantial sums to research and development. Research and development efforts inherently involve costs, risks and uncertainties that could adversely affect our projections, outlook and operating results.

Employees

As of March 1922, ~~2010~~2011, we have 226 employees, 205 of whom are full-time and 1 of whom is part-time. We have never had a work stoppage, and none of our employees ~~are~~is ~~represented~~subject byto any collective bargaining agreements. We believe that our relationship with our employees is good. In addition to our employees we retain several consultants for specialized tasks ranging from investor and public relations, brand identity, web development and strategy, electrical and mechanical engineering, regulatory support, and software development. These consultants are all retained on an "as provided" services contract in which we pay only for specific work outlined by the project manager in charge of the project and approved by management.

Table of Contents

Available Information

Our principal executive offices are located at 3216 South Highland Drive, Suite 200, Salt Lake City, Utah 84106. Our telephone number is (801) 521-0444. We maintain an Internet web site at www.~~techniscanmedicalsystems~~tsni.com. The information on this web site is not and should not be considered part of this document and is not incorporated into this document by reference. This web address is, and is only intended to be, an inactive textual reference.

Table of Contents

ITEM 1A. RISK FACTORS

Risks Related to the Company, Industry and Financial Results

We are a development stage company and have generated minimal revenues since inception.

We have not generated significant revenues to date from our ~~proposed~~ business or operations. To date, our revenues have been from ~~government~~ government grants and other research partners. Moreover, we may not be able to generate either revenues or profits in the foreseeable future. Our success is dependent upon the successful development ~~and~~ and marketing of the WBU system. Unanticipated problems, expenses and delays are frequently encountered in establishing a new business and in developing new technology. These include, but are not ~~limited~~ limited to, competition, the need to develop and gain clinical acceptance of the WBU system, the need to develop research facilities, the need for market expertise, the need to employ capable management and setbacks in development of new technology, market acceptance and sales and marketing activities. We will have to overcome the barriers of costly equipment and no established distribution relationships or experience. The failure to meet any of these conditions will have a material adverse affect on us and may force us to cease our proposed operations, and could even prevent us from ever selling a WBU system. No assurance is or can be given that we can or ever will operate profitably.

Table of Contents

employ capable management, and setbacks in development of new technology, market acceptance and sales and marketing activities. We will have to overcome the barriers of costly equipment and no established distribution relationships or experience. The failure to meet any of these conditions will have a material adverse affect on us and may force us to cease our proposed operations, and could even prevent us from ever selling a WBU system. No assurance is or can be given that we can or ever will operate profitably.

We expect to continue to incur significant operating losses which may endanger our viability as a going concern.

Due to our lack of ~~revenue~~revenues, and lack of operations, there is substantial doubt as to our ability to continue operating as a going concern. We have ~~never~~not yet established adequate sources of operating revenue and have incurred net operating losses since our inception. As of December 31, ~~2009~~2010, we had an accumulated deficit of ~~approximately~~$30.5 million, negative working capital of $254.29 million and minimal revenues. Our losses have resulted principally from ~~costs~~expenses incurred in research and development and clinical trials and from general and administrative ~~costs~~expenses associated with our operations. We expect operating losses to continue, mainly due to the anticipated expenses associated with the pre-market approval process and proposed commercialization of our technology, research and development and marketing activities and administration costs. Our continuing losses, among other things, have caused our independent registered public accounting firm to add an explanatory paragraph to its audit report on our ~~2009~~2010 and ~~2008~~2009 financial statements indicating that there is substantial doubt about our ability to continue as a going concern. Although we are focused on our research, development, and commercialization of the WBU system, there can be no reasonable assurance ~~assurances~~ that such efforts will result in the establishment of predictable and scalable sources of revenue.

We are subject to government regulation and failure to obtain and maintain required regulatory approvals would severely limit our ability to sell our products.

We are subject to regulation by the FDA and other federal and state regulatory agencies. Pursuant to FDA regulations, we must obtain either a 510(k) clearance or PMA prior to marketing our products in the United States. If we do not obtain such clearance or PMA, we will not be able to implement our current business plan, and may be unable to generate any revenues. We are also subject to foreign regulations and are dependent upon the receipt of various types of approvals from certain foreign government agencies prior to the sale of products in those countries. The clearance and approval process for both the FDA and foreign regulatory authorities can be costly, time consuming and uncertain. There can be no assurance that we will receive these clearances, or that we will have sufficient resources to commence or complete the regulatory approval process. Delays in obtaining such clearances or ~~PMA's~~PMAs or changes in existing requirements could have a material adverse effect on our business and operations. Even if we do obtain regulatory approval of a product, that approval may be subject to limitations on the indicated uses for which it may be marketed. Even after granting regulatory approval, the FDA and regulatory agencies in other countries continue to review and inspect marketed products, manufacturers and manufacturing facilities, which may create additional regulatory burdens. Later discovery of previously unknown problems with a product, manufacturer or facility, may result in restrictions on the product or manufacturer, including a withdrawal of the product from the market.

Table of Contents

regulatory approval, the FDA and regulatory agencies in other countries continue to review and inspect marketed products, manufacturers and manufacturing facilities, which may create additional regulatory burdens. Later discovery of previously unknown problems with a product, manufacturer or facility, may result in restrictions on the product or manufacturer, including a withdrawal of the product from the market.

Our inability to complete our clinical testing and product development activities would severely limit our ability to operate or finance operations.

In order to commercialize our products, we must complete substantial clinical trials, and obtain sufficient safety and efficacy results to support required registration approval and market acceptance. We may not be able to successfully complete the development of our products, or successfully market our technologies or products. We may encounter problems and delays relating to research and development, regulatory approval and intellectual property rights of our technologies and products. Our research and development programs may not be successful, and our technologies and products may not identify tumor or lesions and may not facilitate the identification of breast cancer with the expected result. Our technologies and products may not prove to be safe and efficacious in clinical trials, and we may not obtain the requisite regulatory approvals for our technologies or product candidates. If any of these events occur, we may not have adequate resources to continue operations for the period required to resolve the issue delaying commercialization and we may not be able to raise capital to finance our continued operations during the period required for resolution of that issue.

Table of Contents

our technologies or products. We may encounter problems and delays relating to research and development, regulatory approval and intellectual property rights of our technologies and products. Our research and development programs may not be successful, and our technologies and products may not identify tumor or lesions and may not facilitate the identification of breast cancer with the expected result. Our technologies and products may not prove to be safe and efficacious in clinical trials, and we may not obtain the requisite regulatory approvals for our technologies or product candidates. If any of these events occur, we may not have adequate resources to continue operations for the period required to resolve the issues delaying commercialization and we may not be able to raise capital to finance our continued operations during the period required for resolution of the issues.

We must successfully complete our clinical trials to be able to market certain of our products.

We have been testing the WBU system on human subjects since April 2002, ~~including in its form as the WBU system,~~ and have conducted more than ~~600~~800 subject scans to date. These tests have focused on system reliability, algorithm development, image reproducibility, and clinical utility. While the data from this testing has been promising, there is not enough information to make statistically significant statements about our product or its diagnostic capabilities. We face additional challenges in attempting to develop the WBU system, including, but not limited to development of reliable testing protocols for future multi-center testing and gaining scientific and clinical acceptance of the WBU system. We must successfully overcome these challenges to prove the technology and move beyond the final stages of development to a commercially viable product. If we are unable to overcome these or other difficulties, it is highly unlikely that we can or ever will be profitable.

Even if we obtain regulatory approvals to sell our products, lack of commercial acceptance could impair our business.

Even if we obtain all required regulatory approvals, we cannot be certain that our products and processes will be accepted in the marketplace at a level that would allow us to operate profitably. Our products may be unable to achieve commercial acceptance for a number of reasons, such as the availability of alternatives that are less expensive, more effective, or easier to use; the perception of a low cost-benefit ratio for the product amongst our market, including screening centers, hospitals, radiologists and physicians; or an inadequate level of product support. Our technologies or product candidates may not be employed in all potential applications being investigated, and any reduction in applications would limit the market acceptance of our technologies and product candidates, and our potential revenues.

The market for our products will be heavily dependent on third-party reimbursement policies.

In the United States, suppliers of health care products and services are greatly affected by Medicare, Medicaid, and other government insurance programs, as well as by private insurance reimbursement programs. Third-party payors (Medicare, Medicaid, private health insurance companies and other organizations) may affect the pricing or relative attractiveness of our system by regulating the coverage or level of reimbursement provided by such payors to the physicians and clinics utilizing the WBU system. If examinations utilizing the WBU system are not reimbursed under these programs, or are not adequately reimbursed, our ability to sell the system may be materially adversely affected. There can be no assurance that third-party payors will provide reimbursement for use of our system. In international markets, reimbursement by third-party medical insurance providers, including governmental insurers and independent providers, varies from country to country. In certain countries, our ability to achieve significant market penetration may depend upon the availability of third-party governmental reimbursement.

1821

Table of Contents

and other organizations) may affect the pricing or relative attractiveness of our system by regulating the coverage or level of reimbursement provided by such payors to the physicians and clinics utilizing the WBU system. If examinations utilizing the WBU system are not reimbursed under these programs, or are not adequately reimbursed, our ability to sell the system may be materially adversely affected. There can be no assurance that third-party payors will provide reimbursement for use of our system. In international markets, reimbursement by third-party medical insurance providers, including governmental insurers and independent providers, varies from country to country. In certain countries, our ability to achieve significant market penetration may depend upon the availability of third-party governmental reimbursement.

Certain foreign governments may not give a reimbursement code for our device.

Government health authorities, especially in the countries where most of the reimbursements flow through government agencies, may not provide us with a reimbursement code, which is required for claiming the cost for the use of our technology and products from government agencies. If we are unable to obtain such reimbursement codes in major markets, marketability of our technology and products may be severely restricted, which could negatively impact our results of operations and our stock price.

We face competition in the medical technology field and if we do not keep pace with our competitors and with technological and market changes, we may not be able to successfully compete.

The medical device industry generally, and the cancer diagnostic imaging segments in particular, are characterized by rapidly evolving technology and intense competition. Other companies in the medical device industry may be developing, or could in the future attempt to develop, products that are competitive with the WBU system. The market in which we intend to participate is highly competitive. Many of the companies in the cancer diagnostic and screening markets have substantially greater technological, financial, research and development, regulatory, manufacturing, human and marketing resources, and experience than we do. Our competitors may succeed in developing or marketing technologies and products that are more effective or less costly than ours, or that would render our technology and products obsolete or noncompetitive. We may not be able to compete against such competitors and potential competitors in terms of manufacturing, marketing, and sales. If we are unable to compete successfully, it could have a negative impact on our results of operations and our stock price.

Potential product liability claims could affect our earnings and financial condition.

The nature of our business exposes us to risk for product liability claims, which are inherent in the testing, manufacturing and marketing of cancer detection products. Significant litigation, not involving us, has occurred in the past based on allegations of false negative diagnoses of cancer or allegations of malpractice by physicians or those using our system. Accordingly, there can be no assurance that we can avoid significant product liability exposure. We currently maintain product liability insurance coverage for up to $1 million in aggregate claims. There is substantial doubt that product liability insurance will cover all liabilities should we face significant claims. A successful products liability claim brought against us could have a material adverse affect on our business, operating results and financial condition. Should we be unable to maintain adequate product liability insurance, our ability to market our products will be significantly impaired. Any losses we may suffer for future claims or a voluntary or involuntary recall of our products and the damage that any product liability litigation or voluntary or involuntary recall may do to the reputation or marketability of our products would have a material adverse affect on our business, operating results, financial condition and stock price.

Table of Contents

We are currently dependent on a single product.

~~Because~~Besides government grants, our sole source of revenues for the foreseeable future is expected to come from sale of the WBU system, its supporting TIN system and the technology behind the WBU system,. ~~our~~Our operations may be adversely affected by economic, regulatory or similar problems or events that may apply only to us, only to medical devices of the type similar to the WBU system or only within a particular market area in which the WBU system is sold. The adverse effect of any such problems or events could be more easily absorbed in an investment in a more diversified business or one that operates in a different industry.

Table of Contents

Our product is new and unproven.

The science and technology of medical products, including ultrasound equipment, is rapidly evolving. The WBU system may require significant further research, development, testing, and regulatory clearances and is subject to the risk of failure inherent in the development of products based on innovative technologies. These risks include the possibility that the WBU system will prove to be ineffective or unsafe, or otherwise fail to receive necessary regulatory clearances; that the WBU system, if effective, may prove uneconomical to market; that third parties hold proprietary rights that preclude us from marketing the WBU system; or that third parties market superior or equivalent products. Accordingly, we are unable to predict whether our research and development activities will result in a commercially viable product. Further, due to the extended testing and regulatory review process required before marketing clearance can be obtained for the WBU system, we cannot predict with certainty when or if we will be able to sell the system. There is also no guarantee that we will be able to develop and sell other products based upon the technology behind the system.

Methods for the detection of cancer are subject to rapid technological innovation and there can be no assurance that future technical changes will not render the WBU system obsolete. There can be no assurance that the development of new types of diagnostic medical equipment or technology will not have a material adverse effect on our business, financial condition, results of operations or stock price.

We ~~changed~~have modified our business model.

We have ~~recently~~ made modifications to our business model. In the past, our business model ~~has~~was ~~been~~ based upon a "build and sell" model ~~where~~ where customers pay an upfront fee to purchase hardware and software that we have developed and distributed. Under this build and sell model, the customer bears the risks of putting the capital ~~equipment~~ equipment into profitable use. We ~~recently~~ decided to ~~change~~modify our business model by incorporating a new reading service, whereby third-party readers would be contracted to provide remote image reading, data, and related services over the Internet and developing a financing model based on providing ancillary services to physicians, who would pay a fee per scan with contracted minimum requirements.

We expect to be devoting significant resources toward developing strategies for implementing the reading service. It is uncertain whether these market penetration strategies will prove successful. The fee per service model places us in a situation where we share some of the business risk with the customer. We will attempt to negate as much of that risk as possible through contracting arrangements, but ultimately, we will assume some additional risk. The risk may not be offset through increased sales and revenue.

If our patents and proprietary rights do not provide substantial protection, then our business and competitive position will suffer.

Our ability to commercialize the WBU system as well as other products will depend, in part, on our ability both in the United States and in other countries to obtain patents, enforce those patents, preserve trade secrets and operate without infringing on proprietary rights of third parties. We currently have eight patents. In addition, we have seven U.S. patents pending, one U.S. application allowed and four pending foreign applications. There can be no assurance that we will be able to obtain additional domestic or any foreign patents. Also, the scope of any of our issued patents may not be sufficiently broad to offer meaningful protection.

20 The patent positions of medical device companies are uncertain and involve complex legal and factual questions. There can be no assurance that any patents that now or in the future are owned or licensed by us will prevent other companies from developing similar or medically equivalent products, or that other companies will not be issued patents that may prevent the sale of our products or that will require us to enter into licenses and pay significant fees or royalties. Furthermore, there can be no

Table of Contents

~~have~~assurance ~~six~~that ~~patents.~~any Inof ~~addition~~our products or methods will be patentable, wewill ~~have~~not ~~eight~~infringe upon the patents ~~pending,~~of ~~two~~third ~~allowed~~parties, ~~two~~or ~~provisional~~that our existing patents or future patents will give us an exclusive position in the subject matter claimed by those patents. We may be unable to avoid infringement of third-party patents and ~~two~~may ~~pending~~have ~~foreign~~to ~~applications~~obtain licenses, defend infringement actions or challenge the validity of those patents in court. There can be no assurance that a license will be available to us, if at all, on terms and conditions acceptable to us, or that we will prevail in any patent litigation or that we will have the financial resources to finance such patent litigation. Patent litigation is costly and time-consuming, and there can be ~~able~~no assurance that we will have or will devote sufficient resources to pursue such litigation. If we do not obtain ~~additional~~ ~~domestic~~a license under such third-party patents, are found liable for infringement or ~~any~~are ~~foreign~~not able to have such third-party patents. declared ~~Also~~invalid, we may be liable for significant monetary damages, may encounter significant delays in bringing products to market or may be precluded from participating in the ~~scope~~manufacture, use or sale of ~~any~~products or methods of treatment protected by such third-party patents. There can be no assurance that any patent applications now pending or hereafter filed by us or on our behalf will result in issued patents, that patent protection will be secured for a particular device or technology, that any patents that may ~~not~~be issued will be ~~sufficiently~~valid ~~broad~~or toenforceable ~~offer~~or that such patents will provide us meaningful protection.

The patent positions of medical device companies are uncertain and involve complex legal and factual questions. There can be no assurance that any patents that now or in the future are owned or licensed by us, will prevent other companies from developing similar or medically equivalent products, or that other companies will not be issued patents that may prevent the sale of our products or that will require us to enter into licenses and pay significant fees or royalties. Furthermore, there can be no assurance that any of our products or methods will be patentable, will not infringe upon the patents of third parties, or that our existing patents or future patents will give us an exclusive position in the subject matter claimed by those patents. We may be unable to avoid infringement of third-party patents and may have to obtain licenses, defend infringement actions or challenge the validity of those patents in court. There can be no assurance that a license will be available to us, if at all, on terms and conditions acceptable to us, or that we will prevail in any patent litigation or that we will have the financial resources to finance such patent litigation. Patent litigation is costly and time consuming, and there can be no assurance that we will have or will devote sufficient resources to pursue such litigation. If we do not obtain a license under such third-party patents, are found liable for infringement or are not able to have such third-party patents declared invalid, we may be liable for significant monetary damages, may encounter significant delays in bringing products to market or may be precluded from participating in the manufacture, use or sale of products or methods of treatment protected by such third-party patents. There can be no assurance that any patent applications now pending or hereafter filed by us or on our behalf will result in issued patents that patent protection will be secured for a particular device or technology, that any patents that may be issued will be valid or enforceable or that such patents will provide us meaningful protection.

We have previously engaged in, and in the future may engage in, additional sponsored research agreements and other arrangements with academic researchers and institutions that have received or may receive funding from government agencies or private parties. As a result of these arrangements, the government agencies or private parties may have rights in certain inventions developed during the course of the performance of such agreements as required by law or the agreements.

Any claims relating to our making improper payments to physicians for consulting services, or other potential violations of regulations governing interactions between us and healthcare providers, could be time-consuming and costly.

Our ~~relationship~~relationships with physicians, hospitals and marketers of our products are subject to scrutiny under various state and federal anti-kickback, self-referral, false claims and similar laws, often referred to collectively as healthcare fraud and abuse laws. The federal anti-kickback laws prohibit unlawful inducements for the referral of business reimbursable under federally-funded health care programs, such as remuneration provided to physicians to induce them to use certain medical devices reimbursable by Medicare or Medicaid. Healthcare fraud and abuse laws are complex and subject to evolving interpretations, and even minor, inadvertent violations potentially can give rise to claims that the relevant law has been violated. Certain states have similar anti-kickback, anti-fee splitting and self-referral laws, imposing substantial penalties for violations. Any violations of these laws could result in a material adverse effect on the market price of our common stock, as well as our business, financial condition and results of operations. We cannot assure you that any of the healthcare fraud and abuse laws will not change or be interpreted in the future in a manner which restricts or adversely affects our business activities or relationships with physicians, screening centers, hospitals and marketers of our products. In addition, possible sanctions for violating these anti-kickback laws include monetary fines, civil and criminal penalties, exclusion from Medicare and Medicaid programs and forfeiture of amounts collected in violation of these prohibitions.

21 Federal anti-kickback laws also restrict the kinds of relationships we may have with physicians, including clinical research investigators and consultants. We must comply with a variety of other laws, such as laws prohibiting false claims for reimbursement under Medicare and Medicaid, which also can be triggered by violations of federal anti-kickback laws; the Healthcare Insurance Portability and Accountability Act of 1996, which protects the privacy of individually identifiable healthcare information; and the Federal Trade Commission Act and similar laws regulating advertisement and consumer protections. In certain cases, federal and state authorities pursue actions for false claims on

Table of Contents

~~civil~~the ~~and~~basis ~~criminal~~that ~~penalties,~~manufacturers ~~exclusion from Medicare~~ and ~~Medicaid~~distributors ~~programs~~are ~~and~~promoting ~~forfeiture~~unapproved ofor ~~amounts~~off-label ~~collected~~uses ~~in violation~~ of ~~these~~their ~~prohibitions~~products.

~~Federal~~The ~~anti-kickback~~scope ~~laws~~and ~~also~~enforcement ~~restrict~~of ~~the~~these ~~kinds~~laws ofis ~~relationships~~uncertain weand ~~may~~subject ~~have~~to ~~with~~rapid ~~physicians~~change, ~~including~~especially ~~clinical~~in ~~research~~light ~~investigators~~of the lack of applicable precedent and ~~consultants~~regulations. WeAlthough ~~must~~we believe we comply with athese ~~variety of other~~ laws, ~~such~~and asintend ~~laws~~to ~~prohibiting~~comply ~~false~~in ~~claims~~the ~~for~~future, ~~reimbursement~~we ~~under~~cannot ~~Medicare~~assure ~~and~~you ~~Medicaid,~~that ~~which~~federal ~~also~~or ~~can~~state beregulatory ~~triggered~~authorities bywill ~~violations~~not ofchallenge ~~federal~~or ~~anti-kickback~~investigate ~~laws; the~~our ~~Healthcare~~current ~~Insurance~~or ~~Portability~~future ~~and~~activities ~~Accountability~~under ~~Act~~these laws. ofAny ~~1996,~~challenge ~~which~~or ~~protects~~investigation ~~the~~could ~~privacy~~have ofa ~~individually~~material ~~identifiable~~adverse ~~healthcare~~effect ~~information;~~on ~~and~~our ~~the~~business, ~~Federal~~financial ~~Trade~~condition ~~Commission~~and ~~Act~~results ~~and~~of ~~similar laws~~operations. ~~regulating~~Any ~~advertisement~~state ~~and~~or ~~consumer~~federal ~~protections.~~regulatory Inreview ~~certain~~of ~~cases~~us, ~~federal~~regardless ~~and~~of the ~~state~~outcome, ~~authorities~~would ~~pursue~~be ~~actions~~costly ~~for~~and ~~false~~time-consuming. ~~claims~~Additionally, onwe cannot predict the ~~basis~~impact ~~that~~of ~~manufacturers~~any ~~and~~changes ~~distributors~~in ~~are~~these ~~promoting unapproved~~laws, and whether or ~~off-label~~not ~~uses~~they ofwill ~~their~~be ~~products~~retroactive.

The scope and enforcement of these laws is uncertain and subject to rapid change, especially in light of the lack of applicable precedent and regulations. We cannot assure you that federal or state regulatory authorities will not challenge or investigate our current or future activities under these laws. Any challenge or investigation could have a material adverse effect on our business, financial condition and results of operations. Any state or federal regulatory review of us, regardless of the outcome, would be costly and time-consuming. Additionally, we cannot predict the impact of any changes in these laws, and whether or not they will be retroactive.

Changes to health care reform could adversely affect us and our business.

~~Political~~On March 23, ~~economic~~2010, ~~and~~Congress ~~regulatory~~enacted ~~influences~~the ~~are~~Patient ~~subjecting~~Protection ~~the~~and ~~health~~Affordable ~~care~~Care ~~industry~~Act in(P.L. 111-148) and on March 30, 2010, the ~~United~~Health ~~States~~Care toand ~~fundamental~~Education ~~changes~~Reconciliation Act of 2010 (P.L. 111-152). ~~We anticipate~~The ~~the~~Patient ~~United~~Protection ~~States~~and ~~Congress~~Affordable Care Act, ~~state~~as ~~legislatures~~amended ~~and~~by the ~~private~~Health ~~sector~~Care ~~will~~and Education ~~continue~~Reconciliation toAct ~~review~~of ~~and~~2010 ~~assess~~(the ~~alternative~~"PPACA") ~~health~~provides ~~care~~for ~~delivery~~significant ~~and~~expansions ~~payment~~of ~~systems~~coverage for many categories of patients. ~~Potential~~Effective ~~approaches~~2014, ~~that~~large ~~have~~employers will be required to offer coverage ~~been~~or ~~considered~~be ~~include~~liable ~~mandated~~for ~~basic~~an ~~health~~additional ~~care~~tax. ~~benefits~~The effect of this provision is not certain, ~~controls~~as onthe ~~health~~amount ~~care~~of ~~spending~~the ~~through~~tax ~~limitations~~may onbe less than the ~~growth~~cost of ~~private~~providing health insurance. ~~premiums~~Individuals ~~and~~will ~~Medicare~~be ~~and~~required ~~Medicaid~~to ~~spending,~~have ~~the~~qualifying ~~creation~~health ofcoverage, ~~large~~or ~~insurance~~pay ~~purchasing~~a ~~groups~~tax penalty. In 2014, ~~price~~state-based ~~controls~~health ~~and~~insurance ~~other~~exchanges ~~fundamental~~will ~~changes~~be established to facilitate the ~~health~~purchase ~~care~~of ~~delivery~~insurance ~~system~~by individuals and small businesses. Effective Wein ~~believe~~2014, ~~that~~a ~~the~~comprehensive ~~legislative~~set ~~debate~~of ~~will~~mandated ~~continue~~benefits inis ~~the~~established. ~~future~~Until 2014, ~~and~~ ~~that~~a ~~market~~high ~~forces~~risk pool will ~~demand~~be ~~reduced~~established ~~costs~~for individuals with pre-existing conditions. IfOther ~~adopted~~provisions eliminate ~~and~~lifetime ~~implemented~~coverage limits, ~~health~~rescission ~~care~~of ~~reforms~~coverage ~~could~~except ~~have~~in acases ~~material~~of ~~adverse~~fraud, and expand mandatory coverage of children. The net effect of these provisions on ~~our~~us ~~business~~cannot be predicted at this time. However, ~~financial~~the ~~condition~~PPACA ~~and~~may ~~results~~substantially ofincrease ~~operations~~governmental health care expenditures. We ~~cannot~~This ~~predict~~may ~~what~~result ~~impact~~in added downward pressure on reimbursement for procedures utilizing the ~~adoption~~WBU ofsystem. ~~any~~In addition, ~~future~~the ~~federal~~PPACA orestablishes ~~state~~a ~~health~~2.3% ~~care~~excise ~~reform~~tax ~~measures~~on medical devices, ~~private~~beginning ~~sector~~in ~~reform~~2014. orIt ~~other~~is ~~market~~not ~~forces~~entirely ~~may~~clear ~~have~~that onthis tax will apply to our business model of charging for procedures. We anticipate, ~~either~~however, ~~currently~~that orimplementing inregulations may apply the ~~future.~~ ~~Even~~tax to the ~~existence~~WBU ofsystem. ~~pending~~Both ~~health~~downward ~~care~~pressure ~~reform~~on reimbursement and the excise tax could have a material adverse ~~impact~~effect on usour bybusiness, financial ~~making~~condition itand ~~difficult~~results toof ~~raise capital or establish commercial relationships~~operations.

We depend on third-party suppliers and manufacturers, and if they are unable to deliver, our business would suffer.

We expect to purchase all of our components and supplies from third-party suppliers and to outsource any manufacturing to contract manufacturers. Because of regulatory restrictions on manufacturers of medical devices, we may experience significant difficulty in locating suppliers and manufacturers qualified to manufacture our products or components thereof. Further, manufacturers of medical devices generally have the right to manufacture similar products that may compete with our products, and to terminate their agreements without significant penalty under certain conditions. In addition, disclosure of our proprietary technology to a third-party for manufacturing purposes increases the risk of theft or loss of trade secrets. There can be no assurance that we will be successful in locating manufacturers or suppliers on terms and conditions or with reputations and experience acceptable to us or that our trade secrets will not be stolen.

2225

Table of Contents

We will need additional financing, which we may not be able to receive.

We currently have no significant operations from which to generate cash flows. Our operations to date have consumed substantial capital resources and we expect to require additional financing to fund our continued operations and implement our business plan. Our future capital requirements will depend on many factors, including technological and market developments, our ability to sell the WBU system or the underlying software, and cash flows from operating activities. If we raise additional funds through equity or debt financings to finance our future operations, any equity financings could result in dilution to our stockholders and debt financing would result in increased interest expense. Any financing, if available, may be on terms unfavorable or not acceptable to us. If adequate funds are not obtained, we may be required to reduce or curtail our proposed operations.

Disruptions in the capital and credit markets, as have been experienced ~~during~~since ~~2009 and~~ 2008, could adversely affect our ability to obtain financing. If we do obtain debt financing in the future, those banks may not be able to meet their funding commitments to us if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from us and other borrowers within a short period of time.

We expect to incur substantial losses so long as we continue our planned manufacturing, regulatory, and research and development activities. If we ultimately receive regulatory approval for the WBU system, our manufacturing, marketing and sales activities are likely to substantially increase our expenses and our need for additional working capital. In the future, it is possible that we will not have adequate resources to support continuation of our business activities.

We may be unable to repay the Secured Notes, including accrued and unpaid interest, due on April 15, 2011, and we could lose all of our assets.

The entire outstanding principal and accrued interest on the Secured Notes is due and payable on April 15, 2011. We do not have sufficient funds and may be unable to arrange for additional financing to pay this amount at maturity. If we are unable to obtain financing, we could try to obtain a waiver from the holders of the Secured Notes. If we do not obtain the necessary waivers or refinance the borrowings, we will be unable to repay the Secured Notes. Such a failure would constitute an event of default under the Secured Notes. Since repayment of the Secured Notes is secured by all of our assets, if we default on our repayment obligations, the holders of the Secured Notes could foreclose on all of our assets, both tangible and intangible, leaving us with no assets.

We are dependent on key personnel, and the loss of any key employees or officers may have a material adverse effect on our operations.

Our success is substantially dependent on the continued services of our executive officers, particularly David C. Robinson, our President and Chief Executive Officer, Steven K. Passey, our Chief Financial Officer and John C. Klock M.D., our Chief Medical Officer, who generally have extensive experience in our industry. The loss of the services of any key employees, or our failure to attract and retain other qualified and experienced personnel on acceptable terms, could have a material adverse effect on our business and results of operations.

Risks Related to Ownership of Our Common Stock

Our common stock may be thinly traded.

There is a very minimal public market for our common stock. We cannot predict how liquid the market for our common stock might become. Our common stock will likely be thinly traded compared to larger more widely known companies.

Trades of our common stock are conducted on the ~~OTC~~OTCQB ~~Bulletin~~tier ~~Board~~of the OTC marketplace. Should our common stock be suspended from the ~~OTC Bulletin Board~~OTCQB, the trading price of our common stock could suffer, the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility.

Furthermore, for companies whose securities are traded in the OTC Bulletin Board, it is more difficult to obtain accurate stock quotations or needed capital. Also, because major wire services generally do not publish press releases about these companies, it is also more difficult for them to obtain coverage for significant news and events. 26

Table of Contents

Furthermore, for companies whose securities are traded in the OTCQB, it is more difficult to obtain accurate stock quotations or needed capital. Also, because major wire services generally do not publish press releases about these companies, it is also more difficult for them to obtain coverage for significant news and events.

In addition, the price at which our common stock may be sold is very unpredictable because there could be very few trades in our common stock. We cannot predict the extent to which an active public market for our common stock will develop or be sustained at any time in the future. If our common stock is thinly traded, a large block of shares traded can lead to a dramatic fluctuation in the share price.

State securities laws may limit secondary trading, which may restrict the states in which you can resell shares of our common stock.

If you purchase our common stock offered by the selling stockholders, you may not be able to resell the shares of common stock in a certain state unless and until shares of our common stock are qualified for secondary trading under the applicable securities laws of such state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in such state. There can be no assurance that we will be successful in registering or qualifying our common stock for secondary trading, or identifying an available exemption for secondary trading in our common stock in every state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of our common stock in any particular state, shares of our common stock could not be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our common stock, the market for the common stock will be limited, which could drive down the market price of our common stock and reduce the liquidity of shares of our common stock. As a result, a stockholder may be unable to resell shares of our common stock at all or at current market prices, which could increase a stockholder's risk of losing some or all of his, her or its investment.

We expect that the price of our common stock will fluctuate substantially, potentially adversely affecting the ability of stockholders to sell their shares.

The market price of our common stock is likely to be highly volatile and subject to wide fluctuations in response to the following factors, many of which are generally beyond our control. These factors may include:

•: the introduction of new products or services by us or our competitors;
•: quarterly variations in our or our competitors' results of operations;
•: the acquisition or divestiture of businesses, products, assets or technology;
•: disputes, litigation or other developments with respect to intellectual property rights or other potential legal actions;
•: sales of large blocks of our common stock, including sales by our executive officers and directors;
•: changes in earnings estimates or recommendations by securities analysts; and
•: general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.

Table of Contents

Market price fluctuations may negatively affect the ability of investors to sell our shares at consistent prices.

Table of Contents

We may become involved in securities class action litigation that could divert management's attention and harm our business.

The stock market in general has experienced extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to the operating performance of the companies involved. If these fluctuations occur in the future, the market price of our shares could fall regardless of our operating performance. In the past, following periods of volatility in the market price of a particular company's securities, securities class action litigation has been brought against that company. If the market price or volume of our shares suffers extreme fluctuations, then it may become involved in this type of litigation which would be expensive and divert management's attention and resources from managing the business.

Securities analysts may elect not to report on our common stock or may issue negative reports that adversely affect the price of our common stock.

At this time, no securities analyst provides research coverage of our common stock. Further, securities analysts may never provide this coverage in the future. Rules mandated by the Sarbanes- Oxley Act of 2002 ("Sarbanes-Oxley") and other restrictions led to a number of fundamental changes in how analysts are reviewed and compensated. In particular, many investment banking firms are required to contract with independent financial analysts for their stock research. It may remain difficult for a company with a smaller market capitalization such as ours to attract independent financial analysts that will cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect our actual and potential market price and trading volume.

The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about our business. If one or more analysts elect to cover our Company and then downgrade the stock, the stock price would likely decline rapidly. If one or more of these analysts cease coverage of our Company, we could lose visibility in the market, which in turn could cause our stock price to decline. This could have a negative effect on the market price of our shares.

Because we ~~acquired~~were ~~TechniScan~~a ~~Utah~~publicly bytraded ~~means~~shell ~~of a reverse merger~~company, we may not be able to attract the attention of major brokerage firms.

Additional risks to our investors may exist since, prior to the Merger, we were a publicly traded shell company, and security analysts of major brokerage firms may not provide coverage for us. In addition, asbecause of past abuses and fraud concerns stemming primarily from a ~~result~~lack of ~~the Merger~~public information about new public businesses, ~~acquired~~there are anmany ~~operating~~people in the securities industry and business ~~through~~in ageneral ~~reverse~~who ~~merger.~~view ~~Security~~with ~~analysts~~suspicion ofcompanies ~~major~~which were previously public shell companies. Without brokerage ~~firms~~firm and analyst coverage, there may ~~not~~be ~~provide~~fewer ~~coverage~~people ~~for~~aware of us. Inand ~~addition~~our business, ~~because~~resulting in fewer potential buyers of our securities, less liquidity and depressed stock prices for our investors.

24 Our stock is a penny stock. Trading of our stock may be restricted by the SEC's penny stock regulations and FINRA's sales practice requirements, which may limit a stockholder's ability to buy and sell our stock.

Our common stock is a penny stock. The SEC rule generally defines penny stock to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks

Table of Contents

~~past~~and ~~abuses~~the nature and ~~fraud~~level ~~concerns~~of ~~stemming~~risks ~~primarily~~in ~~from~~the apenny ~~lack~~stock ofmarket. ~~public~~The ~~information~~broker-dealer ~~about~~also ~~new~~must ~~public~~provide ~~businesses~~the customer with current bid and offer quotations for the penny stock, ~~there~~the ~~are~~compensation ~~many~~of ~~people~~the broker-dealer and its salesperson in the ~~securities~~transaction ~~industry~~ and ~~business~~monthly account statements showing the market value of each penny stock held in ~~general~~the ~~who~~customer's ~~view~~account. The bid and offer quotations, and the ~~reverse~~broker-dealer ~~merger~~and ~~transactions~~salesperson ~~with~~compensation ~~public~~information, ~~shell~~must ~~companies~~be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the ~~suspicion~~customer's confirmation. ~~Without~~In ~~brokerage~~addition, ~~firm~~the ~~and~~penny ~~analyst~~stock ~~coverage~~rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, ~~there~~the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may behave ~~fewer~~the effect ~~people~~of ~~aware~~reducing the level of ustrading ~~and~~activity ~~our~~in ~~business~~the secondary market for the stock that is subject to these penny stock rules. Consequently, ~~resulting~~these inpenny ~~fewer potential~~stock ~~buyers~~rules may affect the ability of broker-dealers to trade our securities,. ~~less~~We ~~liquidity~~believe ~~and~~that ~~depressed~~the penny stock ~~prices~~rules ~~for~~may discourage investor interest in, and limit the marketability of, our ~~investors~~common stock.

In addition ~~Our~~to the penny stock isrules promulgated by the SEC, the Financial Industry Regulatory Authority ("FINRA") has adopted rules that require that in recommending an investment to a customer, ~~penny~~a ~~stock~~broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. ~~Trading~~Prior ofto ~~our~~recommending ~~stock~~speculative ~~may~~low-priced besecurities ~~restricted~~to bytheir non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the ~~SEC~~customer's ~~penny~~financial ~~stock~~status, ~~regulations~~tax status, investment objectives and ~~the~~other information. Under interpretations of these rules, FINRA's ~~sales~~believes ~~practice~~that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit ~~a stockholder's~~your ability to buy and sell our stock.

Our common stock is a penny stock. The Securities and Exchange Commission's ("SEC") rule generally defines penny stock to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules may discourage investor interest in, and limit the marketability of, our common stock.

In addition to the penny stock rules promulgated by the SEC, the Financial Industry Regulatory Authority ("FINRA") has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.

A significant number of shares will become eligible for future sale by our stockholders and the sale of those shares could adversely affect the stock price.

There are 1,000,000 shares of our common stock subject to lock up agreements until April 7, 2010. Approximately 76,900,000 of our issued and outstanding shares of common stock, and approximately 12,300,000 shares of common stock issuable upon exercise of outstanding options, are not eligible for resale under Rule 144 of the Securities Act of 1933, as amended, ("Securities Act") without restriction, for a period of at least one year following the Merger.

Table of Contents

If our stockholders sell substantial amounts of shares when they become eligible for resale in October 2010, or indicate an intention to sell substantial amounts of shares, the trading price of our common stock could decline.

Directors, executive officers and principal stockholders own a significant percentage of our capital stock, and they may make decisions that you do not consider to be in the best interests of our stockholders.

As of March 1922, ~~2010~~2011, our directors, executive officers and principal stockholders beneficially owned, in the aggregate, approximately 3127.28% of our outstanding voting securities. As a result, if some or all of them acted together, they would have the ability to exert substantial influence over the election of our Board and the outcome of issues requiring approval by our stockholders. This concentration of ownership also may have the effect of delaying or preventing a change in control of our Company that may be favored by other stockholders. This could prevent transactions in which stockholders might otherwise recover a premium for their shares over current market prices.

Our stock price could decline as a result of our failure to meet reporting and other regulatory requirements.

~~Pursuant~~Our ~~to the Merger, our new~~ management team ~~will~~is ~~now be~~ responsible for our operations and reporting. ~~This~~Outside ~~will require outside~~ assistance from legal, accounting, investor relations, or other professionals ~~that~~ could be more costly than planned. Our failure to comply with reporting requirements and other provisions of securities laws could negatively affect our stock price and adversely affect our results of operations, cash flows and financial position.

~~Operating~~We asare arequired ~~small public company also requires us~~ to make forward-looking statements about future operating results and to provide some guidance to the public markets. Our management has limited experience in a public company and, as a result, projections may not be made timely or set at expected performance levels and could materially affect the price of our shares. Any failure to meet published forward-looking statements that adversely affect the stock price could result in losses to investors, stockholder lawsuits or other litigation, sanctions or restrictions issued by the SEC or any stock market upon which our stock is traded.

If we do not implement necessary internal control over financial reporting in an efficient and timely manner, or if we discover deficiencies and weaknesses in existing systems and controls, we could be subject to regulatory enforcement and investors may lose confidence in our ability to operate in compliance with existing internal control rules and regulations, either of which could result in a decline in our share price. 29

It may be difficult to design and implement effective internal control over financial reporting for combined operations as we integrate the business it acquired as a result of the Merger, and perhaps other acquired businesses in the future. In addition, differences in existing controls of acquired businesses may result in weaknesses that require remediation when internal controls over financial reporting are combined.

If we fail to maintain an effective system of internal control, we may be unable to produce reliable financial reports or prevent fraud. If we are unable to assert that our internal control over financial reporting is effective at any time in the future, or if our independent registered public accounting firm is unable to attest to the effectiveness of internal controls, is unable to deliver a report at all or can deliver only a qualified report, we could be subject to regulatory enforcement and investors may lose confidence in our ability to operate in compliance with existing internal control rules and regulations, either of which could result in a decline in our share price.

Our status as a public company may make it more difficult to attract and retain officers and directors.

Sarbanes-Oxley and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As an operating public company, we expect these

Table of Contents

~~new rules~~ ~~and~~If ~~regulations~~we todo ~~have~~not ~~increased~~implement ~~our~~necessary ~~compliance~~internal ~~costs~~control inover ~~2009~~financial ~~and~~reporting ~~beyond~~in ~~and~~an toefficient ~~make certain activities more time-consuming~~ and ~~costly~~timely ~~than~~manner, or if we ~~were~~discover ~~not~~additional andeficiencies ~~operating~~and ~~public~~weaknesses in ~~company.~~existing Assystems anand ~~operating public company~~controls, we ~~also~~could ~~expect~~be ~~that~~subject ~~these~~to ~~new~~regulatory ~~rules~~enforcement and ~~regulations~~investors may ~~make~~lose itconfidence ~~more~~in ~~difficult~~our ~~and~~ability ~~expensive for us~~ to ~~obtain~~operate ~~director and officer liability insurance~~ in ~~the future,~~compliance ~~and~~with weexisting ~~may~~internal becontrol ~~required~~rules ~~to accept reduced policy limits~~ and regulations, ~~coverage~~either orof ~~incur~~which ~~substantially~~could ~~higher~~result ~~costs~~in ~~to obtain the same or similar coverage. As~~ a ~~result,~~decline itin ~~may be more difficult for us to attract and retain qualified persons to serve on~~ our ~~Board~~share ~~or as executive officers~~price.

If we fail to maintain an effective system of internal control, we may be unable to produce reliable financial reports or prevent fraud. If we are unable to assert that our internal control over financial reporting is effective at any time in the future, or if our independent registered public accounting firm is unable to attest to the effectiveness of internal controls if we become an accelerated filer, is unable to deliver a report at all or can deliver only a qualified report, we could be subject to regulatory enforcement and investors may lose confidence in our ability to operate in compliance with existing internal control rules and regulations, either of which could result in a decline in our share price.

Our status as a public company may make it more difficult to attract and retain officers and directors.

Sarbanes-Oxley and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As an operating public company, we expect these new rules and regulations to increase our compliance costs in 2011 and beyond and to make certain activities more time-consuming and costly than if we were not an operating public company. As an operating public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board or as executive officers.

Compliance with changing regulations concerning corporate governance and public disclosure may result in additional expenses.

There have been changing laws, regulations and standards relating to corporate governance and public disclosure, including Sarbanes-Oxley and new regulations promulgated by the SEC. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Members of our Board, our Chief Executive Officer and our Chief Financial Officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified board members and executive officers, which could harm our business. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies, we could be subject to liability under applicable laws or our reputation may be harmed.

We do not intend to pay cash dividends. Any return on investment may be limited to the value of our common stock~~, if any~~.

We have never declared or paid cash dividends on our capital stock. We currently expect to use available funds and any future earnings in developing, operating and expanding our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, the terms of any future debt or credit facility we may obtain may preclude us from paying any dividends. As a result, capital appreciation, if any, of our common stock will be a stockholder's only source of potential gain from our common stock for the foreseeable future.

Table of Contents

We may sell shares of our common stock pursuant to an Equity Purchase Agreement, which may cause the value of our common stock to decline and dilute the holdings of our stockholders.

Pursuant to our Equity Purchase Agreement, we may from time to time over the next two years issue and sell up to $10,000,000 at a price per share of our common stock equal to 94% of the average of the lowest three daily volume weighted average prices of our common stock reported by Bloomberg Finance, LP during the five consecutive trading day period commencing on the date we deliver Southridge a put notice. We may need capital in excess of the amounts available under the Equity Purchase Agreement, and we may seek additional funding through public or private financing or collaborative and other arrangements with corporate partners. As we utilize the Equity Purchase Agreement or additional funds raised by issuing equity securities, dilution to existing stockholders will result, and future investors may be granted rights superior to those of existing stockholders.

We may not have access to the full amount available under the Equity Purchase Agreement.

The commitment amount of the Equity Purchase Agreement is $10,000,000 over a 24 month period. At the current closing price of our common stock of $0.40 per share, based on a discounted sale price to Southridge equal to 94% of the closing price, we will need to issue Southridge 26,595,745 shares of our common stock in order to have access to the full $10,000,000 available to us under the Equity Purchase Agreement. We are authorized to issue 150,000,000 shares of common stock. The 26,595,745 shares of common stock we would need to issue in order to access the full $10,000,000, based on the current closing price of our common stock, represents approximately 120% of the 21,986,944 shares of common stock we have issued as of March 22, 2011, and approximately 164% of the 16,180,410 issued shares held by non-affiliates. Pursuant to SEC rules, we are prohibited from initially registering more than 5,393,470 shares of our common stock for resale by Southridge, which represents approximately 25% of our issued shares and 33% of our issued shares held by non-affiliates. If we sell Southridge 5,393,470 shares of our common stock, we will receive approximately $2,000,000 in proceeds provided the closing price of our common stock remains at least $0.40 per share.

Unless the market price of our common stock increases substantially in the near future, which is unlikely, we will be required to file several more registration statements in order to obtain the full amount of funds available to us under the Equity Purchase Agreement. However, the number of shares that may be registered in each subsequent registration statement is limited to an amount equal to no more than 33% of the amount of our then issued shares of common stock held by non-affiliates. Furthermore, we may not file another registration statement registering the resale of shares issued to Southridge until the later of 60 days after Southridge and its affiliates have resold substantially all of the common stock registered for resale under a previous registration statement, or six months after the effective date of a previous registration statement. These subsequent registration statements may be subject to review and comment by the Staff of the SEC, and will require the consent of our independent registered public accounting firm. The timing of the effectiveness of these subsequent registration statements will have an impact on our ability to access the full amount available under the Equity Purchase Agreement.

Even if we are successful in causing one or more registration statements registering the resale of some or all of the shares issuable under the Equity Purchase Agreement to be declared effective by the SEC in a timely manner, our ability to access the full amount under the Equity Purchase Agreement is subject to a maximum put amount. Each put amount is limited to the lesser of $500,000 or 250% of the average of the closing sale price multiplied by that day's trading volume for the 20 days prior to delivery of a put notice. As such, we may not have access to the full $10,000,000 available to us under the Equity Purchase Agreement.

Table of Contents

The Equity Purchase Agreement may not be available when we need it, thus limiting our ability to obtain FDA approval on our WBU system.

In addition to an effective registration statement, our ability to use the Equity Purchase Agreement is subject to various conditions, including the absence of any material adverse change in our business or financial condition. Further, Southridge is a limited partnership registered in the state of Delaware and if Southridge were unable or unwilling to fulfill its obligation, our legal remedies would be limited. If we are unable to utilize the Equity Purchase Agreement when we need the funds, our business and financial condition and our ability to obtain FDA approval on our WBU system could be severely harmed.

Stockholders may experience significant dilution if future equity offerings are used to fund operations or acquire complementary businesses.

If future operations or acquisitions are financed through issuing equity securities, stockholders could experience significant dilution. In addition, securities issued in connection with future financing activities or potential acquisitions may have rights and preferences senior to the rights and preferences of our common stock. We expect to issue additional equity securities pursuant to employee benefit plans. The issuance of shares of our common stock upon the exercise of options may result in dilution to our stockholders.

Shares of common stock that are issuable pursuant to warrants could result in dilution to existing stockholders and could cause the market price of our common stock to fall.

The exercise of all of the warrants offered hereby will result in our issuance of an additional 12,000,000 shares of our common stock. The existence of these warrants may reduce earnings per share under U.S. generally accepted accounting principles ("GAAP") and, to the extent they are exercised

Table of Contents

and shares of our common stock are issued, dilute percentage ownership of existing stockholders, which may result in a decline in the market price of our common stock.

Provisions in the Delaware General Corporation Law may prevent takeover attempts that could be beneficial to our stockholders.

Provisions in the Delaware General Corporation Law may make it difficult and expensive for a third party to pursue a takeover attempt we oppose even if a change in control of our Company would be beneficial to the interests of our stockholders. Any provision of Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock. As a Delaware corporation, we are subject to Section 203 of the ~~Delaware General Corporation Law~~DGCL. This section generally prohibits us from engaging in mergers and other business combinations with stockholders that beneficially own 15% or more of our voting stock, or with their affiliates, unless our directors or stockholders approve the business combination in the prescribed manner.

ITEM 1B. UNRESOLVED STAFF COMMENTS

~~There are no unresolved staff comments as of the date of this Annual Report~~None.

ITEM 2. PROPERTIES

Our principal office is located at 3216 South Highland Drive, Salt Lake City, Utah 84106, consisting of approximately 16,000 square feet, which we rent at a current cost of $24,029 per month. On April 11, 2008, we entered into a ten-year lease for this principal office space; the term of the lease commenced on June 1, 2008. In July 2011, the rent will increase by 2% and will continue to increase by 2% on the expiration of each 12-month period.

We sublease approximately 200 square feet of our principal office space to a third party on a month-to-month basis, for $300 per month.

ITEM 3. LEGAL PROCEEDINGS

To our knowledge there are no material legal proceedings by or against us, either pending or contemplated. We may become involved in various routine legal proceedings incidental to our business.

2832

Table of Contents

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

As of close of business on March 1522, ~~2010~~2011, wethere ~~had~~were approximately ~~358~~357 holders of record of our common stock.

~~Effective~~Our common stock trades on the OTCQB tier of the OTC marketplace under the symbol "TSNI" Prior to the Merger, effective as of October 9, 2009, ~~our~~there ~~Board~~was ~~authorized~~no aestablished 2public trading market for 1our ~~forward~~common stock. ~~split~~The ~~and~~following antable ~~increase~~sets infor the ~~number~~high ofand ~~authorized~~low ~~shares~~sales prices of our common stock for the periods indicated, as adjusted to ~~150~~reflect the 1-for-4 reverse common stock split that became effective June 28,~~000,000~~ 2010.

Our common stock currently trades on the Over-the-Counter Bulletin Board under the trading symbol "TSNI.OB." Prior to the Merger, effective as of October 9, 2009, there was no established public trading market for our common stock. The high and low bid price of our common stock as reported by the OTC Bulletin Board for the fourth quarter of the fiscal year ended December 31, 2009 was $2.00 and $0.75, respectively.

		High		Low

Fiscal Year Ended December 31, 2009
	Fourth quarter	$	8.00	$	3.00
Fiscal Year Ended December 31, 2010
	First quarter		4.64		3.00
	Second quarter		4.08		2.04
	Third quarter		3.25		0.95
	Fourth quarter		1.30		0.19

The ~~OTC~~OTCQB ~~Bulletin Board~~ quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

Dividend Policy

We have never declared or paid any cash dividends on our common stock and we do not intend to pay cash dividends in the foreseeable future. We currently expect to retain future earnings, if any, to fund the operation and expansion of our business.

Dissenting Stockholders

Three of our stockholders dissented to the Merger. All three stockholders have properly exercised their rights under Utah law relating to dissenters, and have requested that we pay them the fair value of their shares, in accordance with Utah law. Collectively, the three stockholders own 723,633 shares and are to be paid $0.375 per share for an aggregate amount of $271,362 plus accrued interest. As of March 19, 2010, the dissenting stockholders have not been paid the fair market value of their dissenting shares. All of the shares held by the dissenting stockholders were cancelled, and are null and void and have no value. The certificates representing these shares have been returned to us.

Cancellation of Shares

Pursuant to the private placement offering in September 2009, one subscriber was issued 400,000 shares of our common stock in error. The subscriber did not pay for these shares of common stock. These 400,000 shares were also, therefore, incorrectly calculated in our stock ledger. Since the subscriber's subscription was not accepted by us, the 400,000 shares of common stock issued were cancelled in December 2009 and any certificates representing these shares are null and void.

Table of Contents

Equity Compensation Plan Information

The following table sets forth information as of December 31, 2009, about shares of our common stock outstanding and available for issuance under our equity compensation plan existing as of such date.

		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)			Weighted-average exercise price of outstanding warrants and rights			Number of securities remaining available for future issuance under equity compensation plans (excluding securities in column(a))
2001 Employee Stock Option Plan(1)(2)			14,384,778		$	0.39			536,764

(1)Plan was approved by the security holders of TechniScan Utah in 2001 for officers, employees, directors and consultants. The plan was subsequently amended pursuant to five separate amendments. The plan was assumed by the Company upon the closing of the Merger. (2)The plan authorizes the granting of stock options to purchase shares of our common stock equal to 18% of the total shares of common stock outstanding.

Unregistered Sales of Equity Securities

~~Except~~All ~~as provided herein, all~~ unregistered sales of securities issued during the fiscal year ended December 31, ~~2009~~2010 have been previously reported on our quarterly reports on Form 10-Q or current reports on Form 8-K.

After the Merger, from October 9, 2009 through December 31, 2009, we granted Non-Qualified Stock Option awards and Incentive Stock Option awards covering an aggregate of 2,100,000 shares of common stock, pursuant to our Plan, that remained outstanding as of March 19 2010. All of these options were granted at an exercise price of $0.375 per share. There are 1,880,000 options that vest quarterly over two years beginning the first quarter of 2010, 50,000 options that vest after six months from date of grant and 170,000 options that vest 25% on the anniversary of grant date and thereafter in 36 equal monthly installments. Each of the stock option awards were made in reliance upon the exemption from the registration provisions of the Securities Act set forth in Rule 701 in that the securities were offered and sold either pursuant to written compensatory benefit plans or contracts relating to compensation.

ITEM 6. SELECTED FINANCIAL DATA

Not required under Regulation S-K for "smaller reporting companies."

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

The following discussion of our financial condition, changes in financial ~~condition,~~position ~~plan of operations~~ and results of operations should be read in conjunction with (i) our audited financial statements as of December 31, 2010 and 2009 and ~~2008~~for the years then ended, and for the period from January 1, 2002 (inception of the ~~development~~ development stage) to December 31, ~~2009~~2010 and (ii) the section entitled "Business", included in this annual report. The discussion contains forward-looking statements that involve risks, ~~uncertainties~~ uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this annual report.

3033

Table of Contents

Overview

Our financial statements prior to the Merger are the financials of TechniScan Utah. Pursuant to the Merger, TechniScan Utah's financial statements became our financial statements.

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

Our current commercial focus is the development of an ultrasound-based product, the WBU system that is expected to provide radiologists with information about the bulk properties of tissue in the breast as well as useful images of the tissue structure.

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

From inception through December 31, ~~2009~~2010, we have generated revenues solely from grants, product development sales and research contracts. The WBU system has not yet been approved by the FDA for commercial sale; therefore, we have not yet generated revenues from ~~non-research~~commercial product sales. We have incurred losses since we began operating. As of December 31, ~~2009~~2010 and ~~2008~~2009, we had an accumulated deficit of $2530,~~187~~533,~~868~~558 and $2125,~~751~~187,~~464~~868, respectively. To date, we have been dependent on ~~equity~~debt ~~raised~~and ~~from~~equity ~~individual~~funding ~~investors~~ to support our operations, and we will continue to be ~~dependent~~ dependent on ~~debt~~similar ~~and equity~~ financing to support our operations until we generate significant revenues from the WBU system. There is substantial doubt about our ability to continue as a going concern, and no adjustments have been reflected in our financial statements that may result from the outcome of this uncertainty.

Basis of Presentation

Revenues

Since inception, we have generated revenues from federal research grants and private, ~~and~~ government research contracts and product development sales. We recognize revenues when services have been provided and invoiced to the federal government or other research partners.

During the years ended December 31, ~~2009~~2010 and ~~2008~~2009, we recognized revenues in connection with federal grants from the Department of Health and Human Services for cancer treatment research. In March 2009, a second no-cost extension was applied for and received on ~~two~~our ofUltrasound Quantitative Backscatter and Inverse Scattering ("QUB") grant as well as on our Thermoacoustic and Inverse Scattering Breast Cancer Scanner ("Thermoacoustic") grant extending the period on the grants. Onto March 28, 2010 and March 31, ~~2009~~2010 respectively. The QUB Grant was completed by March 31, we2010. ~~received~~In aMarch ~~notice~~2010, ofwe ~~award~~applied for ~~the~~and received a third no-cost extension ~~extending~~ on the ~~project~~Thermoacoustic Grant extending the period to March 31, ~~2010~~2011.

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

~~During~~In ~~the year ended December 31, 2008, we received $300,000 in~~ connection with ~~the shipment of~~ a ~~prototype~~European ~~system~~Market ~~per~~Development ~~the~~Agreement ~~terms~~that ofwe aentered ~~product~~into ~~development~~during ~~agreement~~October 2008 with ~~Esaote, S.p.A.,~~ ("Esaote~~") an Italian company~~, ~~which~~we ishave ~~also~~delivered atwo ~~stockholder.~~prototype ~~The agreement provides for the shipment of five~~ systems inand ~~total~~Esaote ~~for~~has apaid ~~cash~~us ~~price~~an aggregate of $~~300~~650,000. ~~for~~We ~~the~~have ~~first~~recorded ~~system,~~ $~~200~~240,000 ~~for~~of ~~the~~other ~~second~~research ~~system,~~revenues ~~and $100,000~~ for the ~~remaining~~period ~~three~~from ~~systems. We recognize $120~~January 1,~~000~~ of2002 ~~research~~(inception ~~revenue upon the shipment, acceptance and installation~~ of ~~each~~development ~~system.~~stage) Asthrough of December 31, ~~2008~~2010, wein ~~had deferred~~conjunction ~~$180,000~~with of the ~~$300,000~~shipment ~~cash~~of ~~receipt~~prototype insystems ~~connection~~per ~~with~~ the ~~shipment~~terms of ~~the~~a ~~first~~product ~~pre-production~~development ~~scanner~~agreement. ~~During~~The ~~the~~remaining ~~year~~balance ~~ended~~is ~~December 31,~~recorded ~~2009, we received $200,000~~ in ~~connection~~ ~~with~~related-party ~~the~~customer ~~shipment,~~deposits ~~acceptance,~~as ~~and installation~~ of ~~the~~December 31, ~~second prototype system~~2010.

In accordance with the agreement, the first two systems shipped were pre-production scanners and are to be used for research and clinical trials. The remaining three systems are to be production scanners meeting regulatory specifications for approved sale in Europe. 34

Table of Contents

Operating Expenses

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

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

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

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

Income Taxes

We have significant deferred income tax assets resulting primarily from net operating loss carryforwards and research and development tax credit carryforwards. These deferred income tax assets may reduce taxable income in future periods, if any. A valuation allowance is required when it is more likely than not that all or a portion of the deferred income tax asset will not be realized. We have recorded a valuation allowance against the deferred income tax assets that are not offset by deferred income tax liabilities because there is significant uncertainty as to our ability to generate sufficient profits to realize these deferred income tax assets.

Critical Accounting Policies and Use of Estimates

Use of Estimates

In preparing the financial statements in accordance with U.S. generally accepted accounting principles ("GAAP"), our management makes estimates and assumptions that affect the reported amounts of assets and liabilities and the 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 those estimates.

~~Revenue~~Derivative ~~Recognition~~Instruments

~~Our~~In ~~revenues~~connection ~~are~~with ~~sourced~~the ~~from~~sale ~~federal~~of ~~research~~debt ~~grants~~or ~~and~~equity ~~private~~instruments, ~~and~~we ~~government~~may ~~research~~sell ~~contracts.~~warrants Weto ~~recognize~~purchase ~~revenues~~our ~~when~~common stock. In certain circumstances, ~~products~~these ~~have~~warrants ~~been~~may ~~delivered~~be orclassified ~~services~~as ~~have~~derivative ~~been~~liabilities, ~~provided~~rather ~~and~~than ~~invoiced~~as toequity. Additionally, the ~~government~~debt or ~~other~~equity ~~research~~instruments ~~partners.~~may ~~The~~contain ~~FDA~~embedded ~~has~~derivative ~~not~~instruments, ~~yet~~such ~~approved~~as ~~the~~conversion ~~WBU~~options, which ~~system~~in ~~for~~certain ~~commercial~~circumstances ~~sale;~~may ~~therefore,~~be ~~we have~~required ~~not~~to ~~yet~~be ~~generated~~bifurcated ~~revenues~~ from ~~non-research~~the ~~product~~associated ~~sales~~host instrument and accounted for separately as a derivative asset or liability.

~~Inventory~~ 35

Inventory is stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. Inventory consists of raw materials and work in process. As appropriate, provisions are made to reduce inventory to its net realizable value. The cost of inventory that potentially may not sell prior to expiration or is deemed to have no commercial value has been written-off when identified. Net inventory has been valued at zero as of December 31, 2009 and 2008.

Table of Contents

The accounting for derivative instruments is complex. Our derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to other income (expense), in the period in which the changes in fair value occur. For embedded derivatives and warrants that are accounted for as derivative instrument liabilities, we determine the fair values of these instruments using the Black-Scholes option-pricing model and a binomial option-pricing model. These models require assumptions related to the expected term of the instrument and risk-free rates of return, our current common stock price, expected dividend yield and the expected volatility corresponding to the expected life of the instrument.

Revenue Recognition

Our revenues are sourced from federal research grants, private and government research contracts and product development sales. Revenue is recognized when the following criteria are met: (1) a contractual agreement exists; (2) products have been delivered or services have been rendered; (3) the fee is fixed or determinable, and (4) collectability is reasonably assured. Government grant revenue is recognized during the period qualifying expenses are incurred for research and development of the WBU system as set forth under the terms of the grant award agreements. We have complied with the federal statutes and regulations, including the delivery of all required periodic reports. We believe that no refunds will be required under the terms of the grant awards agreement.

Direct Grant Expenses

Direct grant expenses consist of costs incurred directly related to performance on the government grants. These expenses consist primarily of payroll, travel and direct material expenses. These expenses are charged to direct grant expense as incurred. Due to the fact that (1) we are incurring the expenses regardless of whether or not a government grant is obtained, (2) we are the primary obligor, (3) we have reasonable latitude in establishing the grant amount, (4) we perform the services, (5) we have discretion in supplier selection, and (6) we determine the specifications of the research; the direct grant expenses are presented gross of government grant revenues.

Patent Costs

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

Stock-based Compensation

We account for stock-based compensation in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 718, Stock Compensation. Stock-based compensation for stock options is estimated at the grant date based on each option's ~~calculated~~ value ~~instead of the fair value~~ as calculated by the Black-Scholes option-pricing model. ~~All~~Prior to the Merger, stock-based payments to employees are grants of stock options that are recognized in the statement of operations based on the calculated value at the date of grant instead of the fair value because it ~~has~~was not ~~been~~ practical to estimate the volatility of the share price. The calculated value method requires that the volatility assumption used in an option-pricing model be based on the historical volatility of an appropriate industry sector index. WeSubsequent ~~anticipate~~to ~~calculating~~the Merger, we calculate the fair value of stock options ~~instead~~using the historical volatility of ~~the~~selected ~~calculated~~comparable, ~~value~~publicly ~~when sufficient~~traded ~~stock~~companies ~~trading~~over ~~history~~a toperiod ~~estimate~~equivalent ~~volatility~~to isthe ~~available~~expected life, which is ~~anticipated~~the toexpected ~~occur~~time ~~during~~from ~~the~~grant ~~year~~date ~~ending~~until ~~December 31, 2010~~exercise.

We use the Black-Scholes option-pricing model to estimate the ~~calculated~~ value of our share-based payments. ~~The~~Prior ~~expected~~to ~~volatility is based on~~ the ~~volatility~~Merger, of the ~~Dow~~fair ~~Jones~~value ~~Small Cap Medical Equipment Index. We calculated the historical volatility~~ of ~~that~~our ~~index~~common ~~using~~stock ~~the~~was ~~daily~~based ~~closing~~on ~~total returns for that index for a period of time equal to~~ the ~~expected~~cash ~~term~~paid ~~of the options~~by ~~immediately~~unrelated ~~prior~~investors tofor ~~the~~our ~~grant date~~stock. WeSubsequent ~~use historical data~~ to ~~estimate option exercise and employee termination patterns. The expected term of~~ the ~~options~~Merger, ~~granted represents~~ the ~~period~~fair ofvalue ~~time that the options granted are expected to be outstanding. The risk free rate for the periods within the contractual life~~ of ~~the~~our ~~option~~common stock is based on the ~~United States treasury securities constant maturity rate that corresponds to the expected term in effect at the time of grant.~~

Table of Contents

closing quoted price of our common stock, as reported on the OTCQB. Prior to the Merger, the expected volatility was based on the volatility of the Dow Jones Small Cap Medical Equipment Index. We calculated the historical volatility of that index using the daily closing total returns for that index for a period of time equal to the expected term of the options immediately prior to the grant date. Subsequent to the Merger, the expected volatility is based on the volatility of selected comparable publicly traded companies that are as similar as possible to our industry, size, financial leverage and stage of life cycle. We calculated the historical volatility of those companies using their weekly and monthly closing total returns, over a period equivalent to the expected life, which is the expected time from grant date until exercise. We use historical data to estimate option exercise and employee termination patterns. The expected term of the options granted represents the period of time that the options granted are expected to be outstanding. The risk free rate for the periods within the contractual life of the option is based on the United States treasury securities constant maturity rate that corresponds to the expected term in effect at the time of grant.

Results of Operations

Fiscal Year Ended December 31, ~~2009~~2010 Compared to the Fiscal Year Ended December 31, ~~2008~~2009

Revenues

	For the Year Ended December 31,
	2009		2008		% Change
	2010		2009		% Change
Government grant	$	~~861~~126,~~091~~613	$	~~653~~861,~~061~~091		32(85	)%
Related-party research	$	120,000	$	120,000		0	%
Product development sales		250,000		—		100	%
Related-party research		—		120,000		(100	)%

Government grant revenues ~~increased~~decreased $~~208~~734,~~030~~478, or approximately 3285%, for the year ended December 31, ~~2009~~2010 as compared to the year ended December 31, ~~2008~~2009. This ~~increase~~decrease in revenues is the result of ~~increased expenditures incurred on~~ the ~~second phase of our~~ Inverse Scatter Breast Scan ("SBIR") grant, asbeing ~~well~~completed as ~~expenditures~~of onDecember 31, 2009, the Ultrasound Quantitative Backscatter & Inverse Scatter ("QUB") grant being completed as of March 31, 2010, and the Thermoacoustic and Inverse Scattering Breast Scanner ("Thermoacoustic") grant. ~~All~~being ofcompleted ~~the~~as ~~current grants are nearing the end~~ of ~~the~~November 19, ~~awarded amount and the proposed scope of the work~~2010. ~~Grant revenues are expected to decline with the primary emphasis shifting to the subcontract work of completing the clinical studies under our largest Small Business Innovative Research Award.~~

~~Related-party~~Product ~~research revenues of $120,000 were recognized during 2009 and 2008 in connection with the shipment of a prototype system each year per the terms of product~~ development ~~agreement~~ ~~with~~sales ~~Esaote, which entity is also a stockholder. Related-party research~~ revenues ofrelate ~~$360,000 are expected~~ to ~~be recognized when~~ the ~~final~~sale ~~three~~of ~~production~~equipment ~~systems are delivered~~ and ~~installed.~~ ~~Subsequent~~software to ~~the~~Womens3D ~~deliveries~~in ~~under~~2010. ~~the~~There ~~existing~~were ~~contract,~~no weproduct dodevelopment ~~not anticipate further~~ sales ofduring ~~research~~2009.

33 There were no related-party research revenues recognized during 2010. Related-party research revenues of $120,000 was recognized during 2009 in connection with the shipment of a prototype system per the terms of a product development agreement with Esaote, which entity is also a stockholder. Related-party research revenues of $360,000 are expected to be recognized when the final three production systems are delivered and installed. Subsequent to the deliveries under the existing contract, we do not anticipate further sales of research and prototype equipment. Future sales are anticipated to be for production systems. We anticipate commercial sales beginning in early 2012. Sales will be dependent on the outcome of clinical trials now underway in Freiburg, Germany.

Selling, General and Administrative Expenses

	For the Year Ended December 31,

	2010		2009		% Change
Selling, general and administrative expenses	$	3,377,013	$	2,179,718		55	%

Table of Contents

~~and prototype~~ Selling, ~~equipment.~~general ~~Future~~and ~~sales~~administrative ~~are~~expenses ~~anticipated~~increased to$1,197,295 be for ~~production~~the ~~systems.~~year Weended ~~anticipate~~December 31, ~~commercial~~2010, ~~sales~~as ~~beginning~~compared into ~~early~~the ~~2011.~~year ~~Sales~~ended ~~will~~December 31, 2009. beThis ~~dependent~~overall onincrease ~~the~~was ~~outcome~~due ofto ~~clinical~~the ~~trials now~~following ~~underway~~increases inby ~~Freiburg,~~category: ~~Germany.~~

•: stock-based compensation of $756,312 primarily due to options that were granted to employees and directors during the fourth quarter of 2009;
•: professional fees of $567,633 for legal and accounting services;
•: directors' fees of $100,000;
•: travel and related expenses of $58,687;
•: depreciation expense of $34,671;
•: liability insurance expense of $17,232; and
•: other selling, general and administrative expenses of $33,172.

The foregoing ~~Operating~~increases ~~Expenses~~ in selling, general and administrative expenses were offset by the following decreases by category:

•: marketing expense of $277,156 primarily due to common stock that was issued for services during 2009; and
•: compensation and related expenses of $93,256 primarily due to our Board of Directors implementing a furlough to reduce overhead costs and conserve cash. The furlough, which was effective August 13, 2010 was for 10 weeks. On October 25, 2010, we laid-off 9 of our 17 employees.

		For the Year Ended December 31,
		2009		2008		% Change
Operating Expenses
	Selling, general and administrative	$	2,179,718	$	1,700,878		28	%
	Research and development		1,610,562		2,817,754		-43	%
	Direct grant		622,349		518,150		20	%

Research and Development Expenses

Selling, general and administrative expense increased $478,840, or 28%, for the year ended December 31, 2009, as compared to the year ended December 31, 2008. This increase is primarily the result of an increase in legal, accounting and professional fees of approximately $900,000 during the fourth quarter of 2009 in connection with the Merger and a decrease in expenses related to personnel and other expenses due to a decrease in available cash resources, which required us to reduce personnel and other expenses until additional capital becomes available.

	For the Year Ended December 31,

	2010		2009		% Change
Research and development expenses	$	1,589,269	$	1,610,562		(1	)%

Research and development expense decreased $121,~~207,192,~~293 ~~or approximately 43%,~~ for the year ended December 31, ~~2009~~2010, as compared to the year ended December 31, ~~2008~~2009. This ~~decrease~~ isoverall ~~primarily the result of a~~ decrease inwas ~~available~~due ~~cash resources during 2009, which required us~~ to the ~~reduce~~following ~~personnel~~decreases ~~and~~by ~~other~~category: ~~expenses until additional capital becomes available.~~

•: stock-based compensation of $123,918 primarily due to the acceleration of all unvested stock options as of October 9, 2009, in connection with the Merger and not repeated in 2010;
•: engineering and design support of $122,052 pursuant to the Esaote Original Equipment Manufacturing Agreement ("OEM Agreement") incurred during 2009 and not repeated in 2010; and
•: other research and development expenses of $25,128.

~~Direct~~The ~~grant~~foregoing ~~expense~~decreases ~~increased~~in ~~$104,199,~~research orand ~~approximately~~development ~~20%,~~expenses ~~for~~were ~~the~~offset ~~year~~by ~~ended~~increases ~~December 31, 2009, as compared to the year ended December 31, 2008. This increase is primarily the result of increased expenditures on the SBIR grant, as well as expenditures incurred~~ in ~~connection with~~ the ~~QUB~~following ~~and~~categories: ~~Thermoacoustic grants.~~

•: clinical work of $114,582 to establish and support the clinical utility of the WBU system;
•: depreciation expense of $69,480; and
•: compensation and related expenses of $65,743 primarily due to the grants being completed in 2010 and compensation related to these employees being recorded in research and development subsequent to the completion of the grants.

~~Other Income and Expenses~~ 38

		For the Year Ended December 31,
		2009			2008			% Change
Other income and expenses
	Interest income	$	1,348		$	18,399			-93	%
	Interest expense		(6,214	)		(757	)		721	%
	Gain on sale of property and equipment		—			2,461			N/A

Interest income decreased $17,051, or approximately 93%, for the year ended December 31, 2009, as compared to the year ended December 31, 2008, primarily as a result of lower interest-bearing cash and cash equivalent balances during 2009. Interest expense increased as a result of interest that is being accrued relating to the dissenter stockholders that is to be paid during the first quarter of 2010.

The net loss for the year ended December 31, 2009 was $3,436,404 compared to a loss of $4,243,618 for the year ended December 31, 2008. The decrease in the net loss is primarily due to us reducing expenses not directly tied to federal research grants in 2009. During 2010 and 2011, the net losses are expected to increase as we increase expenditures related to completing the commercialization of products, ramping up sales and marketing efforts and increased personnel levels.

Table of Contents

Direct Grant Expenses

	For the Year Ended December 31,

	2010		2009		% Change
Direct grant expenses	$	139,039	$	622,349		(78	)%

Direct grant expenses decreased $483,310 for the year ended December 31, 2010, as compared to the year ended December 31, 2009. This decrease is primarily the result of decreased expenditures on the SBIR, QUB and Thermoacoustic grants that were all closed during 2010.

Other Income and Expenses

	For the Year Ended December 31,

	2010			2009			% Change
Interest income	$	616		$	1,348			(54	)%
Interest expense		(3,472,732	)		(6,214	)		N/A
Gain on derivatives, net		2,855,134			—			N/A

Interest income decreased $732 for the year ended December 31, 2010, as compared to the year ended December 31, 2009, primarily as a result of the reduced balance in interest-bearing cash and cash equivalents during 2010.

Interest expense increased as a result of interest expense being incurred on the convertible notes payable, debt issuance costs and the amortization of the convertible note discount.

Gain on derivatives, net was $2,855,134 for the year ended December 31, 2010 as compared to $0 for the year ended December 31, 2009. The gain on derivatives was a result of the valuation of our derivative financial instruments associated with our convertible notes payable issued during the year ended December 31, 2010, as detailed in the notes to the financial statements.

Results of Operations for the Development Stage

Since the inception of our development stage (January 1, 2002) through December 31, ~~2009~~2010, we have generated $3,~~045~~172,~~464~~077 of revenues from government grants and have experienced cumulative net losses of $2430,~~798~~144,~~475~~165. Selling, general and administrative expenses were $1216,~~963~~340,~~585~~598, research and development expenses were $1214,~~847~~437,~~757~~026, and direct grant expenses were $12,~~875~~014,~~156~~195 for the development stage period. All research and development costs are expensed as they are incurred, which include, but are not limited to, personnel, prototype materials, lab supplies, consulting and research-related overhead.

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

	For the Year Ended December 31,
	2009			2008			% Change
	2010			2009			% Change
Net cash used in operating activities	$	(13,~~685~~075,~~665~~747	)	$	(31,~~018~~685,~~026~~665	)		~~-44~~82	%
Net cash provided by (used in) investing activities		(613,023	)		159,451			-484	%
Net cash used in investing activities		(157,411	)		(613,023	)		(74	)%
Net cash provided by financing activities		23,~~262~~001,~~202~~478			2,~~914~~262,~~553~~202			~~-22~~33	%

During the development stage, we have not generated revenues in excess of expenses and have been dependent on government grants and debt and equity funding to sustain our operations. Our WBU system has not been approved by the FDA for commercial sale. We have incurred losses and

Table of Contents

used cash in operating activities since inception. As of December 31, 2010, we had an accumulated deficit of $30,533,558 and negative working capital of $4,917,139. We have had minimal revenues since inception. Until (1) our WBU system is approved by the FDA for commercial sale, (2) we realize income from operations, and (3) we generate cash from operating activities, we expect our short and long-term liquidity issues and uncertainties to remain.

We plan to address our liquidity issues through the sale of equity securities, collaboration with third parties to accelerate the introduction of product and services into the market, and continued focus on obtaining approval from the FDA for our product and services to qualify for commercial sale. We have implemented the following cost reductions to assist in decreasing our cash needs:

•: 20% reductions in salary beginning June 1, 2010; and
•: Laid-off 9 of our 17 employees on October 25, 2010, which will result in an annual savings of approximately $760,000.

Operating Activities

We used cash in operating activities of $13,~~685~~075,~~665~~747 for the year ended December 31, ~~2009~~2010, as compared to using $31,~~018~~685,~~026~~665 for the year ended December 31, ~~2008~~2009. We continue to use significant amounts of cash as we move our product development efforts forward. We have used cash in operating activities of $1923,~~968~~044,~~949~~696 since the inception of the development stage (January 1, 2002) through December 31, ~~2009~~2010.

Investing Activities

We used cash from investing activities of $157,411 for the year ended December 31, ~~2009~~2010, ~~for~~as ~~the~~compared ~~purchase~~to ofusing ~~equipment. In comparison, we generated cash of~~ $~~159~~613,~~451~~023 for the year ended ~~2008~~December 31, ~~due to cash proceeds from the sale of investments of $213~~2009,~~112~~ ~~and~~for ~~cash proceeds from~~ the ~~sale~~purchase of equipment ~~of $4,000, offset in part by purchases of equipment of $57,661~~. We have used cash in investing activities of $1,~~012~~170,~~814~~225 since the inception of the development stage (January 1, 2002) through December 31, ~~2009~~2010.

Financing Activities

We generated cash from financing activities of $23,~~262~~001,~~202~~478 for the year ended December 31, ~~2009~~2010, as compared to $2,~~914~~262,~~553~~202 for the year ended December 31, ~~2008~~2009, primarily from the issuance of ~~preferred~~convertible ~~and~~notes. ~~common~~We ~~stock~~have generated cash from financing activities of $24,070,773 since ~~net~~the inception of ~~issuance~~the ~~costs~~development stage (January 1, 2002) through December 31, 2010. We expect to continue to seek additional funding to meet our working capital ~~requirements~~ requirements through collaborative arrangements and sales of securities, research grants, and/or bank borrowings. There can be no assurance, however, that additional funds will be available from any of the foregoing or other sources on favorable terms, if at all.

Our future capital requirements will depend on many factors, including cash flows from operating activities, technology developments, and our ability to develop and successfully market the WBU system and other new products. We expect that we will need to raise additional capital, through other equity offerings or debt financings to satisfy our anticipated operations, expenses and capital requirements for the next twelve months or longer. Because of our accumulated deficit, rate of cash used in operating activities, negative working capital, minimal revenues, and other factors, substantial doubt exists about our ability to continue as a going concern.

Table of Contents

Recent Accounting Pronouncements

InOn September 15, ~~2009~~2010, the ~~FASB~~SEC issued ~~Accounting~~Release ~~Standards Update ("ASU") 2009-08, Earnings Per Share (amendments to Section 260-10-S99)~~No. ~~This update includes technical corrections to FASB ASC Section~~ ~~260~~33-~~10-S99~~9142, ~~Earnings~~Internal ~~Per~~Control ~~Share,~~Over Financial ~~based~~Reporting onIn ~~EITF~~Exchange ~~Topic~~Act ~~D-53,~~Periodic ~~Computation~~Reports of ~~Earnings~~ ~~Per~~Non-Accelerated ~~Share~~Filers. ~~for~~This arelease ~~Period~~issued ~~That Includes Redemption or an Induced Conversion of~~ a ~~Portion~~final ofrule aadopting ~~Class~~amendments ofto ~~Preferred~~its ~~Stock~~rules and ~~EITF~~forms ~~Topic D-42, The Effect of the Calculation of Earnings Per Share for~~to ~~the~~conform ~~Redemption~~them orto ~~Induced~~Section 404(c) ~~Conversion~~ of ~~Preferred Stock. We do not expect~~ the ~~implementation~~Sarbanes-Oxley ~~of this update to have an impact on its results of operations or financial position.~~

In August 2009, the FASB issued ASU No. 2009-04, Accounting for Redeemable Equity Instruments—Amendment to Section 480-10-S99. This ASU represents an update to Section 480-10-S99, Distinguishing Liabilities from Equity, per EITF Topic D-98, Classification and Measurement of Redeemable Securities. The adoption of ASU 2009-04 will not have a material impact on our results of operations or financial position. 40

In December 2009, the FASB issued ASU 2009-17, Improvements to Financial Reporting Involved with Variable Interest Entities, which codifies SFAS No. 167, Amendments to FASB Interpretation No. 46(R) issued in June 2009. ASU 2009-17 requires a qualitative approach to identifying a controlling financial interest in a variable interest entity ("VIE"), and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. ASU 2009-17 is effective for annual reporting periods beginning after November 15, 2009. We do not expect the adoption of ASU 2009-17 to have a material impact on our results of operations or financial position.

In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements, which amends FASB ASC Topic 605, Revenue Recognition, and ASU 2009-14, Certain Arrangements That Include Software Elements, which amends FASB ASC Topic 985, Software. ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-14 removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU 2009-13 and ASU 2009-14 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. We do not expect the adoption of ASU 2009-13 or ASU 2009-14 to have a material impact on our results of operations or financial position.

In January 2010, the FASB issued ASU 2010-06, Improving Disclosures About Fair Value Measurements, which requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. ASU 2010-06 is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. We do not expect the adoption of ASU 2010-06 to have a material impact on our results of operations or financial position.

Table of Contents

Act ~~ITEM~~of 7A2002 (SOX), as added by Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act. ~~QUANTITATIVE~~ ~~AND~~SOX ~~QUALITATIVE~~Section 404(c) ~~DISCLOSURES~~provides ~~ABOUT~~that ~~MARKET~~Section 404(b) ~~RISK~~shall ~~NOT~~not apply ~~REQUIRED~~with ~~UNDER~~respect ~~REGULATION~~to Sany audit report prepared for an issuer that is neither an accelerated filer nor a large accelerated filer as defined in Rule 12b-K2 ~~FOR~~under ~~"SMALLER~~the ~~REPORTING~~Securities Exchange ~~COMPANIES~~Act of 1934." Release No. 33-9142 was effective September 21, 2010.

In July 2010, FASB issued Accounting Standards Update ("ASU") 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASC Topic 310). This guidance will expand disclosures by requiring additional disaggregated information related to the current disclosures. It will also require additional disclosures to provide information based on credit quality, past due aging information, troubled debt restructuring information, and significant purchases and sales of financing receivables. ASU 2010-20 is effective for our interim and annual reporting periods ended after December 15, 2010. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

In March 2010, the FASB issued Accounting Standards Update ("ASU") No. 2010-11, which is included in the Codification under ASC 815. This update clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Only an embedded credit derivative that is related to the subordination of one financial instrument to another qualifies for the exemption. This guidance became effective for our interim and annual reporting periods beginning January 1, 2010. The adoption of this guidance did not have a material impact on our condensed financial statements.

In February 2010, the FASB issued ASU No. 2010-09, which is included in the Codification under ASC 855, Subsequent Events. This update removes the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated and became effective for our interim and annual reporting periods beginning January 1, 2010. The adoption of this guidance did not have a material impact on our financial statements.

In January 2010, the FASB issued ASU No. 2010-06, which is included in the Codification under ASC 820, Fair Value Measurements and Disclosures. This update requires the disclosure of transfers between the observable input categories and activity in the unobservable input category for fair value measurements. The guidance also requires disclosures about the inputs and valuation techniques used to measure fair value and became effective for our interim and annual reporting periods beginning January 1, 2010. The adoption of this guidance did not have a material impact on our financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required under Regulation S-K for "Smaller Reporting Companies."

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The information required by this item is included in this report beginning at page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

~~ITEM 9A (T). CONTROLS AND PROCEDURES~~ 41

AsTable of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934. Based on that evaluation, our management, including the chief executive officer and the chief financial officer, concluded that as of the date of the evaluation our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our periodic filings under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including those officers, to allow timely decisions regarding required disclosure. There have been no significant changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the period covered by this report. Contents

~~Evaluation~~ ITEM of9A. CONTROLS ~~Disclosure~~AND ~~Controls and Procedures~~ PROCEDURES

~~The~~ ~~Company's~~Disclosure ~~management~~Controls ~~carried out an evaluation, under the supervision~~ and with the participation of the Company's chief executive officer and chief financial officer, respectively of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2009, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company's chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures as of December 31, 2009 were effective. Procedures

The Company's management carried out an evaluation, under the supervision and with the participation of the Company's chief executive officer and chief financial officer, respectively of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2010, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company's chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures as of December 31, 2010 were effective.

Management's Annual Report on Internal Control Over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:

•: pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
•: provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
•: provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Table of Contents

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.

In connection with the preparation of our annual financial statements, we have assessed the effectiveness of internal control over financial reporting as of December 31, ~~2009~~2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO Framework. Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this evaluation, management has determined that as of December 31, ~~2009~~2010, our internal controls over financial reporting ~~are effective and there~~ were ~~no weaknesses in our internal control over financial reporting~~effective.

Limitations on the Effectiveness of Controls.

Our disclosure controls and procedures provide our chief executive officer and chief financial officer with reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within the Company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.

Attestation Report of the Independent Registered Public Accounting Firm

This report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

ITEM 9B. OTHER INFORMATION

None

3842

Table of Contents

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors, Executive Officers, ~~Directors~~ and Key Employees

The following table sets forth the names and ages of our directors, executive officers, and key employees, and their positions with us.

Name		Position
David C. Robinson	4849	President and Chief Executive Officer, Director
Steven K. Passey	4849	Secretary, Chief Financial Officer
Barry K. Hanover	5556	Chief Operating Officer
Kenneth G. Hungerford II	64	Chairman of the Board
Joseph W. Pepper Ph.D.	64	Chairman of the Board
Richard J. Stanley	67	Director
Kenneth G. Hungerford II	65	Director
Gerald A. Richardson	78	Director
Richard J. Stanley	68	Director
Cheryl D. Cook	61	Director
Gerald A. Richardson	79	Director
Joseph W. Pepper Ph.D.	63	Director
Cheryl D. Cook	62	Director
John C. Klock, M.D.	65	Chief Medical Officer
John C. Klock M.D.	66	Chief Medical Officer

No director, officer, affiliate or promoter has, within the past five years, filed any bankruptcy petition, been convicted in or been the subject of any pending criminal proceedings, or is any such person the subject of any order, judgment or decree involving the violation of any state or federal securities laws.

The following is a brief account of the business experience during the past five years (and, in some instances, for prior years) of each director and executive officer, including principal occupations and employment during that period and the name and principal business of any corporation or other organization in which such occupation and employment were carried on.

David C. Robinson, President and Chief Executive Officer, Director. Mr. Robinson has been the President and Chief Executive Officer and a director of TechniScan Utah since July 2001. As a result of the Merger, effective as of October 9, 2009, he became our President and Chief Executive Officer and a member of our Board. In 2003, Mr. Robinson also served as Chief Executive Officer of SafeScan, our joint venture until SafeScan's dissolution in 2004. From September 1998 to January 2002, Mr. Robinson served as the President and Chief Executive Officer of PhatPipe, which Mr. Robinson founded in 1998, a provider of affordable broadband technology and services to owners of industrial real estate. From 1995 to July 2001, Mr. Robinson provided strategic consulting services for government and private industry including AMB Property Corporation, The Oz Entertainment Company, and the United States General Services Administration. From 1987 to 1995, Mr. Robinson served as Chief Operating Officer for MEC Analytical Systems, Inc., a private consulting firm. From 1984 to 1987, Mr. Robinson was a consulting integration engineer with Litton Electronic Systems Group Defense Division. Mr. Robinson received a Bachelor of Arts degree in 1984 in Business from the University of Utah.

Steven K. Passey, Secretary and Chief Financial Officer. Mr. Passey has served as our Secretary and Chief Financial Officer since November 2009. Mr. Passey served as Vice President, Chief Accounting Officer and Treasurer for Mrs. Fields Famous Brands from 2007 to 2009. From 2004 to 2006, Mr. Passey served as Director of SEC Compliance, Controller of REIT Properties for Extra Space Storage, a self-administered and self-managed real estate investment trust company formed to own, operate, manage, acquire, develop and redevelop professionally managed self-storage facilities. Mr. Passey served as a Senior Manager at Ernst & Young in 1999 and from 2001 to 2004 and as Chief Financial Officer for SwitchPoint Networks, a broadband and communication technology company, from 2000 to 2001. Mr. Passey also served as Chief Financial Officer at RealTrust Asset Corporation, a specialty finance company from 1997 to 1998 and as a Manager at KPMG from 1989 to 1997.

3943

Table of Contents

Mr. Passey received his B.S. in Accounting from the University of Utah and is a Certified Public Accountant.

Barry K. Hanover, Chief Operating Officer. Mr. Hanover had been the Chief Operating Officer of TechniScan Utah since February 2002. As a result of the Merger, effective as of October 9, 2009, he became our Chief Operating Officer. From December 1992 to September 1996, Mr. Hanover served as the Vice-President of Engineering and from September of 1996 until November 1999 served as the Executive Vice President and Chief Technical Officer of OEC Medical Systems, Inc., a provider of high performance digital intraoperative/interventional x-ray imaging systems. Upon OEC's acquisition by GE Medical Systems in November 1999 until March 2001, Mr. Hanover served as GE OEC's Vice-President of Surgery and Chief Technologist. From 1983 to 1992, Mr. Hanover was Vice-President of Technical Development and a member of the board of directors of Sarcos, Incorporated, a developer of products including drug delivery and robotic systems. From 1990 to 1992, Mr. Hanover served as General Manager of Animate Systems, Inc, a division of Sarcos, Inc. From June 1992 until October 1992, Mr. Hanover was President of Hanover Engineering Services, LC, an engineering consulting firm with an emphasis on the solution of multidisciplinary design problems. Mr. Hanover received a Bachelor of Science degree in Mechanical Engineering in 1977 from Tufts University and a Masters of Engineering in Mechanical Engineering in 1985 from the University of Utah. Mr. Hanover is listed as an inventor on 2024 United States Patents in the fields of drug delivery systems, dialysis systems and x-ray and ultrasound imaging ~~apparatus~~systems and methods.

~~Kenneth~~Joseph GW. ~~Hungerford~~Pepper, IIPh.D., Chairman of the Board. Mr Dr. ~~Hungerford~~Pepper ~~had~~has been a member of ~~the~~our Board ~~of TechniScan Utah~~ since ~~February~~December 2009 ~~2007~~ and became ~~served~~our ~~as its~~ Chairman of the Board ~~since~~on ~~June~~November 30, ~~2009~~2010. AsSince a2007, ~~result~~Dr. Pepper ofhas ~~the~~served ~~Merger, effective~~ as ofa ~~October 9,~~consultant ~~2009,~~to hemedical ~~became~~device ~~our~~start-ups. ~~Chairman~~From of2003 ~~the~~until ~~Board~~2007, Dr. ~~Mr.~~ ~~Hungerford~~Pepper served ~~has~~as ~~been~~CEO ~~Chairman~~ of ~~ADAC Automotive,~~U-Systems Inc., a privately ~~held~~backed ~~automotive~~start-up ~~supplier,~~that ~~since~~developed ~~January~~automated ~~1986~~ultrasound ~~and~~for ~~served as its Chief Executive Officer from January 1996 until March 2007. ADAC is a member of~~ the ~~VAST LLC,~~early adetection ~~global supplier~~ of ~~automotive~~breast ~~parts~~cancer ~~with operations~~ in ~~China,~~women ~~Brazil,~~with ~~Japan,~~dense ~~and Korea~~breast tissue. MrDr. ~~Hungerford~~Pepper isserved ~~a member of the board of directors of VAST and serves~~ as aCEO ~~member~~for ofOEC ~~its~~Medical ~~strategic planning committee. Mr. Hungerford was a founding director of Edge Industries~~Systems, a ~~privately held~~NYSE-traded, ~~capital~~mobile fluoroscopic imaging equipment manufacturer ~~that provides~~and ~~specialized cutting~~seller, ~~metering,~~from ~~and~~1997 ~~dispensing~~until ~~systems for~~ the ~~urethane~~sale ~~industry;~~of ~~Lomak~~the ~~Petroleum,~~company ~~which~~to ~~was~~GE ~~merged~~Healthcare ~~into Range Resources, a publicly traded oil and gas company engaged~~ in ~~the acquisition~~1999. ~~and~~Prior ~~development~~to ofjoining ~~gas resources; Applied Image Technology~~OEC, aDr. Pepper ~~development~~spent ~~stage,~~15 years ~~software~~with ~~company~~The ~~that provided computer based parts manuals and was merged into MRO~~BOC Group, ~~Inc~~Plc., ~~a publicly~~where ~~traded~~he ~~software~~served ~~company~~as ~~which~~president ~~was subsequently~~of ~~acquired~~Ohmeda byMedical ~~IBM; Brillance Audiobooks~~Devices, athe ~~publisher~~healthcare subsidiary of ~~audiobooks~~BOC which was ~~recently~~responsible ~~acquired~~for byinternational ~~Amazon;~~selling and ~~WXMI~~distribution ~~Broadcasting,~~of anmedical ~~independent,~~devices ~~local~~and ~~television~~as president ~~station~~of inOhmeda ~~Grand~~Medical ~~Rapids~~Equipment, ~~MI,~~ ~~that~~which ~~became~~was ~~the~~responsible ~~local~~for ~~FOX~~Ohmeda's ~~network~~monitoring ~~affiliate,~~ and ~~was~~anesthesia ~~subsequently~~equipment ~~sold to COX Broadcasting~~business. ~~Additionally, Mr~~Dr. ~~Hungerford~~Pepper ishas ~~currently~~a onBS/MS ~~the~~in ~~board~~Engineering ofScience ~~trustees~~from ofFlorida ~~St. Mary's Health~~State ~~Care in Grand Rapids~~University, ~~Michigan, which is~~ a ~~member~~PhD ~~organization~~ in ~~the~~Mechanical ~~Trinity~~Engineering ~~Health Network. Mr. Hungerford received a Bachelor of Business Administration degree~~ from ~~the~~Stanford University ~~of Notre Dame in 1968~~ and ~~has~~an ~~been~~MBA ~~registered~~from asThe aHarvard ~~Certified~~Business ~~Public Accountant in the State of Michigan since 1970~~School.

~~Richard~~ Kenneth JG. ~~Stanley~~Hungerford II, Director. Mr. ~~Stanley~~Hungerford had been a member of the Board of TechniScan Utah since February 2007 and served as its Chairman of the Board since ~~December~~June ~~2002~~2009. As a result of the Merger, effective as of October 9, 2009, he ~~became~~served aas ~~member~~our Chairman of ~~our~~the Board. until November 30, 2010. Mr. ~~Stanley~~Hungerford has been anChairman ~~Associate~~of ~~Professor~~ADAC ofAutomotive, Inc., ~~chemistry at~~a ~~Wagner~~privately ~~College~~held automotive supplier, since ~~1991~~January 1986 and ~~was~~served aas ~~chemical~~its ~~engineer~~Chief ~~for~~Executive ~~Procter~~Officer from January 1996 until March 2007. ADAC is a member of VAST &LLC, ~~Gamble~~a ~~Manufacturing~~global ~~from~~supplier ~~1968~~of toautomotive ~~1990~~parts with operations in China, Brazil, Japan, and Korea. Mr. ~~Stanley~~Hungerford is ~~currently~~a member of the board of directors of VAST and serves as a ~~director~~member of ~~Mendis~~its ~~International~~strategic planning committee. Mr. ~~Stanley~~Hungerford ~~has~~was ~~been~~ a ~~part~~founding ~~owner~~director of Edge Industries, a ~~professional~~privately ~~baseball~~held, ~~franchise~~capital inequipment ~~the~~manufacturer ~~Eastern~~that ~~League~~provides specialized ofcutting, ~~Professional~~metering, ~~Development~~and dispensing systems for ~~30 years.~~the ~~Mr. Stanley~~urethane ~~has~~industry; ~~served~~Lomak asPetroleum, ~~the~~which ~~team President~~was merged into Range Resources, ~~Secretary~~a publicly traded oil and ~~Treasurer~~gas company engaged in the acquisition and development of gas resources; Applied Image Technology, a ~~director~~development ofstage, ~~the~~software ~~Eastern~~company ~~League~~that ~~for~~provided ~~more~~computer ~~than~~based ~~20 years~~parts manuals and ~~has~~was ~~been~~merged ~~responsible~~into ~~for~~MRO, Inc., ~~building~~a publicly ~~stadiums~~traded insoftware ~~various~~company ~~cities~~which inwas ~~the~~subsequently ~~United~~acquired ~~States~~by IBM; Brillance Audiobooks, a publisher of audiobooks which was recently acquired by Amazon; and ~~Canada.~~WXMI Broadcasting, an independent, ~~Mr. Stanley~~local ~~has~~television ~~served~~station asin ~~Vice~~Grand ~~Chairman~~Rapids, ~~and~~MI, ~~Chairman~~that ~~over~~became the ~~years~~local ~~since~~FOX ~~1990~~network ~~for~~affiliate, ~~SCORE.~~and was subsequently sold

4044

Table of Contents

to COX Broadcasting. Additionally, Mr. ~~Stanley~~ Hungerford received a Bachelor of ~~Science~~Business inAdministration ~~Chemical~~degree ~~Engineering~~ from ~~New~~the ~~York~~ University, ~~a Masters Degree in Chemical Engineering from City University~~ of ~~New~~Notre ~~York,~~Dame ~~and a Masters~~ in ~~Business Administration from New York University~~1968.

Richard J. Stanley, Director. Mr. Stanley had been a member of the Board of TechniScan Utah since December 2002. As a result of the Merger, effective as of October 9, 2009, he became a member of our Board. Mr. Stanley has been an Associate Professor of chemistry at Wagner College since 1991 and was a chemical engineer for Procter & Gamble Manufacturing from 1968 to 1990. Mr. Stanley is currently a director of Mendis International. Mr. Stanley has been a part owner of a professional baseball franchise in the Eastern League of Professional Development for 30 years. Mr. Stanley has served as the team President, Secretary and Treasurer and a director of the Eastern League for more than 20 years and has been responsible for building stadiums in various cities in the United States and Canada. Mr. Stanley has served as Vice Chairman and Chairman over the years since 1990 for SCORE. Mr. Stanley received a Bachelor of Science in Chemical Engineering from New York University, a Masters Degree in Chemical Engineering from City University of New York, and a Masters in Business Administration from New York University.

Gerald A. Richardson, Director. Mr. Richardson had been a member of the Board of TechniScan Utah since January 2008. As a result of the Merger, effective as of October 9, 2009, he became a member of our Board. Mr. Richardson previously served as a director of TechniScan Utah from October 2001 until August 2002. Mr. Richardson is the founder, managing partner and Chief Executive Officer of The Anson Group, a consulting firm which serves developers, manufacturers and marketers of pharmaceuticals, medical devices and diagnostic products. From 1986 to 1993, Mr. Richardson was the President and Chief Executive Officer of Biosound, Inc., a medical imaging company specializing in high performance ultrasound systems where he organized a buyout and resale of the company to the Esaote Group. From 1980 to 1983, Mr. Richardson was the President and Chief Executive Officer of VingMed, Inc., a cardiac ultrasound development and distribution company focused in Scandinavia that was acquired by GE Medical. In 1975 Mr. Richardson also helped found Irex Medical Systems, a developer of phased array cardiac imaging and quantitative Doppler flow measurement systems that later sold to Technicare Ultrasound, a unit of Johnson and Johnson. From 1972 to 1975, Mr. Richardson served as the President of EDR Instruments, Inc., a contract engineering company that developed industrial sensor and diagnostic cardiology instrumentation. Mr. Richardson received a Bachelor of Science degree from Kenyon College and a Master of Science from Temple University.

Cheryl D. Cook, Director. Ms. Cook had been a member of the Board of TechniScan Utah since August 2005. As a result of the Merger, effective as of October 9, 2009, she became a member of our Board. Ms. Cook founded in 1996, and is the owner of, C2 Financial, LLC, a financial consulting firm. Ms. Cook has been the financial advisor to the Idaho State Treasurer since 1987. From 2000 to 2004, Ms. Cook was Senior Vice President and Senior Relationship Manager at Key Bank. From 1990 to 1994, Ms. Cook was First Vice President and Manager for Dain Bosworth and Ehrlich Bober and Co. From 1997 to 2000, Ms. Cook was the Managing Director of the Salt Lake International Airport. Prior to this position, Ms. Cook was the Chief Financial Director for the Salt Lake International Airport. From 1994 to 1997, Ms. Cook was a government securities advisor for former Soviet Union countries, primarily with Ukraine and Latvia, as a United States Treasury contract employee. Ms. Cook is currently a board member and Chairman of the audit committee for the Community Development Corporation of Utah and a board member for the University of Utah Board of Visitors. From 2006 to 2009, Ms. Cook was a board member of Merrill Lynch Bank USA; from 2001 to 2008, Ms. Cook was a board member of the Salt Lake Valley Health Department; and from 2002 to 2004 Ms. Cook was a board member of the Utah Bankers Association. Ms. Cook received her Bachelor of Science degree from the University of Utah, College of Business.

Joseph W. Pepper, Ph.D., Director. Dr. Pepper has been a member of our Board since December 2009. Since 2007, Dr. Pepper has served as a consultant to medical device start-ups. From 2003 until 2007, Dr. Pepper served as CEO of U-Systems Inc., a privately backed start-up that developed automated ultrasound for the early detection of breast cancer in women with dense breast tissue. Dr. Pepper served as CEO for OEC Medical Systems, a NYSE-traded, mobile fluoroscopic imaging equipment manufacturer and seller, from 1997 until the sale of the company to GE Healthcare in 1999. Prior to joining OEC, Dr. Pepper spent 15 years with The BOC Group, Plc., where he served as president of Ohmeda Medical Devices, the healthcare subsidiary of BOC which was responsible for international selling and distribution of medical devices and as president of Ohmeda Medical Equipment, which was responsible for Ohmeda's monitoring and anesthesia equipment business. Dr. Pepper has a BS/MS in Engineering Science from Florida State University, a PhD in Mechanical Engineering from Stanford University and an MBA from The Harvard Business School. 45

Table of Contents

Key ~~Employees~~Employee

John C. Klock, M.D., Chief Medical Officer. Dr. Klock had been the Chief Medical Officer of TechniScan Utah since June 2009. As a result of the Merger, effective as of October 9, 2009, he became our Chief Medical Officer. Prior to serving as the Chief Medical Officer, Dr. Klock had been a member of the Board of TechniScan Utah from February 2007 until June 2009. Dr. Klock received his medical degree from Tulane University, and completed his medical training at the University of California-San Francisco and Massachusetts General Hospital. Dr. Klock is a board-certified Internist and Hematologist-Oncologist who practiced medicine and did research at the University of California-San Francisco from 1970 to 1982. Since 1982, Dr, Klock has been involved in the start-up of five medical companies. Dr. Klock has authored over 70 peer-reviewed medical and scientific publications and is listed as an inventor on 8eight United States patents.

Board of Directors

Our Board currently consists of six members, five were elected at the Merger and one was elected in December 2009, who serve until the next annual meeting of stockholders following their elections. There are no family relationships between or among our executive officers and directors.

Committees of the Board of Directors

Our Board established an Audit Committee, which acts pursuant to a written charter adopted by the Board.

The Audit Committee is currently comprised of Cheryl Cook (chair), Richard Stanley and Joseph Pepper, Ph.D., each of whom have been determined to be "independent" under certain independence criteria adopted by our Board and as defined under the standards of independence set forth in the Marketplace rules of the NASDAQ Stock Market, although these independent director standards do not directly apply to us because we do not have any securities that are listed on the NASDAQ. The Board has determined that Ms. Cook, the chair of the Audit Committee, is an "audit committee financial expert," under applicable SEC rules and regulations. The Audit Committee's responsibilities and duties are among other things to engage the independent registered public accounting firm, review the audit fees, supervise matters relating to audit functions and review and set internal policies and procedure regarding audits, accounting and other financial controls. We have posted the Audit Committee Charter on our website located at www.~~techniscanmedicalsystems~~tsni.com.

Our Board has not established either a compensation or a nominating and corporate governance committee. With only six members, the Board determined that it will function as and perform the duties and responsibilities typically carried out separately by these committees.

Code of Ethics

In December 2009, we adopted a written Code of Business Conduct and Ethics applicable to all employees, management, and directors. It is designed to deter wrongdoing and promote honest and ethical conduct, full, fair and accurate disclosure, compliance with laws, prompt internal reporting and accountability. We have posted our Code of Business Conduct and Ethics on our website located at www.~~techniscanmedicalsystems~~tsni.com.

4246

Table of Contents

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the compensation for services rendered in all capacities to us for the years ended December 31, ~~2009~~2010 and ~~2008~~2009 by our chief executive officer (principal executive officer) and our most highly compensated executive officers other than the chief executive officer whose total compensation in ~~2009~~2010 was at least $100,000, who are referred to in this section as the named executive officers.

~~2009~~ 2010 and ~~2008~~2009 Summary Compensation Table

Name and Principal Position
David C. Robinson,		~~2009~~2010	~~209~~227,~~420~~352	—	~~67,986~~—	~~575~~—	4,769	~~282~~232,~~750~~121
	Chief Executive Officer(2)	~~2008~~2009	~~210~~209,~~760~~420	~~500~~—	267,~~898~~986	~~14,950~~575	4,~~715~~769	~~233~~282,~~823~~750
Steven K. Passey		~~2009~~2010	15151,~~000~~799	—	1983,~~477~~881	—	—4,769	34240,~~477~~449
	Chief Financial Officer(3)	~~2008~~2009	—15,000	—	—19,477	—	—	—34,477
Barry K. Hanover,		~~2009~~2010	~~126~~96,~~120~~689	—	~~62,433~~—	2214,~~000~~385	43,~~682~~902	~~215~~114,~~235~~976
	Chief Operating Officer(4)	~~2008~~2009	~~159~~126,~~884~~120	~~500~~—	262,~~605~~433	2022,~~500~~000	4,~~675~~682	~~188~~215,~~164~~235
Emilia Ochoa		~~2009~~2010	~~4,500~~—	—	—	—	—	~~4,500~~—
	Chief Financial Officer(5)	~~2008~~2009	64,~~000~~500	—	—	—	—	64,~~000~~500

(1)Amounts reported represent the compensation cost recognized for financial statement reporting purposes in accordance with FASB ASC 718, Stock-Compensation, utilizing the assumptions discussed in Note 2 and Note 1012 to our financial statements for the year ended December 31, ~~2009~~2010 and ~~2008~~2009, giving effect to estimated forfeitures. Estimated forfeitures are nominal amounts. (2)Mr. Robinson was appointed our chief executive officer on October 9, 2009, in connection with the closing of the Merger. Amounts reported include compensation paid to Mr. Robinson by TechniScan Utah ~~for 2008 and~~ prior to October 9, 2009 for 2009. (3)Mr. Passey was appointed our chief financial officer on November 4, 2009, and commenced serving in that position on November 9, 2009. For more information, see "—Employment Agreements—Steven K. Passey" below. (4)Mr. Hanover was appointed as our chief operating officer on October 9, 2009, in connection with the closing of the Merger. Amounts reported include compensation paid to Mr. Hanover by TechniScan Utah ~~for 2008 and~~ prior to October 9, 2009 for 2009. ~~For~~Effective ~~more~~October 26, ~~information~~2010, ~~see~~Mr. Hanover ~~"—Employment~~became an independent contractor ~~Agreements—Barry~~instead Kof an employee. Mr. Hanover" ~~below~~maintains his duties and responsibilities as our chief operating officer, and continues to function in that position. As an independent contractor, Mr. Hanover is not eligible to participate in our health insurance, retirement, or cafeteria plans. Mr. Hanover is, however, eligible to participate in our equity compensation plan, and all of his option awards remain vested and fully exercisable in accordance with their terms. (5)Ms. Ochoa resigned as our chief executive officer, Chief Financial Officer and President on October 9, 2009, in connection with the closing of the Merger.

4347

Table of Contents

Outstanding Equity Awards

The following table sets forth certain information concerning the outstanding equity awards held by our named executive officers as of December 31, ~~2009~~2010.

Outstanding Equity Awards atas ~~Year-End~~of ~~2009~~December 31, 2010

~~Option Awards~~	Option Awards
Name	Number of ~~securites~~securities underlying unexercised options (#) exercisable)			Number of securities underlying unexercised options (#) unexercisable			Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)		Option exercise price ($)		Option expiration date
David C. Robinson(1)		~~336~~84,~~278~~070			—			—		0.1870		11/1/11
		56,000			—			—		0.50		2/10/14
		14,000			—			—		2.00		2/10/14
		112,000			—			—		0.35		2/10/14
		28,000			—			—		1.40		2/10/14
		168,000			—			—		0.50		3/31/14
		42,000			—			—		2.00		3/31/14
		168,000			—			—		0.50		6/30/14
		42,000			—			—		2.00		6/30/14
		168,000			—			—		0.50		2/3/15
		42,000			—			—		2.00		2/3/15
		60,000			—			—		0.50		6/15/15
		15,000			—			—		2.00		6/15/15
		200,000			—			—		0.35		3/1/17
		50,000			—			—		1.38		3/1/17
		300,000			—			—		0.45		3/11/18
		75,000			—			—		1.80		3/11/18
		200,000			—			—		0.45		5/1/18
		50,000			—			—		1.80		5/1/18
		1,400,000			—			—		0.38		6/26/19
		350,000			—			—		1.50		6/26/19
Steven K. Passey		—10,156	(2)		~~150~~27,~~000~~344	(2)		—		01.3850		11/9/19
		—			50,000	(3)		—		0.38		11/9/19
		12,500	(3)		—			—		1.50		11/9/19
Barry K. Hanover(1)		~~160~~40,000			—			—		0.1870		2/11/12
		240,000			—			—		0.18		2/11/12
		60,000			—			—		0.70		2/11/12
		96,000			—			—		0.27		1/2/13
		24,000			—			—		1.06		1/2/13
		32,000			—			—		0.50		2/10/14
		8,000			—			—		2.00		2/10/14
		89,600			—			—		0.38		2/10/14
		22,400			—			—		1.40		2/10/14
		96,000			—			—		0.50		3/31/14
		24,000			—			—		2.00		3/31/14
		96,000			—			—		0.50		6/30/14
		24,000			—			—		2.00		6/30/14
		96,000			—			—		0.50		2/3/15
		24,000			—			—		2.00		2/3/15
		60,000			—			—		0.50		6/15/15
		15,000			—			—		2.00		6/15/15
		200,000			—			—		0.35		3/1/17
		50,000			—			—		1.38		3/1/17
		200,000			—			—		0.45		3/11/18
		50,000			—			—		1.80		3/11/18
		200,000			—			—		0.45		5/1/18
		50,000			—			—		1.80		5/1/18
		1,300,000			—			—		0.38		6/26/19
		325,000			—			—		1.50		6/26/19

(1)The unexercisable option awards granted were to vest as follows: one-fourth of the shares vest one year after the date of grant and thereafter, in 36 equal monthly installments. As of December 15, 2009, all options became vested and fully exercisable. (2)Vesting schedule: 48-month vesting schedule, with 25% vesting one year after the date of grant and thereafter in 36 equal monthly installments. (3)~~The~~Option ~~unexercisable~~award ~~options awards~~ granted ~~vests~~vested after 6 months from date of grant.

~~Director Compensation~~ 48

The following table sets forth certain information concerning the compensation of our directors for services rendered in all capacities for us during the year ended December 31, 2009. David C. Robinson served as a director during the year ended December 31, 2009 and did not receive any compensation

Table of Contents

~~for his~~ ~~service~~Director asCompensation afor ~~director.~~the ~~All~~Year ~~compensation~~Ended ~~paid to Mr.~~December ~~Robinson~~31, ~~is reflected in the Executive Compensation tables.~~ 2010

~~2009~~ The following table sets forth certain information concerning the compensation of our directors for services rendered in all capacities ~~Director~~for us during the year ended December 31, 2010. David C. Robinson served as a director during the year ended December 31, 2010 and did not receive any compensation for his service as a director. All compensation paid to Mr. Robinson is reflected in the Executive Compensation tables.

Name
Kenneth G. Hungerford II(4)	514	514
Theodore H. Stanley, M.D.(3)	514	514
Richard Stanley	514	514
Gerald Richardson	514	514
Cheryl Cook	1,029	1,029
John Klock(3)	514	514
Gary Barbour(3)(5)	1,029	1,029
Steven A. Johnson, Ph.D.(2)(3)	5,106	5,106

2010 Director Compensation

(1)Compensation paid to directors and reflected in this Director Compensation table were in the form of warrants. Amounts reported represent the compensation cost recognized by TechniScan Utah for financial statement reporting purposes in accordance with FASB ASC 718, Stock-Compensation, utilizing the assumptions discussed in Note 2 and Note 10 to our financial statements for the year ended December 31, 2009 and, giving effect to estimated forfeitures. Estimated forfeitures are nominal amounts. (2)Dr. Johnson served as a director in the year ended December 31, 2009, and did not receive any compensation for his services as a director of TechniScan Utah. Dr. Johnson received stock option grants as payment for services as chief scientist. (3)Dr. Stanley, Dr. Klock, Mr. Barbour and Dr. Johnson resigned as directors of TechniScan Utah prior to the Merger and are no longer our directors. (4)Warrants were issued to Mr. Hungerford in the name of Green & Gold Capital Holdings, LLC. (5)Warrants were issued to Mr. Barbour in the name of Upstill Industries, Ltd.

Name

Joseph W. Pepper PhD.	20,000	82,546	102,546
Kenneth G. Hungerford II	20,000	165,091	185,091
Richard Stanley	20,000	82,546	102,546
Gerald Richardson	20,000	82,546	102,546
Cheryl Cook	20,000	165,091	185,091

(1): Amounts reported represent the compensation cost recognized for financial statement reporting purposes in accordance with FASB ASC 718, Stock-Compensation, utilizing the assumptions discussed in Note 2 and Note 12 to our financial statements for the year ended December 31, 2010 and, giving effect to estimated forfeitures. Estimated forfeitures are nominal amounts.

Employment Agreements

Steven K. Passey was appointed chief financial officer of TechniScan, Inc. in November 2009 and commenced serving in this position on November 9, 2009. In connection with Mr. Passey's appointment, we entered into an employment offer letter with Mr. Passey dated November 4, 2009 (the "Passey Offer Letter").

The Passey Offer Letter provides for an at-will employment relationship and also provides that Mr. Passey will receive the following compensation and benefits: (1) compensation of $5,000 per each two week period with an increase in compensation to an annual salary of $180,000 upon completion of our subsequent financing round; (2) an incentive stock option grant to purchase 150,000 shares of our common stock, at an exercise price of $0.375 per share, which is scheduled to vest over four years as follows: 25% after 12 months from issuance and the remaining balance in equal monthly installments for 36 months thereafter; and (3) a non-qualified stock option grant to purchase 50,000 shares of our common stock, at an exercise price of $0.375 per share, which is scheduled to vest after six months from issuance. The Passey Offer Letter also outlines other generally available benefits.

Subsequent to the Passey Offer Letter, the Board approved an increase in Mr. Passey's annual compensation to $180,000, which increase was made at the time of closing a short-term debt offering.

4549

Table of Contents

Barry K. Hanover was appointed chief operating officer of TechniScan Utah in February 2002 and commenced serving in this position on February 11, 2002. In connection with Mr. Hanover's appointment, TechniScan Utah and Mr. Hanover entered into an employment offer letter dated February 4, 2002 (the "Hanover Offer Letter"). Upon closing of the Merger, Mr. Hanover was appointed as our chief operating officer.

The Hanover Offer Letter provides for an at-will employment relationship and also provides that Mr. Hanover would receive the following compensation and benefits: (1) monthly compensation of $12,500; (2) a non-qualified stock option grant to purchase 200,000 shares of TechniScan Utah's stock, granted 45 days after Mr. Hanover's commencement date, at a strike price determined by the Board of TechniScan Utah; and (3) an incentive stock option grant to purchase a minimum of 300,000 shares of TechniScan Utah's stock (an increase above 300,000 was at the discretion of the Board or the chief executive officer), within 30 days after the closure of a then existing offering of TechniScan Utah's stock, which grant was scheduled to vest as follows, subject to TechniScan Utah's Employee Stock option Plan: 25% one year after the date of the Hanover Offer Letter and the remaining balance in equal monthly installments for 36 months thereafter; or all unvested options to vest immediately upon Change in Control as defined in the Hanover Offer Letter. The Hanover Offer Letter also outlines other generally available benefits.

Subsequent to the Hanover Offer Letter, Mr. Hanover's salary and compensation have been increased, based in part upon performance reviews. Mr. Hanover's compensation for the years ended December 31, 2009 and 2008 are reflected in the Executive Compensation Table.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following tables set forth, ~~information~~as ~~with~~of ~~respect~~March 22, to2011, information regarding the beneficial ownership of our outstanding common stock asbased ofupon ~~March 15,~~the ~~2010~~most byrecent information available to us for: (1) each stockholder known by us to own beneficially more than 5% of our ~~directors~~outstanding shares of common stock, (2) each ~~named~~of our ~~executive~~exeucitve ~~officer~~officers and directors, and (3) all of our directors and executive officers as a group~~, and (4) each stockholder known to us as beneficially owning greater than 5% of our outstanding shares of common stock~~. Beneficial ownership means sole or shared voting power or investment power with respect to a security. We have been informed that all shares shown are held of record with sole voting and investment power, except as otherwise indicated. To our knowledge, none of the shares reported below are pledged as security. Unless otherwise indicated, the address of each of the individuals and entity listed below is c/o TechniScan, Inc., 3216 South Highland Drive, Salt Lake City, Utah 84106.

Name and Address of Beneficial Owner
Name and Adress of Beneficial Owner		Number of Shares Beneficially Owned(1)		Percent of Class
David C. Robinson(2)(4)		3,934,742		4.57	%
Esaote S.p.A(3)			2,125,001		9.66	%
Steven K. Passey(2)(5)		50,000		*
Directors and Executive Officers:
Barry K. Hanover(2)(6)		2,921,216		3.41	%
	David C. Robinson(2)(4)		983,686		4.32	%
Kenneth G. Hungerford II(2)(7)		3,607,892		4.35	%
	Steven K. Passey(2)(5)		26,563		*
Richard J. Stanley(2)(8)		8,391,280		10.12	%
	Barry K. Hanover(6)		730,304		3.22	%
Gerald A. Richardson(2)(9)		92,000		*
	Kenneth G. Hungerford II(2)(7)		2,014,940		8.77	%
Cheryl D. Cook(2)(10)		284,998		*
	Richard J. Stanley(2)(8)		2,948,312		12.96	%
Joseph W. Pepper, Ph.D.(2)(11)		25,000		*
	Gerald A. Richardson(2)(9)		54,250		*
Esaote S.p.A(3)		8,500,001		10.25	%
	Cheryl D. Cook(2)(10)		133,750		*
Steven A. Johnson, Ph.D.(12)		5,050,765		6.04	%
	Joseph W. Pepper, Ph.D.(2)(11)		37,500		*
All directors and executive officers as a group (8 persons)		~~19,307,128~~	6,929,305	~~21.66~~	%27.79	%

*Indicates ownership of less than 1% (1)In determining beneficial ownership of our common stock as of a given date, the number of shares shown includes shares of common stock that can be acquired by that person within 60 days from the date hereof upon exercise of options, warrants and/or other convertible or exercisable securities. Each beneficial owner's percentage ownership is determined by assuming that options, warrants and other convertible or exercisable securities that are held by that person (but not those held by any other person) and that are convertible or exercisable within the 60-day period have been exercised. The percentage of outstanding common shares has been calculated based upon 21,986,944 shares of common stock outstanding on March 22, 2011. (2)These are the officers and directors of our company. (3)Esaote's address is Via Siffredi, 58 16153, Genova, Italy (4)Includes 191,616 shares of common stock held by Mr. Robinson and his wife in joint tenancy with right of survivorship, which Mr. Robinson may be deemed to share voting and investment power with respect to these shares. Includes presently exercisable options for the purchase of 792,070 shares of common stock pursuant to the 2001 Employee Stock Option Plan. (5)Includes presently exerciseable options for the purchase of 26,563 shares of common stock share pursuant to the 2001 Employee Stock Option Plan and the Passey Offer Letter.

4650

Table of Contents

(6): Includes presently exercisable options for the purchase of 716,400 shares of common stock pursuant to the 2001 Employee Stock Option Plan.
(7): Includes 994,473 shares of common stock held by Green & Gold Capital Holdings, LLC, of which Mr. Hungerford is a member and manager, and as such may be deemed to share voting and investment power with respect to these shares. Mr. Hungerford disclaims beneficial ownership of all shares held by Green & Gold Capital Holdings, LLC except to the extent of his pecuniary interest therein. Includes 18,928 shares of common stock held by TMS Capital Holdings, LLC, of which Mr. Hungerford is a member, and a manager, and shares equal voting and investment power over such shares with Mr. Stanley and Dr. John Klock. Mr. Hungerford disclaims beneficial ownership of all shares held by TMS Capital Holdings, LLC except to the extent of his pecuniary interest therein. Includes presently exercisable options for the purchase of 75,000 shares of common stock pursuant to the 2001 Employee Stock Option Plan. Includes conversion of notes (principal and interest) and warrants for the purchase of 277,551 and 648,988 shares of common stock, respectively.
(8): Includes 224,750 shares of common stock held by members of Mr. Stanley's family. Includes 1,941,820 shares of common stock held by Mr. Stanley and his wife as joint tenancy with right of survivorship and his other family members as joint tenants, which Mr. Stanley may be deemed to share voting and investment power with respect to these shares. Mr. Stanley disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. Includes 18,928 shares of common stock held by TMS Capital Holdings, LLC, of which Mr. Stanley is a member, and a manager, and shares equal voting and investment power over such shares with Mr. Hungerford and Dr. John Klock. Mr. Stanley disclaims beneficial ownership of all shares held by TMS Capital Holdings, LLC except to the extent of his pecuniary interest therein. Includes presently exercisable options for the purchase of 37,500 shares of common stock pursuant to the 2001 Employee Stock Option Plan. Includes conversion of notes (principal and interest) and warrants for the purchase of 225,580 and 499,734 shares of common stock, respectively.
(9): Includes presently exercisable options for the purchase of 37,500 shares of common stock pursuant to the 2001 Employee Stock Option Plan.
(10): All common stock is held by Ms. Cook and her husband as joint tenancy with right of survivorship, and Ms. Cook may be deemed to share voting and investment power with respect to these shares. Includes presently exercisable options for the purchase of 75,000 shares of common stock pursuant to the 2001 Employee Stock Option Plan.
(11): Includes presently exercisable options for the purchase of 37,500 shares of common stock pursuant to the 2001 Employee Stock Option Plan.

4751

Table of Contents

Equity Compensation Plan Information

The following table sets forth information as of December 31, 2010, about shares of our common stock outstanding and available for issuance under our equity compensation plan existing as of such date.

		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)			Weighted-average exercise price of outstanding warrants and rights			Number of securities remaining available for future issuance under equity compensation plans (excluding securities in column (a))

2001 Employee Stock Option Plan(1)(2)			3,200,445		$	1.38			673,955

(1): The plan was approved by the security holders of TechniScan Utah in 2001 for officers, employees, directors and consultants. The plan was subsequently amended pursuant to five separate amendments. The plan was assumed by the Company upon the closing of the Merger.
(2): The plan authorizes the granting of stock options to purchase shares of our common stock equal to 18% of the total shares of common stock outstanding.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Consulting Agreement

TechniScan Utah entered into a General Consulting Agreement with The Anson Group, dated May 1, 2006. Gerald A. Richardson, who ~~has~~ has served on our Board since January 2008, and previously served as a director of TechniScan Utah from October 2001 until August 2002, is the founder, managing partner and Chief Executive Officer of Anson Group. Anson Group serves developers, manufacturers and marketers of pharmaceuticals, medical devices and diagnostic problems. Pursuant to the terms of the General Consulting Agreement, Anson Group's responsibilities were to be described pursuant to various Project Assignments that would become part of the General Consulting Agreement, including assisting TechniScan Utah with submission of its 510(k) application for FDA approval. Payment for services rendered as well as the term of the General Consulting Agreement are pursuant to the Project Assignments, however, either party may terminate the agreement upon 30-days prior written notice or upon breach of the agreement and failure to cure such breach within a 30 day period. ~~TechniScan~~we ~~Utah~~ paid Anson Group the following ~~for~~ for services rendered under the General Consulting Agreement: $~~18,162~~0 in ~~2009~~2010 and $3018,~~642~~162 in ~~2008~~2009.

Lease

Prior to entering into a lease in June 2008 for our principal office located at 3216 South Highland Drive, Salt Lake City, Utah 84106, SafeScan and 1011 LLC entered into a Lease Agreement for the property located at 1011 East Murray-Holladay Road, Salt Lake City, Utah, dated September 1, 2003. Pursuant to the Second Addendum to Lease Agreement for 1011 Murray-Holladay Road, entered into in December 2004, the Lease Agreement was modified such that the parties to the Lease Agreement were TechniScan Utah and 1011 LLC. Gary Barbour, a director of TechniScan Utah from 2001 until his resignation in 2009 was a member of 1011 LLC. Payments made to 1011 LLC, pursuant to that Lease Agreement, in 2008 were $50,000.

Convertible Notes

~~From~~On ~~November~~March 30, ~~2007 through January 2008~~2010, ~~TechniScan~~we ~~Utah~~ issued ~~Convertible~~senior ~~Subordinated~~secured ~~Promissory~~convertible ~~Notes~~promissory ~~("Subordinated~~notes ~~Notes")~~ in the ~~aggregate~~ principal amount of $~~510~~250,000 asand ~~follows:~~warrants ~~$25,000~~ to purchase ~~the Stanley Research Foundation~~93,284 anshares ~~entity~~of ~~controlled~~our bycommon ~~Theodore~~stock H.to ~~Stanley,~~each ~~M.D.,~~of athe ~~former~~following ~~director~~two members of ~~TechniScan~~our ~~Utah; $25~~Board,~~000~~ toKenneth ~~Mary Ann O~~G. ~~Stanley~~Hungerford ~~Family~~II ~~Trust,~~and anRichard ~~affiliate of Dr~~J. Stanley~~; $25,000 to Dr~~. ~~Stanley~~The notes and ~~Susan~~warrants ~~Stanley,~~were ~~joint~~issued ~~tenancy~~in connection with ~~right~~a private ofdebt ~~survivorship;~~offering ~~$162,500~~and tothe ~~Richard~~terms J.of ~~Stanley,~~the aoffering ~~director~~were onthe ~~our~~result ~~Board; $50,000~~of toarm's ~~John~~length C.negotiations ~~Klock,~~between ~~M.D.,~~us aand ~~former~~the ~~director~~lead ofinvestor, ~~TechniScan~~Biotex ~~Utah~~Pharma Investments LLC, and ~~Cynthia~~neither ~~Klock,~~Hungerford ~~tenants~~nor Stanley inwere ~~common;~~a ~~$162,500~~part toof ~~Green~~any &negotiations ~~Gold~~in ~~Capital~~connection ~~Holdings,~~with ~~LLC,~~the anissuance ~~entity~~of ~~controlled~~the bynotes, ~~Kenneth~~the ~~G. Hungerford II~~warrants, aor ~~director~~the ~~and~~debt ~~our~~offering ~~Chairman~~on behalf of ~~the~~either ~~Board; $50~~us,~~000~~ tothe ~~Upstill~~lead ~~Industries~~investor, ~~Ltd~~or themselves., anHungerford ~~entity~~and Stanley ~~controlled~~agreed byto ~~Gary~~invest ~~Barbour,~~on athe ~~former~~same ~~director~~terms ofas ~~TechniScan~~ultimately ~~Utah;~~negotiated by the lead investor and ~~$10,000~~agreed to ~~Cheryl~~by D.the ~~Cook, a~~other ~~director~~members onof our Board. ~~and~~Prior ~~Robert~~to ~~Cook,~~the ~~joint~~completion ~~tenancy with right~~ of ~~survivorship.~~the ~~The~~transaction, ~~Subordinated~~neither ~~Notes~~the Company ~~were~~nor ~~non-interest~~any ~~bearing~~of ~~and~~its ~~included~~affiliates anor ~~automatic~~officers, ~~conversion~~directors ~~feature~~or totheir ~~convert~~associates ~~into~~had ~~common stock~~any ofmaterial ~~TechniScan~~relationship ~~Utah.~~with Inthe ~~February~~lead ~~2008~~investor, ~~TechniScan~~other ~~Utah~~than ~~converted~~in ~~all~~respect of the ~~principal~~applicable ~~owed~~material ~~under~~definitive agreements and the ~~Subordinated~~transactions ~~Notes~~contemplated ~~into~~therein ~~566,669~~and ~~shares~~related ~~of Series E Preferred Stock at a rate of $0~~thereto.90 ~~per share.~~

Subsequent to December 31, 2009, we issued Convertible Notes ("Notes") in the aggregate principal amount of $500,000 as follows: $250,000 to Kenneth G. Hungerford II, a director and our Chairman of the Board and $250,000 to Richard J. Stanley, a director on our Board. The Notes include an automatic conversion feature to convert into shares of our common stock. The Notes bear interest at 10%, if paid in cash, or 12%, if converted to common stock. The Notes have 100% warrant coverage 52

Table of Contents

to From ~~purchase~~May 13, ~~our~~2010 ~~common~~through ~~stock~~May 27, at2010, as part of the ~~exercise~~private ~~price~~debt offering, we issued additional senior secured convertible promissory notes in the aggregate principal amount of $0150,000 as follows: $100,000 to Kenneth G.67 ~~per~~Hungerford ~~share~~II and $50,000 ~~exercisable~~to ~~for~~John C. ~~five~~Klock ~~years~~M.D. ~~from~~As part of the ~~date~~purchase of the ~~Notes~~notes, Kenneth G. Hungerford II and John C. Klock M.D. received warrants to purchase 37,314 and 18,657 shares of our common stock, respectively. We closed this private debt offering May 27, 2010.

From July 29, 2010 through August 24, 2010 we issued, as part of the private debt offering, additional senior secured convertible promissory notes in the aggregate principal amount of $200,000 as follows: $100,000 to Kenneth G. Hungerford II and $100,000 to Richard J. Stanley. As part of the purchase of the notes, Kenneth G. Hungerford II and Richard J. Stanley received warrants to purchase 37,313 and 37,314, respectively, shares of our common stock. We closed this private debt offering on August 24, 2010.

From November 29, 2010 through December 17, 2010, we issued as part of our private debt offering additional senior secured convertible promissory notes in the aggregate amount of $100,000 as follows: $50,000 to Kenneth G. Hungerford II, and $50,000 to Richard J. Stanley. As part of the purchase of the Notes, Kenneth G. Hungerford and Richard J. Stanley each received 18,657 warrants to purchase shares of our common stock. We closed this private debt offering on December 17, 2010.

From August 9, 2010 through September 8, 2010, we received $135,000 by issuing short-term notes to two related parties. The notes bear interest at 8% per annum. The principal amount of the notes and accrued interest are due upon the earlier of: (1) receiving cash proceeds from equipment sales, loans, investments or otherwise from Esaote in excess of an aggregate of $135,000; (2) the closing of a public sale of our securities for gross proceeds of not less than $2,000,000; or (3) April 15, 2011.

Esaote

~~TechniScan~~Pursuant ~~Utah~~to ~~and~~the Esaote ~~entered~~OEM ~~into~~Agreement, aEsaote ~~Series~~provides Eengineering ~~Stock~~and ~~Purchase~~design ~~Agreement~~support ~~on February 11, 2008~~ and aoriginal ~~Letter~~equipment ofmanufacturing ~~Undertakings on~~prototype ~~Possible~~equipment ~~Amendment~~and ~~Agreement,~~supplies ~~dated~~to ~~October 28, 2008, in connection with TechniScan Utah's offering of Series E Preferred Stock~~us. ~~Pursuant~~Under toSupplement ~~the Stock Purchase Agreement~~One, Esaote agreed to ~~purchase~~provide ~~up to~~additional 10components,~~000,000~~ ~~shares~~development ofservices ~~the~~and ~~Series~~miscellaneous Ecosts ~~Preferred~~to ~~Stock~~support atthe afurther ~~price~~development of ~~$0.90~~our ~~per~~products ("Supplemental ~~share~~Services"). ~~and~~The ~~warrants~~Supplemental toServices ~~purchase~~are upvalued ~~to 1,500,000 shares of TechniScan Utah's common stock,~~ at anthe ~~exercise~~sum ~~price~~ of $01,008,417.75 ~~per share.~~Pursuant ~~Esaote's purchase of Series E Preferred Stock was~~ to ~~take~~Supplement ~~place in three separate closings~~One, ~~and~~Esaote athas the ~~initial~~choice ~~closing,~~to ~~Esaote~~be ~~purchased~~compensated ~~3,333,334~~for ~~shares~~the value of ~~TechniScan~~the ~~Utah~~Supplemental ~~Series E Preferred~~Services ~~Stock~~in ~~and~~cash ~~warrants~~or ~~to purchase 500,000~~ shares of our common stock, ~~for~~in ~~$3,000,000.~~an ~~$2,000,000~~amount ofas ~~the~~determined ~~purchase~~once ~~price~~the ~~was~~Supplemental ~~paid~~Services inare ~~cash~~completed ~~and $1,000,000~~or ~~was~~terminated. ~~paid~~The interm ~~the form~~ of ~~an account credit under~~ the ~~Original~~Esaote ~~Equipment~~OEM ~~Manufacturing~~ Agreement ~~and~~commenced ~~Engineering~~on ~~Support Agreement between TechniScan Utah and Esaote. Pursuant to the Stock Purchase Agreement~~February 11, ~~Esaote was entitled to certain other benefits~~2008, ~~including~~continues ~~redemption~~in ~~rights~~effect for a ~~one~~period ~~year~~of ~~following each closing~~24 months, ~~as applicable,~~ and ahas ~~right~~automatically ofbeen ~~first~~renewed ~~refusal~~for ~~and~~a ~~co-sale.~~further ~~These additional~~period ~~rights~~of ~~have~~36 months. ~~been~~As ~~terminated~~of ~~prior~~March 25, to2011, ~~the~~Esaote ~~Merger~~has ~~and~~not ~~are~~requested noany ~~longer~~payment infor ~~effect~~Supplemental Services.

In connection with the Distribution Agreement and the ~~European~~ Market ~~Development~~ Agreement ~~that we entered into in with Esaote in October 2008~~, we expected to deliver five WBU systems to Esaote for clinical testing and distribution in the European market. We have delivered two prototype systems and Esaote paid us an aggregate of $~~500~~650,000 to date. Also in connection with these two agreements, Esaote is assisting us with completion of the regulatory approval process in Europe, and is appointed to exclusively promote, market, sell and distribute the WBU system in the EU, Switzerland, Norway, Ukraine and the CIS (Russian Federation of related countries).

On December 2, 2009, we entered into a non-binding Manufacturing Letter of Intent with Esaote dated and effective as of November 12, 2009 ("Letter of Intent"). The Letter of Intent is in regards to a production and supply agreement between us and Esaote concerning the manufacturing of our WBU system. The parties do not expect to negotiate the supply agreement until June 2010 at the earliest, and if agreed upon, to execute the agreement on or before October 1, 2010. The Letter of Intent may be terminated by either party at any time, upon 30 business days written notice to the other party.

On December 2, 2009, we entered into Supplement Number One to Original Equipment Manufacturing Agreement and Engineering Support Agreement ("Supplement") with Esaote. Pursuant to the Supplement, Esaote will provide additional components, development services and miscellaneous costs to support the further development of our products ("Supplemental Services"). In consideration of the Supplemental Services, Esaote will receive, at Esaote'e election, either (a) additional shares of our common stock in an amount as determined once the Supplemental Services are completed or terminated; or (b) payment in cash in the amount of the Supplemental Services as determined in the Supplement and the Original Equipment Manufacturing Agreement and Engineering Support Agreement (the "Agreement"). Esaote must make its election of either cash or stock sometime in the second quarter of 2010. The Supplemental Services are valued at the sum of $1,008,417. The term of the Supplement will continue for the remaining term of the Agreement. The term of the Agreement commenced on February 11, 2008 and continues in effect for a period of 24 months, and has automatically been renewed for a further period of 36 months. As of December 31, 2009, Esaote has not provided any Supplemental Services.

Other Transactions

A number of TechniScan Utah's current and former officers and directors and certain entities controlled by them have invested in TechniScan Utah's private offerings of its equity securities during the last three years. The interest of such related persons, however, arose solely from the ownership of

Table of Contents

the particular class of equity securities of TechniScan Utah and all holders of such classes of equity securities of TechniScan Utah received the same benefit on a pro rata basis.

Review and Approval of Transactions with Related Persons

The Board has adopted a written policy for the review and evaluation of all related -party transactions. Under that policy, unless specifically delegated by the Board to another committee of the Board, the Audit Committee is charged with the responsibility of (1) reviewing and evaluating all related -party transactions, or proposed transactions, between the Company and a related person; and (2) ~~review~~reviewing and ~~make~~making recommendations to the full Board, or ~~approve~~approving, any contracts or other transactions with current or or former executive officers of the Company, including consulting arrangements, employment agreements, change-in-control agreements, termination arrangements, and loans to employees made or guaranteed by the Company. All related party transactions described above were reviewed and approved by the Audit Committee

Table of Contents

arrangements, employment agreements, change-in-control agreements, termination arrangements, and loans to employees made or guaranteed by the Company. All related-party transactions described above were reviewed and approved by the Audit Committee.

Arrangements of Certain Directors

We are aware of the following arrangements or understandings between certain directors and other persons, pursuant to which such directors were selected as a director.

In 2006, Mr. Hungerford was the lead investor of a group that purchased shares of TechniScan Utah's stock pursuant to a private placement offering of Series D Preferred Stock. Pursuant to the term sheet for such purpose, which set forth the agreement between Mr. Hungerford, together with certain other investors, and TechniScan Utah, Mr. Hungerford was appointed as a director of TechniScan Utah. Upon closing of the Merger in October 2009, the right to select a director by such investors was terminated.

Pursuant to a private placement offering of Series E Preferred Stock, TechniScan Utah and, as a group, 68 purchasers of the Series E Preferred Stock, entered into a Voting ~~Agreement~~ Agreement relating to the election of directors of TechniScan Utah. Pursuant to the Voting Agreement, the holders of Series E Preferred Stock were entitled to elect two directors of TechniScan Utah ("Series E Directors"). Esaote was one of the 68 purchasers, and pursuant to the Voting Agreement, Esaote was entitled to select one of the Series E Directors. The Voting Agreement survived the closing of the Merger, and now provides the holders of 153,~~579~~894,~~938~~985 shares of our common stock the right to elect ~~up to~~ two directors to our Board. Mr. Richardson was selected to serve as the Esaote appointed director on the Board of Directors of TechniScan Utah, and as the Esaote appointed Series E Director on our Board. The other Series E Director has not yet been nominated or elected to our Board.

Director Independence

We believe a majority of our Board are independent from management. Those individuals who we believe are independent directors are Joseph W. Pepper, PhD, Kenneth G. Hungerford II, Richard J. Stanley, Gerald A. Richardson, and Cheryl D. Cook ~~and Joseph W~~. ~~Pepper, PhD.~~ Our Board will determine the independence of the members of the Board from time to time in in reference to the listing standards adopted by NASDAQ Stock Market, the independence standards set forth in Sarbanes-Oxley and the rules and regulations promulgated by the SEC under applicable law. In In particular, we have an audit committee that will periodically evaluate and report to the Board on the independence of each member of the Board.

Our independent directors will hold formal meetings, separate from management, at least annually in executive session without the presence of non-independent directors and management.

Table of Contents

We do not have a formal policy regarding attendance by our directors at annual stockholders meetings, although we encourage their attendance and anticipate most of our directors will attend these meetings.

We have adopted a Whistleblower Policy, which is posted on our website at www.~~techniscanmedicalsystems~~tsni.com.

Table of Contents

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

~~Tanner LC~~The ~~("Tanner")~~following ~~became~~table ~~the~~represents ~~independent registered public accounting firm for~~ the ~~year~~aggregate ~~ended~~fees ~~December~~billed ~~31,~~or ~~2009~~expected into ~~connection~~be ~~with~~billed ~~the~~by ~~Merger.~~Tanner LLC ~~The~~("Tanner") ~~following~~for ~~table~~audit ~~represents~~and ~~the~~other ~~December~~services ~~31, 2009 and 2008~~rendered:

		2009		2008
		2010		2009
Audit Fees		$	126,000	$	8,400
Audit fees		$	153,000	$	126,000
Audit-Related Fees			22,000		—
Audit-related fees			93,000		22,000
Tax Fees			—		—
Tax fees			—		—
Other Fees			—		—
Other fees			—		—
	Total fees	$	~~148~~246,000	$	8148,~~400~~000

Audit fees include aggregate fees billed for professional services rendered for the audit and reviews of quarterly information of TechniScan, Inc. for the ~~year~~years ended December 31, 2010 and 2009, and for services in connection with the Company's various statutory and regulatory filings. ~~Audit fees for the year ended December 31, 2008 are related to Castillo, Inc. for audit services, including quarterly reviews.~~

Audit-related fees are for review of registration statements, and for review of filings and other documents associated with the Merger.

Tax fees are fees for tax compliance, tax advice and tax planning. No such fees were incurred during the years ended December 31, ~~2009~~2010 and ~~2008~~2009.

Other fees are for any services not included in the first three categories. There were no such fees incurred during the years ended December 31, ~~2009~~2010 and ~~2008~~2009.

Audit Committee Pre-Approval Policies and Procedures

All members of the Company's audit committee approved the engagement of Tanner LLC LC as the Company's independent registered ~~public~~ public accounting firm and each of the related projects.

5155

Table of Contents

PART IV

ITEM 15. EXHIBITS, ~~AND~~ FINANCIAL STATEMENT SCHEDULES

		Page
Report of Independent Registered Public Accounting Firm		F-1
Balance Sheets as of December 31, 2009 and 2008		F-2
Statements of Operations for the years ended December 31, 2009 and 2008 and for the period from January 1, 2002 (inception of development stage) through December 31, 2009		F-3
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2009 and 2008 and for the period from January 1, 2002 (inception of development stage) through December 31, 2009		F-4
Statements of Cash Flows for the years ended December 31, 2009 and 2008 and for the period from January 1, 2002 (inception of development stage) through December 31, 2009		F-7
Notes to Financial Statements		F-9

(a) Financial Statements and Financial Statement Schedules

1. Financial Statements of TechniScan, Inc.

		Page

Report of Independent Registered Public Accounting Firm			F-1
Balance Sheets as of December 31, 2010 and 2009			F-2
Statements of Operations for the years ended December 31, 2010 and 2009 and for the period from January 1, 2002 (date of inception of development stage) through December 31, 2010			F-3
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2010 and 2009 and for the period from January 1, 2002 (date of inception of development stage) through December 31, 2010			F-4
Statements of Cash Flows for the years ended December 31, 2010 and 2009 and for the period from January 1, 2002 (date of inception of development stage) through December 31, 2010			F-7
Notes to Financial Statements			F-8

2. Financial Statement Schedules

None.

~~Reference is hereby made to the Exhibit Index immediately following Page F-23 of this Annual Report on Form 10-K.~~ (b) Exhibits

		Description

2.1	(1)	Agreement and Plan of Merger, by and between TechniScan, Inc., Castillo, Inc., TechniScan Acquisition, Inc., and Emilia Ochoa, dated October 9, 2009

2.2	(1)	Agreement and Plan of Merger by and between Castillo, Inc., a Delaware corporation and Castillo, Inc., a Nevada corporation, dated September 4, 2009

2.3	(1)	Plan of Merger by and among TechniScan, Inc. and TechniScan Acquisition, Inc., dated October 9, 2009

2.4	(1)	Plan of Merger by and among Castillo, Inc. and TechniScan, Inc., dated October 9, 2009

3.1	(1)	Certificate of Incorporation, filed with the Secretary of State of the State of Delaware

3.1.1	(9)	Certificate of Amendment to the Certificate of Incorporation filed June 18, 2010

3.1.2	(9)	Certificate of Correction filed June 22, 2010

3.2	(1)	Bylaws

3.3	(1)	Certificate of Merger of Castillo, Inc., a Nevada corporation with and into Castillo, Inc., a Delaware corporation, filed with the State of Delaware on October 8, 2009

3.4	(1)	Certificate of Ownership and Merger of TechniScan, Inc., with and into Castillo, Inc., filed with the State of Delaware on October 9, 2009

4.1	(8)	Form of Senior Secured Convertible Promissory Note of TechniScan, Inc., as amended

4.2	(7)	Form of Common Stock Purchase Warrant of TechniScan, Inc.

4.3	(5)	Specimen Stock Certificate

Table of Contents

		Description

9.1	(1)	Voting Agreement by and among TechniScan, Inc. and the Series E Preferred Stock holders dated February 11, 2008

10.1	(7)	Note and Warrant Agreement dated as of March 30, 2010 by and among TechniScan, Inc. and the investors party thereto.

10.2	(10)	Amendment to the Note and Warrant Purchase Agreement by and Among TechniScan, Inc. and Biotex Pharma Investments LLC as Lead Investor.

10.2.1	(12)	Amendment to the Note and Warrant Purchase Agreement by and Among TechniScan, Inc. and Biotex Pharma Investments LLC as Lead Investor.

10.2.2	(13)	Amendment to the Note and Warrant Purchase Agreement by and Among TechniScan, Inc. and Biotex Pharma Investments LLC as Lead Investor.

10.2.3	(14)	Amendment to the Note and Warrant Purchase Agreement by and Among TechniScan, Inc. and Biotex Pharma Investments LLC as Lead Investor.

10.2.4	(15)	Amendment to the Note and Warrant Purchase Agreement by and Among TechniScan, Inc. and Biotex Pharma Investments LLC as Lead Investor.

10.2.5	(16)	Amendment to the Note and Warrant Purchase Agreement by and Among TechniScan, Inc. and Biotex Pharma Investments LLC as Lead Investor.

10.2.6	(19)	Amendment to the Note and Warrant Purchase Agreement by and Among TechniScan, Inc. and Biotex Pharma Investments LLC as Lead Investor.

10.3	(7)	Registration Rights Agreement dated March 30, 2010 by and amount TechniScan, Inc. and the investors party thereto.

10.4	(8)	Amendment to the Registration Rights Agreement by and among TechniScan, Inc. and the stockholders party thereto.

10.4.1	(12)	Amendment to the Registration Rights Agreement by and among TechniScan, Inc. and the stockholders party thereto.

10.4.2	(13)	Amendment to the Registration Rights Agreement by and among TechniScan, Inc. and the stockholders party thereto.

10.4.3	(14)	Amendment to the Registration Rights Agreement by and among TechniScan, Inc. and the stockholders party thereto.

10.4.4	(15)	Amendment to the Registration Rights Agreement by and among TechniScan, Inc. and the stockholders party thereto.

10.5	(7)	Security Agreement dated as of March 30, 2010 by and between TechniScan, Inc. and Biotex Pharma Investments LLC as Collateral Agent for the holders of the Senior Secured Convertible Promissory Notes.

10.6	(7)	Patent, Trademark and Copyright Security Agreement dated March 30, 2010 by and between TechniScan, Inc. and Biotex Pharma Investments LLC as Collateral Agent for the holders of the Senior Secured Convertible Promissory Notes.

10.7	(6)	Form of Indemnification Agreement between TechniScan, Inc. and its Officers and Directors.

10.8	(1)	Office Building Lease by and between Shupe Investments, LTD, as landlord, and TechniScan Inc., as tenant, for lease of premises located at 3216 South Highland Drive, Salt Lake City, Utah, dated April 11, 2008

Table of Contents

		Description

10.9	(1)	Lease Agreement by and between 1011 LLC, as landlord, and SafeScan Medical Systems, LLC, as tenant, for lease of premises located at 1011 East Murray-Holladay Road, Salt Lake City Utah, dated September 1, 200

10.10	(5)	2001 Employee Stock Option Plan, as amended

10.11	(2)	Employment Offer Letter with Steven K. Passey, dated November 9, 2009

10.12	(1)	Form of Confidentiality, Inventions Assignment and Non-Competition Agreement between TechniScan, Inc. and employees of TechniScan, Inc.

10.13	(1)	Form of Lock-Up Agreement

10.14	(1)	General Consulting Agreement by and between TechniScan Medical Systems, Inc. and The Anson Group, dated May 1, 2006

10.15	(1)	Client Confidentiality & Non-Disclosure Agreement by and between TechniScan Medical Systems, Inc. and The Anson Group, dated May 3, 2006

10.16	(1)	Original Equipment Manufacturing Agreement and Engineering Support Agreement by and between TechniScan, Inc. and Esaote S.p.A., dated February 11, 2008

10.17	(1)	Distribution Agreement by and between TechniScan, Inc. and Esaote S.p.A., dated February 11, 2008

10.18	(1)	European Market Development Agreement, between Esaote S.p.A., and TechniScan Inc., dated October 28, 2008

10.19	(1)	Letter of Understandings on Possible Amendment Agreement, between Esaote S.p.A. and TechniScan, Inc., dated October 28, 2009

10.20	(2)	Manufacturing Letter of Intent between TechniScan, Inc. and Esaote S.p.A., dated November 12, 2009

10.21	(4)	Supplement Number One to Original Equipment Manufacturing Agreement and Engineering Support Agreement by and between TechniScan, Inc. and Esaote, S.p.A., dated November 10, 2009

10.22	(11)	Supplement Number Tow to Original Equipment Manufacturing Agreement and Engineering Support Agreement by and between TechniScan, Inc. and Esaote, S.p.A., dated November 10, 2009

10.23	(1)	Amendment and Restatement of The License Agreement Between University of Utah Research Foundation and TechniScan, Inc., Successor-in-Interest to Dr. Steven A. Johnson Dated August 28, 1984, dated January 10, 2002

10.24	(1)	Professional Services Agreement, by and between TechniScan, Inc. and PCOF Partners, dated October 9, 2009

10.25	(17)	Professoinal Services Agreement, by and between TechniScan, Inc. and PCOF Partners, dated December 8, 2010

10.26	(17)	Placement Agency Agreement, by and between TechniScan, Inc. and Stonegate Securities, Inc. dated December 7, 2010

10.27	(18)	Equity Purchase Agreement, by and between TechniScan, Inc. and Southridge Partners II, LP, dated January 11, 2011

Table of Contents

		Description

10.28	(18)	Registration Rights Agreement by and between TechniScan, Inc. and Southridge Partners II, LP dated January 11, 2011

10.29	(18)	Product Development Agreement by and between TechniScan, Inc. and Womens3D, Inc. dated January 11, 2011

10.30	(20)	Manufacturing Agreement by and between TechniScan, Inc. and Womens3D, Inc. dated February 16, 2011

10.31	(20)	Trademark and Copyright License Agreement by and between TechniScan, Inc. and Womens3D, Inc. dated February 16, 2011

10.32	(20)	Subscription Agreement by and between TechniScan, Inc. and Womens3D, Inc. dated February 16, 2011

16.1	(3)	Letter dated December 7, 2009 from George Stewart, CPA to the Securities and Exchange Commission

31.1		Certification of Principal Executive Office pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350

(1): Attached as Exhibit to our Form 8-K filed with the SEC on October 16, 2009 and incorporated by reference.
(2): Attached as Exhibit to our Form 8-K filed with the SEC on November 12, 2009 and incorporated by reference.
(3): Attached as Exhibit to our Form 8-K filed with the SEC on December 7, 2009 and incorporated by reference.
(4): Attached as Exhibit to our Form 8-K filed December 9, 2009 and incorporated by reference.
(5): Attached as Exhibit to our Form 10-K filed with the SEC on March 22, 2010 and incorporated by reference.
(6): Attached as Exhibit to our Form 8-K filed with the SEC on March 25, 2010 and incorporated by reference.
(7): Attached as Exhibit to our Form 8-K filed with the SEC on April 5, 2010 and incorporated by reference.
(8): Attached as Exhibit to our Form 8-K filed with the SEC on May 14, 2010 and incorporated by reference.
(9): Attached as Exhibit to our Form 8-K filed with the SEC on June 25, 2010 and incorporated by reference.
(10): Attached as Exhibit to our Form 8-K filed with the SEC on August 4, 2010 and incorporated by reference.
(11): Attached as Exhibit to our Form 8-K filed with the SEC on September 8, 2010 and incorporated by reference.

Table of Contents

(12): Attached as Exhibit to our Form 8-K filed with the SEC on October 1, 2010 and incorporated by reference.
(13): Attached as Exhibit to our Form 8-K filed with the SEC on October 11, 2010 and incorporated by reference.
(14): Attached as Exhibit to our Form 8-K filed with the SEC on October 19, 2010 and incorporated by reference.
(15): Attached as Exhibit to our Form 8-K filed with the SEC on November 3, 2010 and incorporated by reference.
(16): Attached as Exhibit to our Form 8-K filed with the SEC on November 18, 2010 and incorporated by reference.
(17): Attached as Exhibit to our Form 8-K filed with the SEC on December 13, 2010 and incorporated by reference.
(18): Attached as Exhibit to our Form 8-K filed with the SEC on January 18, 2011 and incorporated by reference.
(19): Attached as Exhibit to our Form 8-K filed with the SEC on February 4, 2011 and incorporated by reference.
(20): Attached as Exhibit to our Form 8-K filed with the SEC on February 23, 2011 and incorporated by reference.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exhange Act of 1934, as amended, the registrant has duly caused this annual report to be ~~signed~~ signed on its behalf by the undersigned, in Salt Lake City, State of Utah, on March 1925, ~~2010~~2011.


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

Pursuant to the requirements of the Securities Act of 1934, as amended, this annual report has been signed by the following persons in the capacities and on the dates indicated.

/s/ DAVID C. ROBINSON David C. Robinson	Chief Executive Officer, Director	March 1925, ~~2010~~2011
/s/ STEVEN K. PASSEY Steven K. Passey	Chief Financial Officer	March 1925, ~~2010~~2011
/s/ KENNETH G. HUNGERFORD II Kenneth G. Hungerford II	Chairman of the Board and Director	March 19, 2010
/s/ JOSEPH W. PEPPER, PHD Joseph W. Pepper, PhD	Chairman of the Board of Directors	March 25, 2011
/s/ CHERYL D. COOK Cheryl D. Cook	Director	March 19, 2010
/s/ KENNETH G. HUNGERFORD II Kenneth G. Hungerford II	Director	March 25, 2011
/s/ GERALD A. RICHARDSON Gerald A. Richardson	Director	March 1925, ~~2010~~2011
/s/ RICHARD J. STANLEY Richard J. Stanley	Director	March 19, 2010
/s/ JOSEPH W. PEPPER, PHD Joseph W. Pepper, PhD	Director	March 19, 2010

5361

Table of Contents


/s/ RICHARD J. STANLEY Richard J. Stanley	Director	March 25, 2011
/s/ CHERYL D. COOK Cheryl D. Cook	Director	March 25, 2011

Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act

The registrant has not furnished to its security holders an annual report covering its fiscal year ended December 31, 2010 or any proxy material with respect to any annual or other meeting of security holders. If such material is furnished to its security holders subsequent to the filing of this annual report on this Form 10-K, registrant will furnish copies of such material to the SEC at the same time it is sent to its security holders.

Table of Contents

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of TechniScan, Inc.

We have audited the accompanying balance sheets of TechniScan, Inc. (the Company) as of December 31, 2010 and 2009, and the related statements of operations, stockholders' equity (deficit), and cash flows for each of the two years in the period ended December 31, 2010 and for the period from January 1, 2002 (date of inception of development stage) through December 31, 2010. 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 have audited the accompanying balance sheets of TechniScan, Inc. (the Company) as of December 31, 2009 and 2008, and the related statements of operations, stockholders' equity (deficit), and cash flows for each of the two years in the period ended December 31, 2009 and for the period from January 1, 2002 (date of inception of development stage) through December 31, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TechniScan, Inc. as of December 31, ~~2009~~2010 and ~~2008~~2009, and the results of its operations and its cash flows for each of the two years in the period ended December 31, ~~2009~~2010, and for the period from January 1, 2002 (date of inception of development stage) through December 31, ~~2009~~2010 in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the financial statements and as discussed in Note 1 to the financial statements, the Company has incurred significant losses and negative cash flows from operating activities since inception, has negative working capital and an accumulated deficit, and is dependent on additional debt or equity financing in order to continue its operations. These conditions, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding those matters are also discussed in Note 1. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ TANNER LLC LC

Salt Lake City, Utah March 25, 2011

March 19, 2010

F-1

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

BALANCE SHEETS

				December 31,
				2009			2008
				2010			2009
ASSETS
Current assets:
	Cash and cash equivalents			$	~~232~~1,~~706~~026		$	~~269~~232,~~192~~706
	Prepaid expense				271,209			152,467
	Accounts receivable				250,000			—
		Total current assets			503,915			421,659
	Prepaid expenses				504,033			271,209
Property and equipment, net					617,142			85,608
		Total current assets			755,059			503,915
Property and equipment, net					588,914			617,142
Deposits					28,153			28,153
			Total assets	$	1,~~149~~372,~~210~~126		$	~~535~~1,~~420~~149,210
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
	Accounts payable			$	472,367		$	118,984
	Outstanding checks in excess of bank balance			$	16,478		$	—
	Accrued liabilities				670,638			174,856
	Accounts payable				1,543,762			472,367
	Customer deposits				260,000			180,000
	Accrued liabilities				835,635			670,638
		Total current liabilities			1,403,005			473,840
	Convertible notes payable, net of discount of $197,427				2,652,573			—
Deferred rent					139,330			98,546
	Note payable to related parties				135,000			—
Other liabilities					250,000			—
	Related-party customer deposits				410,000			260,000
			Total liabilities		1,792,335			572,386
	Embedded derivative liability				36,952			—
	Common stock warrant liability				41,798			—
		Total current liabilities			5,672,198			1,403,005
Deferred rent					145,194			139,330
Accrued software license fees					—			250,000
			Total liabilities		5,817,392			1,792,335
Commitments
Stockholders' deficit:
	Series D convertible preferred stock, $.001 par value: 0 and 8,525,570 shares authorized; 0 and 8,525,570 outstanding, respectively				—			8,526
	Common stock, $.001 par value: 150,000,000 shares authorized; 21,524,444 and 20,724,444 shares outstanding, respectively				21,524			20,724
	Series E convertible preferred stock, $.001 par value: 0 and 20,000,000 shares authorized; 0 and 4,949,175 shares outstanding, respectively				—			4,949
	Additional paid-in capital				26,066,768			24,524,019
	Common stock, $.001 par value: 150,000,000 shares authorized; 82,897,454 and 34,128,720 shares issued and outstanding, respectively				82,897			34,129
	Additional paid-in-capital				24,461,846			21,666,894
	Accumulated deficit prior to development stage				(389,393	)		(389,393	)
	Accumulated deficit during development stage				(2430,~~798~~144,~~475~~165	)		(2124,~~362~~798,~~071~~475	)
		Total stockholders' deficit			(~~643~~4,~~125~~445,266	)		(36643,~~966~~125	)
			Total liabilities and stockholders' deficit	$	1,~~149~~372,~~210~~126		$	~~535~~1,~~420~~149,210

See accompanying notes to financial statements.

F-2

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

STATEMENTS OF OPERATIONS

										For the Period From January 1, 2002 (inception of development stage) Through December 31, 2009
										From January 1, 2002 (date of inception of development stage) Through December 31, 2010
				For the Year Ended December 31,
				2009			2008
				2010			2009
Revenues:
	Government grant			$	~~861~~126,~~091~~613		$	~~653~~861,~~061~~091		$	3,~~045~~172,~~464~~077
	Related-party research				120,000			120,000			240,000
	Product development sales				250,000			—			250,000
		Total revenues			981,091			773,061			3,285,464
	Related-party research				—			120,000			240,000
		Total revenues			376,613			981,091			3,662,077
Operating expenses:
	Selling, general and administrative				23,~~179~~377,~~718~~013			12,~~700~~179,~~878~~718			1216,~~963~~340,~~585~~598
	Research and development				1,~~610~~589,~~562~~269			21,~~817~~610,~~754~~562			1214,~~847~~437,~~757~~026
	Direct grant				~~622~~139,~~349~~039			~~518~~622,~~150~~349			12,~~875~~014,~~156~~195
		Total operating expenses			45,~~412~~105,~~629~~321			54,~~036~~412,~~782~~629			2732,~~686~~791,~~498~~819
			Loss from operations		(34,~~431~~728,~~538~~708	)		(43,~~263~~431,~~721~~538	)		(2429,~~401~~129,~~034~~742	)
Interest income					~~1,348~~616			181,~~399~~348			5556,~~813~~429
Interest expense					(63,~~214~~472,732	)		(~~757~~6,214	)		(~~455~~3,~~715~~928,447	)
Gain on sale of property and equipment					—			2,461			2,461
Gain on derivatives, net					2,855,134			—			2,855,134
Net loss				$	(3,436,404	)	$	(4,243,618	)	$	(24,798,475	)
Gain on sale of property and equipment					—			—			2,461
Net loss per common share (basic and diluted)				$	(0.07	)	$	(0.13	)
Net loss				$	(5,345,690	)	$	(3,436,404	)	$	(30,144,165	)
Weighted average number of common shares outstanding (basic and diluted)					46,064,887			32,208,082
Net loss per common share—basic and diluted				$	(0.26	)	$	(0.30	)
Weighted average number of common shares outstanding—basic and diluted					20,806,156			11,516,223

See accompanying notes to financial statements.

F-3

Table of Contents

TECHNISCAN, INC. (A Development Stage Company) ~~STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)~~

	Preferred Stock						Common Stock
											Additional Paid-in Capital		Accumulated Deficit
	Shares			Amount			Shares		Amount							Total
Balance, as of January 1, 2002		8,058,488		$	8,059			3,730,856	$	3,730	$	545,751	$	(389,393	)	$	168,147
Issuance of Series A preferred stock (at $0.20 per share)		1,600,000			1,600			—		—		318,400		—			320,000
Issuance of Series B preferred stock (at $0.30 per share)		5,968,335			5,968			—		—		1,784,532		—			1,790,500
Issuance of common stock for services (at $0.12 per share)		—			—			285,714		286		34,714		—			35,000
Stock-based compensation		—			—			—		—		37,143		—			37,143
Net loss		—			—			—		—		—		(1,625,040	)		(1,625,040	)
Balance, as of December 31, 2002		15,626,823			15,627			4,016,570		4,016		2,720,540		(2,014,433	)		725,750
Issuance of common stock (at $0.50 and $0.75 per share)		—			—			941,136		942		524,627		—			525,569
Stock-based compensation		—			—			—		—		56,369		—			56,369
Net loss		—			—			—		—		—		(1,838,611	)		(1,838,611	)
Balance, as of December 31, 2003		15,626,823			15,627			4,957,706		4,958		3,301,536		(3,853,044	)		(530,923	)
Issuance of common stock (at $0.50 per share)		—			—			9,376,002		9,376		4,678,624		—			4,688,000
Conversion of note payable and accrued interest to common stock (at $0.50 per share)		—			—			987,214		988		492,619		—			493,607
Stock-based compensation		—			—			—		—		50,136		—			50,136
Net loss		—			—			—		—		—		(3,157,701	)		(3,157,701	)
Balance, as of December 31, 2004		15,626,823			15,627			15,320,922		15,322		8,522,915		(7,010,745	)		1,543,119
Conversion of preferred stock to common stock (at $0.50 and $0.75 per share)		(15,626,823	)		(15,627	)		12,501,476		12,500		3,127		—			—
Issuance of common stock (at $0.50 and $0.75 per share)		—			—			4,375,998		4,376		2,590,124		—			2,594,500
Issuance of common stock upon exercise of stock options (at $0.21 per share)		—			—			209,600		210		43,750		—			43,960
Stock-based compensation		—			—			—		—		20,700		—			20,700
Proceeds from debt allocated to common stock warrants and beneficial conversion features		—			—			—		—		213,334		—			213,334
Common stock warrants issued to non-employees		—			—			—		—		15,893		—			15,893
Net loss		—			—			—		—		—		(4,986,234	)		(4,986,234	)
Balance, as of December 31, 2005		—		$	—			32,407,996	$	32,408	$	11,409,843	$	(11,996,979	)	$	(554,728	)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

	Preferred Stock						Common Stock

	Preferred Stock						Common Stock				Additional Paid-in Capital		Accumulated Deficit
	Shares			Amount			Shares		Amount		Additional Paid-in Capital		Accumulated Deficit			Total
Balance, as of January 1, 2002		8,058,488		$	8,059			932,712	$	933	$	548,548	$	(389,393	)	$	168,147
Issuance of Series A preferred stock (at $0.20 per share)		1,600,000			1,600			—		—		318,400		—			320,000
Issuance of Series B preferred stock (at $0.30 per share)		5,968,335			5,968			—		—		1,784,532		—			1,790,500
Issuance of common stock for services (at $0.49 per share)		—			—			71,429		71		34,929		—			35,000
Stock-based compensation		—			—			—		—		37,143		—			37,143
Net loss		—			—			—		—		—		(1,625,040	)		(1,625,040	)

Balance, as of December 31, 2002		15,626,823			15,627			1,004,141		1,004		2,723,552		(2,014,433	)		725,750
Issuance of common stock (at $2.00 and $3.00 per share)		—			—			235,284		235		525,334		—			525,569
Stock-based compensation		—			—			—		—		56,369		—			56,369
Net loss		—			—			—		—		—		(1,838,611	)		(1,838,611	)

Balance, as of December 31, 2003		15,626,823			15,627			1,239,425		1,239		3,305,255		(3,853,044	)		(530,923	)
Issuance of common stock (at $2.00 per share)		—			—			2,344,001		2,344		4,685,656		—			4,688,000
Conversion of note payable and accrued interest to common stock (at $2.00 per share)		—			—			246,804		247		493,360		—			493,607
Stock-based compensation		—			—			—		—		50,136		—			50,136
Net loss		—			—			—		—		—		(3,157,701	)		(3,157,701	)

Balance, as of December 31, 2004		15,626,823			15,627			3,830,230		3,830		8,534,407		(7,010,745	)		1,543,119
Conversion of preferred stock to common stock (at $2.00 and $3.00 per share)		(15,626,823	)		(15,627	)		3,125,369		3,125		12,502		—			—
Issuance of common stock (at $2.00 and $3.00 per share)		—			—			1,094,000		1,094		2,593,406		—			2,594,500
Issuance of common stock upon exercise of stock options (at $0.84 per share)		—			—			52,400		53		43,907		—			43,960
Stock-based compensation		—			—			—		—		20,700		—			20,700
Proceeds from debt allocated to common stock warrants and beneficial conversion features		—			—			—		—		213,334		—			213,334
Common stock warrants issued to non-employees		—			—			—		—		15,893		—			15,893
Net loss		—			—			—		—		—		(4,986,234	)		(4,986,234	)

Balance, as of December 31, 2005		—		$	—			8,101,999	$	8,102	$	11,434,149	$	(11,996,979	)	$	(554,728	)

See accompanying notes to financial statements.

F-4

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)

	Preferred Stock				Common Stock
											Additional Paid-in Capital			Accumulated Deficit
	Shares		Amount		Shares			Amount									Total
Balance, as of December 31, 2005		—	$	—		328,~~407~~101,~~996~~999		$	328,~~408~~102		$	11,~~409~~434,~~843~~149		$	(11,996,979	)	$	(554,728	)
Issuance of common stock, net of issuance costs of $25,489 (at $0.20, $0.50 and $0.75 per share)		—		—		2,430,932			2,430			1,210,281			—			1,212,711
Issuance of common stock, net of issuance costs of $25,489 (at $0.80, $2.00 and $3.00 per share)		—		—		607,733			608			1,212,103			—			1,212,711
Issuance of Series D preferred stock, net of issuance costs of $38,024 (at $0.75 per share)		1,540,682		1,541		—			—			1,115,948			—			1,117,489
Issuance of common stock upon exercise of stock options (at $0.33 per share)		—		—		19,834			20			6,601			—			6,621
Issuance of common stock upon exercise of stock options (at $1.34 per share)		—		—		4,959			5			6,616			—			6,621
Stock-based compensation		—		—		—			—			53,600			—			53,600
Re-pricing of common stock warrants issued to non-employees		—		—		—			—			70,695			—			70,695
Re-pricing of common stock warrants issued to employees		—		—		—			—			537,545			—			537,545
Conversion of note payable and accrued interest to Series D preferred stock (at $0.75 per share)		2,157,630		2,157		—			—			1,616,067			—			1,618,224
Net loss		—		—		—			—			—			(3,710,137	)		(3,710,137	)
Balance, as of December 31, 2006		3,698,312		3,698		348,~~858~~714,~~762~~691			348,~~858~~715			16,~~020~~046,~~580~~723			(15,707,116	)		352,020
Issuance of Series D preferred stock, net of issuance costs of $27,343 (at $0.75 per share)		1,570,327		1,570		—			—			1,148,833			—			1,150,403
Conversion of common stock to Series D preferred stock (at $0.75 per share)		3,256,931		3,258		(4,026,930	)		(4,026	)		768			—			—
Conversion of common stock to Series D preferred stock (at $3.00 per share)		3,256,931		3,258		(1,006,733	)		(1,007	)		(2,251	)		—			—
Issuance of common stock upon exercise of stock warrants (at $0.03 per share)		—		—		403,672			404			9,688			—			10,092
Issuance of common stock upon exercise of stock warrants (at $0.10 per share)		—		—		100,918			101			9,991			—			10,092
Stock-based compensation		—		—		—			—			62,483			—			62,483
Net loss		—		—		—			—			—			(1,800,730	)		(1,800,730	)
Balance, as of December 31, 2007		8,525,570		8,526		317,~~235~~808,~~504~~876			317,~~236~~809			17,~~242~~265,~~352~~779			(17,507,846	)		(225,732	)
Issuance of Series E preferred stock for cash, net of issuance costs of $112,034 (at $0.90 per share)		3,282,506		3,282		—			—			2,838,939			—			2,842,221
Issuance of Series E preferred stock for future services (at $0.90 per share)		1,111,111		1,111		—			—			998,889			—			1,000,000
Conversion of notes payable to Series E preferred stock (at $0.90 per share)		555,558		556		—			—			499,444			—			500,000
Issuance of common stock upon exercise of stock warrants (at $0.03 per share)		—		—		2,893,216			2,893			69,439			—			72,332
Issuance of common stock upon exercise of stock warrants (at $0.10 per share)		—		—		723,304			723			71,609			—			72,332
Stock-based compensation		—		—		—			—			17,831			—			17,831
Net loss		—		—		—			—			—			(4,243,618	)		(4,243,618	)
Balance, as of December 31, 2008		13,474,745	$	13,475		348,~~128~~532,~~720~~180		$	348,~~129~~532		$	21,~~666~~692,~~894~~491		$	(21,751,464	)	$	(36,966	)

See accompanying notes to financial statements.

F-5

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)

	Preferred Stock						Common Stock
													Additional Paid-in Capital			Accumulated Deficit
	Shares			Amount			Shares			Amount									Total
Balance, as of December 31, 2008		13,474,745		$	13,475			348,~~128~~532,~~720~~180		$	348,~~129~~532		$	21,~~666~~692,~~894~~491		$	(21,751,464	)	$	(36,966	)
Shares issued to stockholders of Castillo, Inc. in connection with the Merger		—			—			92,~~000~~250,000			92,~~000~~250			(92,~~000~~250	)		—			—
Capital contribution		—			—			—			—			65,000			—			65,000
Repurchase and cancellation of common stock		—			—			(3750,000~~,000~~	)		(~~3,000~~750	)		(6264,~~000~~250	)		—			(65,000	)
Issuance of common stock for services in connection with the Merger (at $0.38 per share)		—			—			1,000,000			1,000			374,000			—			375,000
Issuance of common stock for services in connection with the Merger (at $1.50 per share)		—			—			250,000			250			374,750			—			375,000
Cancellation of dissenters stock (at $0.37 per share)		—			—			(723,633	)		(724	)		(270,638	)		—			(271,362	)
Cancellation of dissenters stock (at $1.50 per share)		—			—			(180,908	)		(181	)		(271,181	)		—			(271,362	)
Issuance of Series E preferred stock for cash, net of issuance costs of $6,866 (at $0.90 per share)		1,542,466			1,542			—			—			1,379,812			—			1,381,354
Issuance of common stock for cash, net of issuance costs of $28,233 (at $0.38 per share)		—			—			2,354,145			2,354			852,223			—			854,577
Issuance of common stock for cash, net of issuance costs of $28,233 (at $1.50 per share)		—			—			588,615			589			853,988			—			854,577
Issuance of common stock upon exercise of stock warrants (at $0.02 per share)		—			—			1,050,858			1,052			25,219			—			26,271
Issuance of common stock upon exercise of stock warrants (at $0.10 per share)		—			—			262,715			263			26,008			—			26,271
Issuance of common stock for future services (at $1.50 per share)		—			—			150,000			150			224,850			—			225,000
Issuance of common stock for future services (at $6.00 per share)		—			—			37,500			37			224,963			—			225,000
Conversion of Series D preferred stock to common stock (at $0.38 per share)		(8,525,570	)		(8,526	)		18,756,254			18,756			(10,230	)		—			—
Conversion of Series D preferred stock to common stock (at $1.50 per share)		(8,525,570	)		(8,526	)		4,689,064			4,689			3,837			—			—
Conversion of Series E preferred stock to common stock (at $0.45 per share)		(6,491,641	)		(6,491	)		15,579,938			15,580			(9,089	)		—			—
Conversion of Series E preferred stock to common stock (at $1.80 per share)		(6,491,641	)		(6,491	)		3,894,985			3,895			2,596			—			—
Conversion of common stock warrants to common stock (at $0.03 and $0.38 per share)		—			—			4,601,172			4,600			(4,600	)		—			—
Conversion of common stock warrants to common stock (at $0.10 and $1.50 per share)		—			—			1,150,293			1,150			(1,150	)		—			—
Stock-based compensation		—			—			—			—			239,405			—			239,405
Net loss		—			—			—			—			—			(3,436,404	)		(3,436,404	)
Balance, as of December 31, 2009		—		$	—			8220,~~897~~724,~~454~~444		$	8220,~~897~~724		$	24,~~461~~524,~~846~~019		$	(25,187,868	)	$	(643,125	)
Issuance of common stock for extension of convertible notes payable (at $1.03 per share)		—			—			275,000			275			282,975			—			283,250
Issuance of common stock for future services (at $0.74 per share)		—			—			525,000			525			387,975			—			388,500
Stock-based compensation		—			—			—			—			871,799			—			871,799
Net loss		—			—			—			—			—			(5,345,690	)		(5,345,690	)
Balance, as of December 31, 2010		—		$	—			21,524,444		$	21,524		$	26,066,768		$	(30,533,558	)	$	(4,445,266	)

See accompanying notes to financial statements.

F-6

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

STATEMENTS OF CASH FLOWS

											For the Period From January 1, 2002 (inception of development stage) Through December 31, 2009
											For the Period From January 1, 2002 (date of inception of development stage) Through December 31, 2010
					For the Year Ended
					December 31, 2009			December 31, 2008
					December 31, 2010			December 31, 2009
CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss				$	(35,~~436~~345,~~404~~690	)	$	(43,~~243~~436,~~618~~404	)	$	(2430,~~798~~144,~~475~~165	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization				81185,~~489~~639			4481,~~040~~489			~~501~~687,~~947~~586
		Impairment of intangible assets				—			—			14,179
		Gain on sale of property and equipment				—			~~(2,461~~—	)		(2,461	)
		Non-cash interest expense				—			—			~~383~~347,~~610~~911
		Issuance of common stock for services in connection with the Merger				375,000			—			375,000
		Issuance of common stock for services				—			375,000			375,000
		Stock-based compensation				~~239~~871,~~405~~799			17239,~~831~~405			12,~~126~~033,~~101~~599
		Debt discount amortization on convertible notes payable				3,019,707			—			3,019,707
		Gain on derivatives, net				(2,855,134	)		—			(2,855,134	)
		Changes in assets and liabilities:
			Accounts receivable			—(250,000	)		—			~~267~~(249,733	)
			Government grant receivables			—			83,345			—
			Inventory			—			—			61,649
			Prepaid expense			106,258			864,757			925,637
			Prepaid expenses			155,676			106,258			1,081,313
			Other assets			—			(25,653	)		—
			Accounts payable			1,071,395			353,383			1,534,842
			Accounts payable			353,383			(23,524	)		463,447
			Accrued liabilities			164,997			224,420			495,817
			Accrued liabilities			224,420			(11,289	)		330,820
			Related-party customer deposits			150,000			80,000			410,000
			Customer deposits			80,000			180,000			260,000
			Deferred rent			5,864			40,784			145,194
			Deferred rent			40,784			98,546			139,330
			Other liabilities			(250,000	)		250,000			—
			Other liabilities			250,000			—			250,000
				Net cash used in operating activities		(3,075,747	)		(1,685,665	)		(23,044,696	)
				Net cash used in operating activities		(1,685,665	)		(3,018,026	)		(19,968,949	)
CASH FLOWS FROM INVESTING ACTIVITIES
	Proceeds from investments					—			213,112			—
	Proceeds from sale of property and equipment					—			—			4,000
	Proceeds from sale of property and equipment					—			4,000			4,000
	Purchase of property and equipment					(157,411	)		(613,023	)		(1,174,225	)
	Purchase of property and equipment					(613,023	)		(57,661	)		(1,016,814	)
				Net cash used in investing activities		(157,411	)		(613,023	)		(1,170,225	)
				Net cash (used in) provided by investing activities		(613,023	)		159,451			(1,012,814	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Increase in outstanding checks in excess of bank balance					16,478			—			16,478
	Principal payments on debt					—			—			(79,292	)
	Proceeds from exercise of stock options and warrants, and from the issuance of stock, net of issuance costs					~~2,262,202~~—			2,~~914~~262,~~553~~202			18,748,587
	Proceeds from issuance of convertible notes					—			—			2,400,000
	Proceeds from issuance of notes payable to related parties					135,000			—			135,000
				Net cash provided by financing activities		2,262,202			2,914,553			21,069,295
	Proceeds from issuance of convertible notes payable					2,850,000			—			5,250,000
Net (decrease) increase in cash and cash equivalents						(36,486	)		55,978			87,532
				Net cash provided by financing activities		3,001,478			2,262,202			24,070,773
Cash and cash equivalents at beginning of period						269,192			213,214			145,174
Net decrease in cash and cash equivalents						(231,680	)		(36,486	)		(144,148	)
Cash and cash equivalents at end of period					$	232,706		$	269,192		$	232,706
Cash and cash equivalents at beginning of period						232,706			269,192			145,174
Cash and cash equivalents at end of period					$	1,026		$	232,706		$	1,026
Supplemental Disclosure of Cash Flow Information:
		Cash paid for interest			$	12,814		$	183		$	26,581
		Cash paid for income taxes				200			100			1,000
Supplemental Disclosure of Noncash Investing and Financing Activities:
		Embedded derivative liability associated with convertible notes payable			$	1,220,463		$	—		$	1,220,463
		Common stock warrant liability associated with convertible notes payable				2,882,182			—			2,882,182
		Issuance of common stock for extension of convertible notes payable				283,250			—			283,250
		Issuance of common stock for future services				388,500			225,000			613,500
		Common stock issued to stockholders of Castillo, Inc. in connection with the Merger				—			6,000			6,000
		Conversion of preferred stock and common stock warrants to common stock				—			38,937			38,937
		Dissenter shares cancelled in connection with the Merger				—			271,362			271,362
		Issuance of Series E convertible preferred stock for future services				—			—			1,000,000
		Conversion of notes payable, including accrued interest, to preferred stock				—			—			2,611,831

See accompanying notes to financial statements.

F-7

Table of Contents

TECHNISCAN, INC. (A Development Stage Company)

STATEMENTS OF CASH FLOWS (Continued)

							For the Period From January 1, 2002 (inception of development stage) Through December 31, 2009
			For the Year Ended
			December 31, 2009		December 31, 2008
Supplemental Disclosure of Cash Flow Information:
		Cash paid for interest	$	183	$	110	$	13,767
		Cash paid for income tax		100		100		800
Supplemental Disclosure of Noncash Investing and
	Financing Activities:
		Common stock issued to stockholders of Castillo, Inc. in connection with the Merger	$	6,000	$	—	$	6,000
		Issuance of common stock for future services		225,000		—		225,000
		Conversion of preferred stock and common stock warrants to common stock		38,937		—		38,937
		Dissenter shares cancelled in connection with the Merger		271,362				271,362
		Issuance of Series E convertible preferred stock for future services		—		1,000,000		1,000,000
		Conversion of notes payable, including accrued interest, to preferred stock		—		500,000		2,611,831

See accompanying notes to financial statements.

F-8

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

~~Merger and Development Stage Activities~~Organization

TechniScan, Inc. (the "Company") (formerly known as Castillo, Inc. or "Castillo") was originally ~~incorporated~~formed ~~under~~as ~~the laws~~a ~~of the State of~~ Nevada corporation on February 2, 2007. The Company changed its state of incorporation from the state of Nevada to the state of Delaware on October 8, 2009.

On October 9, 2009, asTechniScan ~~discussed~~Acquisition, Inc., ina ~~Note 3~~Utah corporation and wholly owned subsidiary of the Company, was merged with and into TechniScan, Inc., a Utah corporation ("TechniScan Utah"). ~~was~~TechniScan ~~first~~Utah ~~merged~~was ~~into its wholly owned subsidiary, and~~ then immediately merged into ~~TechniScan, Inc.~~the Company (collectively referred to as the "Merger"). Pursuant to the Merger, the Company succeeded to the business of TechniScan Utah as its sole line of business and changed its name to TechniScan, Inc. ~~Because~~The ~~the owners of TechniScan Utah obtained approximately 92% of the common stock of the Company through the~~ Merger, ~~the Merger~~ has been accounted for as a recapitalization of TechniScan Utah ~~with~~and ~~TechniScan Utah as~~ the ~~acquirer (reverse merger). The~~ historical financial statements prior to the Merger are those of TechniScan Utah.

~~TechniScan Utah~~ ~~was~~Description ~~incorporated in 1984 for the purpose~~ of conducting research on advanced ultrasound imaging and inverse scatter technology. The Company is in the development stage, as defined by Accounting Standards Codification ("ASC") subtopic 915-10, Development Stage Entities, as it has not generated significant revenues. The development stage began January 1, 2002, when the Company was capitalized for research, development and commercialization of innovative medical imaging products for the detection and diagnosis of breast cancer. Business

~~The Company's~~TechniScan ~~commercial~~Utah ~~focus~~was isincorporated in 1984 for the ~~development~~purpose of anconducting research on advanced ultrasound~~-based~~ ~~product~~imaging ~~known~~and asinverse scatter technology. The Company is in the ~~Whole~~development ~~Breast~~stage, ~~Ultrasound~~as defined by Financial Accounting Standards Board ("~~WBU~~FASB") ~~system~~Accounting ~~that~~Standards isCodification ~~expected~~("ASC") toSubtopic ~~provide~~915-10, Development ~~radiologists~~Stage ~~with~~Entities, ~~unique~~as ~~information~~it ~~about~~has ~~the~~not ~~bulk~~generated ~~properties~~significant ofrevenues. ~~tissue~~The indevelopment stage began January 1, 2002, when the ~~breast~~Company aswas capitalized ~~well~~for asresearch, ~~clear~~development ~~images~~and commercialization of innovative medical imaging products for the ~~tissue~~detection ~~structure~~and diagnosis of breast cancer.

The Company's commercial focus is the development of an ultrasound-based product known as the Warm Bath Ultrasound ("WBU") system that is expected to provide radiologists with unique information about the bulk properties of tissue in the breast as well as clear images of the tissue structure.

Going Concern Considerations

Since entering the development stage, the Company has not generated revenues in excess of expenses and has been dependent on government grants and ~~equity~~debt ~~raised~~and ~~from~~equity ~~individual~~capital ~~investors~~raised to sustain its operations. The WBU system has not yet been approved by the U.S. Food and Drug Administration ("FDA") for commercial sale. Therefore, ~~the~~ the Company has not generated any revenues from ~~non-research~~commercial product sales. The Company has incurred losses and used cash in operating activities since entering the development stage. As of of December 31, ~~2009~~2010, the Company had an accumulated deficit of $2530,~~187~~533,~~868~~558, ~~and~~ negative working capital of $~~899~~4,~~090~~917,139 and minimal revenues. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company's plans to address its liquidity issues include ~~the~~ (1) sale of debt and equity securities, (2) collaboration with third parties to accelerate the introduction of of product and services into the market, and (3) continued focus on ~~addressing~~obtaining approval byfrom the FDA offor the Company's ~~product~~products and services to qualify for commercial sale.

~~There can be no assurance that the Company's planned sales of debt and equity securities, its collaborative efforts, or its effort to obtain FDA approval will be successful or that the Company will~~ F-8

F-9

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)

~~have~~ There can be no assurance that the ~~ability~~Company's toplanned ~~commercialize~~sales of debt and equity securities, its ~~imaging~~collaborative ~~system~~efforts, ~~and~~or ~~ultimately~~its ~~attain~~efforts ~~profitability.~~to ~~The~~obtain FDA approval will be successful, or that the Company's ~~long-term~~will ~~viability~~have asthe aability ~~going~~to ~~concern~~commercialize isits ~~dependent~~imaging onsystem ~~three~~and ~~key factors:~~ultimately attain profitability.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP").

Accounting Standards Codification

The Financial Accounting Standards Board ("FASB") has issued the FASB Accounting Standards Codification ("ASC") that became the single official source of authoritative GAAP (other than guidance issued by the Securities and Exchange Commission ("SEC")), superseding existing FASB, American Institute of Certified Public Accountants ("AICPA"), Emerging Issues Task Force ("EITF") and related literature. All other literature is considered non-authoritative. The ASC does not change GAAP; it introduces a new structure that is organized in an accessible online research system. The ASC became effective for the Company on July 1, 2009.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash Equivalents

~~For~~The ~~purposes of the statements of cash flows, the~~ Company considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. Cash equivalents totaled $~~130,028~~0 and $~~153~~130,~~534~~028 as of December 31, ~~2009~~2010 and ~~2008~~2009, respectively, and consisted of money market funds.

Accounts Receivable

The Company records accounts receivable at their estimated net realizable value. The Company estimates allowances for uncollectible amounts based upon factors which include, but are not limited to: the age of the receivable and the terms of the agreements. Accounts receivable allowances are estimates. The Company periodically reviews and revises these estimates based on new information and these revisions may be material. As of December 31, 2010 and 2009, there was no allowance for bad debts.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash, and cash equivalents, ~~and~~as well as accounts receivable. ~~Risks~~The ~~associated~~Company ~~with~~places its cash ~~and~~with ~~cash~~one ~~equivalents~~financial institution. Accounts are ~~mitigated~~insured by ~~banking~~the ~~with~~Federal ~~federally~~Deposit ~~insured,~~Insurance ~~creditworthy~~Corporation ~~institutions;~~up ~~however~~to $250,000. ~~deposits~~At ~~may at~~ times, balances may exceed federally insured limits. ~~In October 2008, the Emergency Economic Stabilization~~

~~F-10~~ Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation and amortization. Maintenance and repairs that do not extend the life or improve the functionality of the asset are expensed in the period incurred. Depreciation expense is recorded on a straight-line basis over the

F-9

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

~~Act~~estimated ofuseful ~~2008~~lives ~~temporarily~~of ~~increased~~the ~~FDIC~~related ~~deposit~~assets ~~insurance~~as ~~from~~shown ~~$100~~below,~~000~~ ~~for~~and totaled $~~250~~185,~~000~~639 ~~per depositor through December 31, 2013. To date, the Company has not experienced a material loss or lack of access to its cash~~ and ~~cash equivalents; however~~$81,489 nofor ~~assurance can be provided that access to~~ the ~~Company's~~years ~~cash~~ended ~~and cash equivalents will not be impacted by adverse conditions in the financial markets. There were no grants or accounts receivable as of~~ December 31, ~~2009~~2010 and ~~2008~~2009, respectively.

Inventory

		Useful Life (Years)

Leasehold improvements		Shorter of lease term or 3 years
Machinery and equipment		3 - 5
Computer equipment and software		3 - 5
Furniture and fixtures		7

Inventory is stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. Inventory consists of raw materials and work in process. As appropriate, provisions are made to reduce inventory to its net realizable value. The cost of inventory that potentially may not sell prior to expiration or is deemed to have no commercial value is written-off when identified. Inventory has no value as of December 31, 2009 and 2008.

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation and amortization. Maintenance and repairs that do not extend the life or improve the asset are expensed in the period incurred. Depreciation expense is recorded on a straight-line basis over the estimated useful lives of the related assets as shown below, and totaled $81,489 and $44,040 for the years ended December 31, 2009 and 2008, respectively.

		Useful Life (Years)
Leasehold improvements			3
Machinery and equipment			3-5
Computer equipment and software			3-5
Furniture and fixtures			7

Impairment of Long-Lived Assets

The Company periodically evaluates the carrying values of property and equipment in accordance with FASB ASC Subtopic 360-10-45, Impairment or Disposal of Long-Lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If the expected future undiscounted cash flows are less than the carrying amounts of the assets, a loss is recognized for the difference between the fair values and the carrying values of the assets.

~~Revenue~~Derivative ~~Recognition~~Instruments

~~The~~In ~~Company~~connection ~~records~~with ~~revenue~~the insale ~~accordance~~of ~~with~~debt ~~FASB~~or ~~ASC~~equity ~~Topic 605~~instruments, ~~Revenue~~the ~~Recognition. The~~ Company's ~~revenues~~may ~~are~~sell ~~sourced~~warrants ~~from~~to ~~federal~~purchase ~~research~~its ~~grants~~common ~~and~~stock. ~~private~~In ~~and~~certain circumstances, ~~government~~these ~~research~~warrants ~~contracts.~~may ~~The~~be ~~Company~~classified ~~recognizes~~as ~~revenues~~derivative ~~when~~liabilities, ~~products~~rather ~~have~~than ~~been~~as ~~delivered~~equity. orAdditionally, ~~services~~the ~~have~~debt ~~been provided~~or ~~and~~equity ~~invoiced~~instruments tomay ~~the~~contain ~~government~~embedded orderivative ~~other~~instruments, ~~research~~such ~~partners.~~as conversion ~~The~~options, ~~FDA~~which ~~has~~in ~~not~~certain ~~yet~~circumstances ~~approved~~may ~~the~~be ~~WBU~~required ~~product~~to ~~for~~be ~~commercial~~bifurcated ~~sale.~~from ~~Therefore,~~ the ~~Company~~associated ~~has~~host ~~not~~instrument ~~yet~~and ~~generated~~accounted ~~any~~for ~~revenues~~separately ~~from non-research~~as ~~product~~a ~~sales~~derivative asset or liability.

F The accounting for derivative instruments is complex. The Company's derivative liabilities are re-11valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to other income (expense), in the period in which the changes in fair value occur. For embedded derivatives and warrants that are accounted for as derivative instrument liabilities, the Company determines the fair value of these instruments using both the Black-Scholes option-pricing model and the Binomial option-pricing model (see Note 10). These models require assumptions related to the expected term of the instrument, risk-free rates of return, the Company's current common stock price, expected dividend yield and the expected volatility corresponding to the expected life of the instrument.

Collaborative Arrangements

The Company enters into collaborative arrangements with third parties for product development and commercialization. These arrangements typically involve two or more parties who are active participants in the collaboration and are exposed to significant risks and rewards dependent on the commercial success of the activities. The Company's rights and obligations under these collaborative arrangements vary. These collaborations usually involve various activities including research, development, and distribution.

F-10

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue Recognition

The Company's revenues are sourced from federal research grants, private and government research contracts, and product development sales. Revenue is recognized when the following criteria are met: (1) a contractual agreement exists; (2) products have been delivered or services have been rendered; (3) the fee is fixed or determinable, and (4) collectability is reasonably assured. Government grant revenue is recognized during the period qualifying expenses are incurred for research and development of the WBU system as set forth under the terms of the grant award agreements. The Company has complied with the federal statutes and regulations, including the delivery of all required periodic reports, and believes that no refunds will be required under the terms of the grant award agreements.

Direct Grant Expenses

Direct grant expenses consist of costs incurred directly related to performance on the government grants. These expenses consist primarily of payroll, travel and direct material expenses. These expenses are charged to direct grant expense as incurred. Due to the fact that: (1) the Company is incurring the expenses regardless of whether or not a government grant is obtained; (2) the Company is the primary obligor; (3) the Company has reasonable latitude in establishing the grant amount; (4) the Company performs the services; (5) the Company has discretion in supplier selection; and (6) the Company determines the specifications of the research; the direct grant expenses are presented gross of government grant revenues.

Patent Costs

Since entering the development stage, legal costs incurred to register patents have been expensed as incurred due to the uncertainty surrounding future cash flows and future benefits to be realized from the patents.

Fair Value Measurements

As defined in FASB ASC 820, Fair Value Measurements and Disclosures, fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, FASB ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

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

~~Quoted market prices have been used to determine the fair value of money market funds, which have been classified as cash equivalents (Level 1).~~ F-11

Table ~~Stock-Based~~of ~~Compensation~~ Contents

~~The Company accounts for stock-based compensation in accordance with FASB ASC 718, Stock~~ ~~Compensation~~TECHNISCAN, INC. ~~Stock-based compensation for stock options is estimated at the grant date based on each option's calculated value instead of the fair value as calculated by the~~ ~~Black-Scholes~~(A ~~option-pricing~~Development ~~model.~~Stage All stock-based payments to employees are grants of stock options that are recognized in the statements of operations based on the calculated value at the date of grant instead of the fair value because it has not been practical to estimate the volatility of the share price. The calculated value method requires that the volatility assumption used in an option-pricing model be based on the historical volatility of an appropriate industry sector index. The Company) anticipates calculating the fair value of stock options instead of the calculated value when sufficient stock trading history to estimate volatility is available, which is anticipated to occur during the year ending December 31, 2010.

~~Income~~NOTES ~~Taxes~~ TO FINANCIAL STATEMENTS (Continued)

~~The~~ Company recognizes a liability or asset for the deferred income tax consequences of all temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled2. ~~These~~SUMMARY ~~deferred~~OF ~~income~~SIGNIFICANT ~~tax~~ACCOUNTING ~~assets~~POLICIES or(Continued) ~~liabilities are measured using the enacted tax rates that will be in effect when the differences are~~

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

	Fair Value as of December 31, 2010

	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	—	$	—	$	—	$	—

Total	$	—	$	—	$	—	$	—

Liabilities
Embedded derivative	$	—	$	—	$	36,952	$	36,952
Common stock warrant		—		—		41,798		41,798

Total	$	—	$	—	$	78,750	$	78,750

	Fair Value as of December 31, 2009

	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	130,028	$	—	$	—	$	130,028

Total	$	130,028	$	—	$	—	$	130,028

The following table presents the fair value reconciliation of Level 3 liabilities measured at fair value on a recurring basis during the year ended December 31, 2010:

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

		Embedded Derivative			Warrant Derivative			Total
Beginning balance, December 31, 2009		$	—		$	—		$	—
Issuances:
	Embedded derivatives issued in conjunction with convertible notes payable		1,220,463			—			1,220,463
	Warrants issued in conjunction with convertible notes payable		—			2,882,182			2,882,182
Total gains included in earnings			(1,183,511	)		(2,840,384	)		(4,023,895	)

Ending balance, December 31, 2010		$	36,952		$	41,798		$	78,750

F-12

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

~~expected to~~ ~~reverse.~~Stock-Based The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax assets are reviewed periodically for recoverability, and valuation allowances are provided when it is more likely than not that some or all of the deferred income tax assets may not be realized. The Company has provided a valuation allowance against all of its net deferred income tax assets because of its history of net operating losses and the uncertainties regarding future operating profitability and taxable income. Compensation

The Company accounts for stock-based compensation in accordance with FASB ASC 718, Stock Compensation. Stock-based compensation for stock options is estimated at the grant date based on each option's value as calculated by the Black-Scholes option-pricing model. Prior to the Merger, stock-based payments to employees are grants of stock options that are recognized in the statement of operations based on the calculated value at the date of grant instead of the fair value because it was not practical to estimate the volatility of the share price. The calculated value method requires that the volatility assumption used in an option-pricing model be based on the historical volatility of an appropriate industry sector index. Subsequent to the Merger, the Company calculates the fair value of the stock options using the historical volatility of selected comparable, publicly traded companies over a period equivalent to the expected life, which is the expected time from grant date until exercise.

Income Taxes

The Company recognizes a liability or asset for the deferred income tax consequences of all temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled. These deferred income tax assets or liabilities are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax assets are reviewed periodically for recoverability, and valuation allowances are provided when it is more likely than not that some or all of the deferred income tax assets may not be realized. The Company has provided a valuation allowance against all of its net deferred income tax assets because of its history of operating losses and the uncertainties regarding future operating profitability and taxable income.

Beginning January 1, 2009, the Company applied the measurement and disclosure provisions for uncertain tax positions as required by FASB ASC 740-10. This standard requires that computations and deferred income tax provisions only consider tax positions that are more likely than not to be sustained if the tax authority examines the positions. Management believes that all tax positions considered for this purpose meet this "more likely than not" threshold. No adjustment was required to the financial statements upon adoption of this standard. Previous to the adoption of this standard, the Company had accounted for tax positions in accordance with FASB ASC Topic 450, Contingencies.

Net Loss Per Common Share

Basic net ~~income or~~ loss per common share ~~("Basic EPS")~~ is computed by dividing the net ~~income or~~ loss by the weighted average number of common shares outstanding. Diluted net income ~~or loss~~ per common share ~~("Diluted EPS")~~ is computed by dividing net income, orif ~~loss~~any, by the sum of the weighted average number of common shares outstanding and the dilutive potential common share equivalents then outstanding. Potential common share equivalents consist of the weighted average number of shares issuable upon the exercise of outstanding stock options and warrants to acquire common stock, and shares issuable upon conversion of ~~preferred~~convertible ~~stock~~debt. If the Company were to generate net income and these potential common share equivalents ~~are~~were dilutive, the Company computes ~~Diluted~~diluted ~~EPS~~net income per common share using the treasury stock method.

Due to the fact that for all periods presented the Company has incurred net losses, weighted average common share equivalents of 34,431,073 and 19,655,423 for the years ended December 31, 2009 and 2008, respectively, are not included in the calculation of Diluted EPS because they are anti-dilutive.

Operating Segment

The Company conducts business within one operating segment. The Company's operations are all related to the research and development of its WBU system. All assets of the business are located in the United States.

Recent Accounting Pronouncements

In September 2009, the FASB issued Accounting Standards Update ("ASU") 2009-08, Earnings Per Share (amendments to Section 260-10-S99). This update includes technical corrections to FASB ASC Section 260-10-S99, Earnings Per Share, based on EITF Topic D-53, Computation of Earnings Per Share for a Period That Includes Redemption or an Induced Conversion of a Portion of a Class of Preferred Stock and EITF Topic D-42, The Effect of the Calculation of Earnings Per Share for the Redemption or Induced Conversion of Preferred Stock. The Company does not expect the implementation of this update to have an impact on its results of operations or financial position.

F-13

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

InDue ~~August~~to ~~2009,~~ the ~~FASB~~fact ~~issued~~that ~~ASU No. 2009-04, Accounting~~ for ~~Redeemable~~all ~~Equity~~periods ~~Instruments—Amendment~~presented, ~~to Section 480-10-S99.~~the ~~This~~Company ~~ASU~~has ~~represents~~incurred annet ~~update to Section 480-10-S99~~losses, ~~Distinguishing Liabilities~~weighted ~~from~~average ~~Equity,~~common ~~per~~share ~~EITF~~equivalents ~~Topic~~of ~~D-98~~4,409,582 ~~Classification~~ and ~~Measurement~~6,043,882 offor ~~Redeemable~~the ~~Securities.~~years ~~The adoption~~ended ofDecember 31, ~~ASU~~2010 and 2009~~-04~~, ~~will~~respectively, are not ~~have~~included ain ~~material~~the ~~impact~~calculation onof ~~the~~diluted ~~Company's~~net ~~results~~loss ofper ~~operations~~common orshare ~~financial~~because ~~position~~they are anti-dilutive.

~~In December~~ ~~2009,~~Operating the FASB issued ASU 2009-17, Improvements to Financial Reporting Involved with Variable Interest Entities, which codifies SFAS No. 167, Amendments to FASB Interpretation No. 46(R) issued in June 2009. ASU 2009-17 requires a qualitative approach to identifying a controlling financial interest in a variable interest entity ("VIE"), and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. ASU 2009-17 is effective for annual reporting periods beginning after November 15, 2009. The Company does not expect the adoption of ASU 2009-17 to have a material impact on its results of operations or financial position. Segment

~~In October~~The ~~2009,~~Company ~~the~~conducts ~~FASB~~business ~~issued~~within ~~ASU~~one ~~2009-13,~~operating ~~Multiple-Deliverable~~segment. ~~Revenue~~The ~~Arrangements,~~Company's ~~which~~operations ~~amends~~are ~~FASB~~all ~~ASC~~related ~~Topic 605, Revenue Recognition, and ASU 2009-14, Certain Arrangements That Include Software Elements, which amends FASB ASC Topic 985, Software. ASU 2009-13 requires entities~~ to ~~allocate revenue in an arrangement using estimated selling prices of~~ the ~~delivered~~research ~~goods~~ and ~~services~~development ~~based on a selling price hierarchy. The amendments eliminate the residual method~~ of ~~revenue allocation and require revenue to be allocated using the relative~~ ~~selling~~its ~~price~~WBU ~~method~~system. ~~ASU~~All ~~2009-14~~assets ~~removes~~of ~~tangible products from~~ the ~~scope~~business ~~of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product~~ are ~~covered~~located ~~by the scope of the software revenue guidance. ASU 2009-13 and ASU 2009-14 should be applied on a prospective basis for revenue arrangements entered into or materially modified~~ in ~~fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company does not expect~~ the ~~adoption~~United ~~of ASU 2009-13 or ASU 2009-14 to have a material impact on the Company's results of operations or financial position~~States.

~~In January~~ ~~2010,~~Recent ~~the~~Accounting FASB issued ASU 2010-06, Improving Disclosures About Fair Value Measurements, which requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. ASU 2010-06 is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. The Company does not expect the adoption of ASU 2010-06 to have a material impact on its results of operations or financial position. Pronouncements

In ~~Reclassifications~~ September 2010, the SEC issued Release No. 33-9142, Internal Control Over Financial Reporting In Exchange Act Periodic Reports of Non-Accelerated Filers. This release issued a final rule adopting amendments to its rules and forms to conform them to Section 404(c) of the Sarbanes-Oxley Act of 2002 ("SOX"), as added by Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act. SOX Section 404(c) provides that Section 404(b) shall not apply with respect to any audit report prepared for an issuer that is neither an accelerated filer nor a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934. Release No. 33-9142 was effective September 21, 2010.

~~Certain~~In July ~~reclassifications~~2010, ~~have~~FASB ~~been~~issued ~~made~~Accounting inStandards Update ("ASU") 2010-20, Disclosures about the ~~prior~~Credit ~~years'~~Quality ~~financial~~of ~~statement~~Financing ~~presentation~~Receivables toand ~~conform~~the Allowance for Credit Losses (ASC Topic 310). This guidance will expand disclosures by requiring additional disaggregated information related to the current ~~year~~disclosures. It will also ~~presentation~~require additional disclosures to provide information based on credit quality, past due aging information, troubled debt restructuring information, and significant purchases and sales of financing receivables. ASU 2010-20 is effective for the Company for interim and annual reporting periods ended after December 15, 2010. The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flows.

In March 2010, the FASB issued ASU No. 2010-11, which is included in the Codification under ASC 815. This update clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Only an embedded credit derivative that is related to the subordination of one financial instrument to another qualifies for the exemption. This guidance became effective for the Company's interim and annual reporting periods beginning January 1, 2010. The adoption of this guidance did not have a material impact on the Company's financial statements.

In February 2010, the FASB issued ASU No. 2010-09, which is included in the Codification under ASC 855, Subsequent Events. This update removes the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated and became effective for interim and annual reporting periods beginning January 1, 2010. The adoption of this guidance did not have a material impact on the Company's financial statements.

F-14

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In January 2010, the FASB issued ASU No. 2010-06, which is included in the Codification under ASC 820, Fair Value Measurements and Disclosures. This update requires the disclosure of transfers between the observable input categories and activity in the unobservable input category for fair value measurements. The guidance also requires disclosures about the inputs and valuation techniques used to measure fair value and became effective for interim and annual reporting periods beginning January 1, 2010. The adoption of this guidance did not have a material impact on the Company's financial statements.

Reclassifications

Certain reclassifications have been made in the prior year's financial statement presentation to conform to the current year presentation.

3. MERGER

On September 21, 2009, TechniScan Utah entered into a Purchase and Sale Agreement with the sole owner of the Company, whereby TechniScan Utah agreed to purchase 3,000,000 shares of common stock held by the Company's sole officer and director prior to the completion of the Merger for $65,000. One of TechniScan Utah's stockholders paid this amount on behalf of TechniScan Utah, and the amount was recorded as a capital contribution. Closing on this purchase and sale occurred on October 9, 2009, immediately prior to the completion of the Merger, and pursuant to the Merger Agreement these 3,000,000 shares were canceled and retired, and no consideration was delivered to TechniScan Utah in exchange therefore.

On October 9, 2009, the Company completed an acquisition of TechniScan Utah, pursuant to an Agreement and Plan of Merger, dated October 9, 2009, by and among TechniScan Utah, the Company, ~~and~~ TechniScan Acquisition, Inc., ~~a Utah corporation~~ and ~~wholly owned subsidiary of TechniScan Utah ("TechniScan Acquisition") and~~ the ~~largest~~sole ~~stockholder~~owner of the Company (the "Merger Agreement").

The Merger Agreement provided for the merger of TechniScan Acquisition with and into TechniScan Utah, with TechniScan Utah continuing as the surviving entity in the Merger and a wholly owned subsidiary of the Company. Immediately after completion of the Merger, TechniScan Utah was merged with and into the Company (the "Subsidiary Merger").

Under the terms of the Merger Agreement, at the closing of the Merger,

•: all of the issued and outstanding shares of common stock of TechniScan Utah (other than dissenting shares) were cancelled and each share of common stock of TechniScan Utah was converted into and exchanged for the right to receive one validly issued, fully paid and nonassessable share of common stock in the Company,
•: all outstanding options to purchase shares of TechniScan Utah common stock were cancelled and each option was converted into an option to purchase the equivalent number of the Company's common stock, pursuant to the terms of the employee stock option plan of the Company (see Note 12), and
•: all of the issued and outstanding shares of common stock of TechniScan Acquisition were converted into and represent the right to receive validly issued, fully paid and nonassessable shares of TechniScan Utah's common stock.

At the closing of the Merger, the shares of common stock of TechniScan Utah issued and outstanding were converted into and exchanged for the right to receive an aggregate of 76,824,535 shares of common stock of the Company, par value $.001 per share. At the closing of the Merger, all outstanding options to purchase shares of TechniScan Utah's common stock were converted into 12,284,778 options to purchase the equivalent number of the Company's common stock. As a result of the Merger, and immediately following the closing, the former stockholders of TechniScan Utah own approximately 92% of the issued and outstanding common stock of the Company.

F-15

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

3. MERGER (Continued)

~~company~~ At ~~and~~the asclosing ~~such,~~of ~~shares~~the ofMerger, the ~~Company's~~shares of common stock of TechniScan Utah issued and outstanding were converted into and exchanged for the right to ~~TechniScan~~receive ~~Utah's~~an ~~stockholders~~aggregate asof ~~part~~19,206,134 shares of common stock of the ~~Merger~~Company, ~~are~~par ~~not~~value ~~eligible~~$.001 ~~for~~per ~~resale~~share. ~~under~~At the ~~Securities~~closing ~~Act~~of ~~without~~the ~~registration~~Merger, ~~for a~~all ~~period~~outstanding options to purchase shares of atTechniScan ~~least~~Utah's ~~one~~common ~~year~~stock ~~following~~were converted into 3,071,195 options to purchase the ~~filing~~equivalent number of ~~this~~shares ~~report~~of the Company's common stock.

Each holder of a share of common stock of the Company is entitled to one vote per share. The shares of the Company's common stock issued to TechniScan Utah's stockholders as part of the Merger were not registered under the Securities Act of 1933, as amended (the "Securities Act"). These shares may not be sold or offered for sale except as permitted under Rule 144 or another exception promulgated under the Securities Act. Prior to the Merger, the Company was a publicly traded shell company and as such, shares of the Company's common stock issued to TechniScan Utah's stockholders as part of the Merger are not eligible for resale under the Securities Act without registration, for a period of at least one year following October 16, 2009.

Subsequent to the Merger, the Company continued as the surviving entity and ceased being a shell company as that term is defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended ("Exchange Act").

Lock up Agreements

Effective on the closing date of the Merger, the Company entered into lock up agreements covering 3,000,000 shares of its common stock that are able to be sold without restriction under the Securities Act. Each lock up agreement ~~provides~~provided that these shares ~~may~~were not be, directly or indirectly, sold for a period of 180 days following completion of the Merger, provided however, that one-third of the shares issued ~~will~~would be released from the transfer restrictions 60 days after the effective date of the lock up agreement and an additional one-third of the shares issued ~~will~~would be released from the transfer restrictions 120 days after the effective date of the lock up agreement. Also, the Company ~~reserves~~ reserved the right to terminate the transfer restrictions as to all or some of the shares at anytime, atin its sole discretion.

4. ~~PROPERTY~~PREPAID ~~AND EQUIPMENT~~EXPENSES

~~Property~~Prepaid ~~and~~expenses ~~equipment consisted of the following~~ as of December 31, ~~2009~~2010 and ~~2008~~2009 consisted of the following:

	2009			2008
	2010			2009
Computer equipment and software	$	872,756		$	259,733
Deferred offering costs	$	103,225		$	42,568
Machinery and equipment		143,037			143,037
Prepaid professional services		388,500			150,000
Furniture and fixtures		55,286			55,286
Prepaid payroll expense		—			59,709
Leasehold improvements		3,591			3,591
Other		12,308			18,932
		1,074,670			461,647
	$	504,033		$	271,209
Accumulated depreciation and amortization		(457,528	)		(376,039	)
	$	617,142		$	85,608

5. ACCRUED LIABILITIES

Accrued liabilities as of December 31, 2009 and 2008 consisted of the following:

	2009		2008
Liabilities to dissenter stockholders	$	271,362	$	—
Accrued compensation and benefits		195,811		119,094
Accrued software liability		150,000		—
Other accrued liabilities		53,465		55,762
	$	670,638	$	174,856

F-16

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

65. ~~INCOME~~PROPERTY ~~TAXES~~AND EQUIPMENT

~~The~~Property ~~significant components of the Company's net deferred income tax assets~~ and ~~liabilities~~equipment ~~are~~ as ~~follows as~~ of December 31, ~~2009~~2010 and ~~2008~~2009 consisted of the following:

				2009			2008
		2010			2009
Deferred income tax assets:
Computer equipment and software		$	1,023,893		$	872,755
	Net operating loss carry-forwards			$	8,694,267		$	7,536,339
Machinery and equipment			143,037			143,037
	Research and development tax credit carryforwards				847,526			646,409
Furniture and fixtures			58,982			55,286
	Stock-based compensation				267,485			250,453
Leasehold improvements			3,591			3,591
	Inventory reserve				79,316			79,196
			1,229,503			1,074,669
	Deferred rent				51,970			36,758
Accumulated depreciation and amortization			(640,589	)		(457,527	)
	Customer deposits				22,380			—
		$	588,914		$	617,142
	Amortization				36,417			—
	Accrued vacation				35,925			36,839
	Other				17,693			20,799
	Total deferred income tax assets				10,052,979			8,606,793
	Less valuation allowance				(10,022,555	)		(8,378,671	)
		Net deferred income tax assets			30,424			228,122
Deferred income tax liabilities:
	Depreciation and gain on sale				(30,424	)		(228,122	)
	Total deferred income tax liabilities				(30,424	)		(228,122	)
				$	—		$	—

~~The difference~~ ~~between the provision (benefit) for income taxes at the U~~6.S. ~~statutory~~ACCRUED ~~rate and the Company's effective income tax rate are as follows as of December 31, 2009 and 2008:~~ LIABILITIES


Benefit at U.S. federal statutory rate		(34.0	)%	(34.0	)%
Benefit at state statutory rate		(3.1	)%	(3.3	)%
Stock-based compensation		1.9	%	0.0	%
Research and development tax credits		(5.9	)%	(2.2	)%
Valuation allowance		41.1	%	39.5	%
	Total provision (benefit) for income taxes	0.0	%	0.0	%

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

As of December 31, 2009 and 2008, the Company had federal and state net operating loss carryforwards of approximately $23,309,000 and $20,205,000, respectively. The net operating loss carryforwards will expire beginning in 2020 and continuing through 2029, if not utilized. The Company's research and development tax credit carryforwards will fully expire in 2029, if not utilized.

	2010		2009

Accrued software license fees	$	375,000	$	150,000
Accrued interest		245,437		—
Accrued compensation and benefits		126,320		195,811
Other accrued liabilities		88,878		53,465
Liabilities to dissenter stockholders		—		271,362

	$	835,635	$	670,638

Utilization of the net operating losses and research and development tax credits will likely be subject to substantial annual limitations due to the "change of ownership" provisions of the Internal Revenue Code and similar state provisions. The annual limitations may result in the expiration of net operating loss and research and development tax credit carryforwards before utilization.

F-17

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

67. INCOME TAXES ~~(Continued)~~

~~Realization~~ of The ~~the~~significant ~~deferred~~components ~~income tax assets is dependent upon future taxable income, if any, the amount~~ of ~~which is uncertain. Accordingly,~~ the Company's deferred income tax assets ~~have been fully offset by a valuation allowance~~ and ~~deferred income tax~~ liabilities. ~~The~~as ~~valuation~~of ~~allowance increased by approximately $1,644,000 and $1,675,000 during the years ended~~ December 31, ~~2009 and~~2010 ~~2008, respectively. Deferred income tax assets relate primarily to net operating loss~~ and ~~research~~2009 ~~and~~are ~~development~~as ~~tax~~follows: ~~credit carryforwards.~~

The Company is subject to income taxation in the United States and in the State of Utah. There are no uncertain tax positions requiring disclosure, and there are no unrecognized tax benefits as of January 1, 2009 and December 31, 2009. The Company does not anticipate this to significantly change in the next 12 months.

			2010			2009

Deferred income tax assets:
	Net operating loss carryforwards		$	10,294,409		$	8,694,267
	Research and development tax credit carryforwards			—			847,526
	Stock-based compensation			575,949			267,485
	Inventory reserve			73,621			79,316
	Deferred rent			54,157			51,970
	Customer deposits			96,980			22,380
	Amortization			32,980			36,417
	Accrued vacation			27,726			35,925
	Other			33,152			17,693

	Total deferred income tax assets			11,188,974			10,052,979
	Less valuation allowance			(11,174,944	)		(10,022,555	)

		Net deferred income tax assets		14,030			30,424

Deferred income tax liabilities:
	Depreciation and gain on sale			(14,030	)		(30,424	)

	Total deferred income tax liabilities			(14,030	)		(30,424	)

			$	—		$	—

The ~~Company~~difference isbetween nothe ~~longer~~provision ~~subject~~(benefit) tofor ~~United States or State of Utah~~ income ~~tax~~taxes ~~examinations~~at ~~for~~the ~~years before 2006~~U.S. ~~The~~statutory ~~amount~~rate ofand ~~net~~the ~~operating~~Company's ~~losses~~effective ~~arising~~income ~~from~~tax ~~years~~rate ~~before~~are ~~2006~~as ~~are still~~follows ~~subject~~as toof ~~examination~~December 31, ~~until~~2010 ~~expiration.~~and 2009:

The Company classifies interest on tax deficiencies as interest expense, and classifies income tax penalties as part of the income tax provision. No tax-related interest or penalties were incurred during the years ended December 31, 2009 or 2008.



Benefit at U.S. federal statutory rate		(34.0	)%	(34.0	)%
Benefit at state statutory rate		(3.3	)%	(3.1	)%
Stock-based compensation		0.3	%	1.9	%
Research and development tax credits		15.9	%	(5.9	)%
Valuation allowance		21.1	%	41.1	%

	Total provision (benefit) for income taxes	0.0	%	0.0	%

As of 7December 31, 2010 and 2009, the Company had federal and state net operating loss carryforwards of approximately $27,599,000 and $23,309,000, respectively. ~~COMMITMENTS~~ The net operating loss carryforwards will expire beginning in 2020 and continuing through 2030, if not utilized. The Company's research and development tax credit carryforwards will fully expire in 2030, if not utilized.

~~The~~Utilization of ~~Company's~~the ~~executive~~net ~~offices~~operating ~~are~~losses ~~located~~and inresearch ~~Salt~~and ~~Lake~~development ~~City,~~tax ~~Utah.~~credits ~~The~~will ~~Company~~likely ~~leases~~be ~~its~~subject ~~facility~~to ~~under~~substantial anannual ~~operating~~limitations ~~lease~~due ~~that~~to ~~expires~~the in"change ~~May~~of ~~2018.~~ownership" ~~The~~provisions ~~operating lease provides for~~of ~~increasing~~the ~~rents~~Internal ~~over~~Revenue ~~the~~Code ~~term~~and ofsimilar ~~the~~state ~~lease~~provisions. ~~Total~~The ~~rent~~annual ~~expense~~limitations ~~under~~may ~~the~~result ~~lease~~in ~~is recognized ratably over~~ the ~~term~~expiration of ~~the~~net ~~lease.~~operating ~~The~~loss ~~following~~and ~~table~~research ~~presents~~and ~~future~~development ~~minimum~~tax ~~lease~~credit ~~commitments~~carryforwards ~~under~~before ~~non-cancelable~~utilization. ~~operating leases as of December 31, 2009:~~

Year Ended December 31,
2010	$	291,225
2011		297,050
2012		302,991
2013		309,051
2014		314,712
Thereafter		1,124,796
	$	2,639,825

Total rent expense under the operating lease was $293,488 and $222,201 for the years ended December 31, 2009 and 2008, respectively.

8. RELATED-PARTY TRANSACTIONS

During 2009 and 2008, the Company paid $18,162 and $30,642 to a company owned by a member of the Board of Directors for professional services.

F-18

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

87. ~~RELATED-PARTY~~INCOME ~~TRANSACTIONS~~TAXES (Continued)

~~During~~Realization ~~2007~~of ~~and~~the ~~through~~deferred ~~May~~income ~~2008~~tax assets is dependent upon future taxable income, if any, the ~~Company~~amount ~~operated~~of ~~from~~which ais ~~building~~uncertain. ~~leased~~Accordingly, ~~from~~the deferred income tax assets have been fully offset by a ~~director~~valuation ofallowance ~~the~~and ~~Company~~deferred income tax liabilities. ~~Rent~~The ~~expense~~valuation toallowance ~~this~~increased ~~related~~by ~~party~~approximately ~~was~~$1,152,000 and $501,644,000 ~~for~~during ~~2008.~~the Inyears ~~June~~ended ~~2008~~December 31, ~~the~~2010 ~~Company~~and ~~moved~~2009, respectively. Deferred income tax assets relate primarily to ~~new~~net ~~offices~~operating ~~(see~~loss ~~Note 7)~~carryforwards.

~~TechniScan~~The ~~Utah~~Company ~~and Esaote S.p.A. ("Esaote"), an Italian ultrasound equipment manufacturer, which~~ is ~~also~~subject ato ~~10%~~income ~~stockholder~~taxation ofin the ~~Company,~~United ~~entered~~States ~~into a Series E Stock Purchase Agreement on February 11, 2008~~ and ~~a Letter of Undertakings on Possible Amendment Agreement, dated October 28, 2008,~~ in ~~connection~~the ~~with~~State ~~TechniScan Utah's offering~~ of ~~Series E~~ ~~Preferred Stock~~Utah. ~~Pursuant~~There toare ~~the~~no ~~Stock~~uncertain ~~Purchase~~tax ~~Agreement,~~positions ~~Esaote~~requiring ~~agreed~~disclosure toas ~~purchase up to 10,000,000 shares~~ of ~~the Series~~January ~~E Preferred Stock at a price of $0.90 per share and warrants to purchase up to~~ 1,~~500,000~~ ~~shares~~2010 ~~of TechniScan Utah's common stock, at an exercise price of $0.75 per share. Esaote's purchase of Series E Preferred Stock was to take place in three separate closings,~~ and ~~at the initial closing, Esaote purchased 3,333,334 shares of TechniScan Utah Series~~ December ~~E Preferred Stock and warrants to purchase 500~~31,~~000~~ ~~shares~~2010. ofThe ~~common~~Company ~~stock,~~does ~~for $3,000,000.~~not Ofanticipate this ~~purchase~~to ~~price,~~significantly ~~$2,000,000~~change ~~was paid~~ in ~~cash and $1,000,000 was paid in~~ the ~~form~~next of an account credit under the Original Equipment Manufacturing Agreement and Engineering Support Agreement between TechniScan Utah and Esaote. Pursuant to the Stock Purchase Agreement, Esaote was entitled to certain other benefits, including redemption rights for one year ~~following each closing, as applicable, and a right of first refusal and co-sale~~. ~~These additional rights were terminated prior to the Merger.~~

InDuring ~~connection~~2010, ~~with a European Market Development Agreement that~~ the Company ~~entered~~impaired ~~into~~$847,256 ~~during~~of ~~October~~deferred ~~2008~~income ~~with~~tax ~~Esaote,~~assets ~~the~~related ~~Company~~to ~~has~~research ~~delivered~~and ~~two~~development ~~prototype~~tax ~~systems~~credit ~~and~~carryforwards, ~~Esaote~~which ~~has paid~~previously ~~the~~had ~~Company~~a anfull ~~aggregate~~valuation ~~of $500,000~~allowance. The ~~Company~~amount ~~has recorded $120,000~~ of ~~other~~unrecognized ~~research~~tax ~~revenues~~benefits ~~for~~as ~~each~~ of ~~the years ended~~ December 31, ~~2009~~2010 ~~and~~was ~~2008~~$847,256, inwhich ~~conjunction~~if ~~with~~ultimately ~~the~~recognized, ~~shipment of~~would ~~prototype~~not ~~systems~~impact ~~per~~ the ~~terms~~Company's ofannual aeffective ~~product~~tax ~~development~~rate ~~agreement.~~due ~~The~~to ~~remaining balance is recorded in customer deposits for~~ the ~~years~~full ~~ended December 31, 2009 and 2008~~valuation.

OnThe ~~December 2, 2009, the~~ Company ~~and Esaote entered into a non-binding Manufacturing Letter of Intent dated and effective as of November 12, 2009 ("Letter of Intent"). The Letter of Intent~~ is inno ~~regards~~longer subject to aUnited ~~production~~States ~~and~~or ~~supply~~State ~~agreement between Esaote and the Company concerning the manufacturing~~ of ~~the~~Utah ~~Company's~~income ~~WBU~~tax ~~system.~~examinations ~~The~~for ~~parties~~years ~~do not expect to negotiate the supply agreement until June 2010 at the earliest, and if agreed upon, to execute the agreement on or~~ before ~~October 1, 2010~~2006. The ~~Letter~~amount of ~~Intent~~net ~~may~~operating belosses ~~terminated~~arising byfrom ~~either~~years ~~party at~~before ~~any~~2006 ~~time,~~are still ~~upon~~subject ~~30 business days written notice~~ to ~~the~~examination ~~other~~until ~~party~~expiration.

OnThe ~~December 2, 2009, Esaote and the~~ Company ~~entered~~classifies ~~into~~interest ~~Supplement~~on ~~Number~~tax ~~One~~deficiencies toas ~~Original~~interest ~~Equipment Manufacturing Agreement and Engineering Support Agreement ("Supplement"). Pursuant to the Supplement~~expense, ~~Esaote will provide additional components, development services~~ and ~~miscellaneous~~classifies ~~services~~income totax ~~support~~penalties ~~the~~as ~~further~~part ~~development~~ of the ~~Company's~~income ~~products~~tax ~~("Supplemental Services")~~provision. InNo ~~consideration~~tax-related ofinterest the Supplemental Services, Esaote will receive, at Esaote'e election, either (a) additional shares of the Company's common stock in an amount as determined once the Supplemental Services are completed or ~~terminated; or (b) payment in cash in the amount of the Supplemental Services as determined in the Supplement and the Original Equipment Manufacturing~~ ~~Agreement~~penalties ~~and~~were ~~Engineering~~incurred ~~Support~~during ~~Agreement (~~the ~~"Agreement").~~years ~~Esaote~~ended ~~must~~December 31, ~~make its election of either cash or stock sometime in the second quarter of~~ 2010. ~~The~~and ~~Supplemental Services are valued at $1,008,417~~2009. ~~The term of the Supplement will continue for the remaining term of the Agreement. The~~

8. COMMITMENTS

The Company's executive offices are located in Salt Lake City, Utah. The Company leases its facility under an operating lease that expires in May 2018. The operating lease provides for increasing rents over the term of the lease. Total rent expense under the lease is recognized ratably over the term of the lease. The following table presents future minimum lease commitments under non-cancelable operating leases as of December 31, 2010:

Year Ended December 31,

2011	$	297,050
2012		302,991
2013		309,051
2014		314,712
2015		321,536
Thereafter		803,260

	$	2,348,600

Total rent expense under the operating lease was $293,970 and $293,488 for the years ended December 31, 2010 and 2009, respectively.

F-19

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

89. RELATED-PARTY TRANSACTIONS ~~(Continued)~~

~~term~~ of During ~~the~~2010 ~~Agreement~~and ~~commenced on February 11~~2009, ~~2008~~the ~~and~~Company ~~continues~~paid in$0 ~~effect~~and ~~for a period of 24 months~~$18,162 ~~and~~to ~~has~~a ~~automatically~~company ~~been~~owned ~~renewed~~by ~~for~~ a ~~further~~member ~~period~~ of ~~36 months.~~the AsBoard of ~~December 31,~~ ~~2009,~~Directors ~~Esaote~~for ~~has~~professional ~~not provided any Supplemental Services~~services.

~~From~~TechniScan ~~November~~Utah ~~2007~~and ~~through~~Esaote S.p.A. ~~January 2008~~("Esaote"), ~~TechniScan~~an ~~Utah~~Italian ~~issued~~ultrasound ~~Convertible~~equipment ~~Subordinated~~manufacturer, ~~Promissory~~which ~~Notes~~is ~~("Subordinated~~also ~~Notes")~~a in10% stockholder of the ~~aggregate~~Company, ~~principal~~entered ~~amount~~into ofa ~~$510,000~~Series E toStock ~~directors~~Purchase Agreement on February 11, 2008 and ~~former~~a ~~directors~~Letter of ~~TechniScan~~Undertakings ~~Utah.~~on InPossible ~~February~~Amendment Agreement, dated October 28, 2008, in connection with TechniScan Utah's ~~converted~~offering ~~the~~of Series E ~~entire~~Preferred ~~principal~~Stock. ~~owed~~Pursuant ~~under~~to the ~~Subordinated~~Stock ~~Notes~~Purchase ~~into~~Agreement, ~~566~~Esaote agreed to purchase up to 10,~~669~~000,000 shares of the Series E Preferred Stock at a ~~rate~~price of $0.90 per share and warrants to purchase up to 375,000 shares of TechniScan Utah's common stock, at an exercise price of $3.00 per share. Esaote's purchase of Series E Preferred Stock was to take place in three separate closings, and at the initial closing, Esaote purchased 3,333,334 shares of TechniScan Utah Series E Preferred Stock and warrants to purchase 125,000 shares of common stock, for $3,000,000. Of this purchase price, $2,000,000 was paid in cash and $1,000,000 was paid in the form of an account credit under the Original Equipment Manufacturing Agreement and Engineering Support Agreement between TechniScan Utah and Esaote. Pursuant to the Stock Purchase Agreement, Esaote was entitled to certain other benefits, including redemption rights for one year following each closing, as applicable, and a right of first refusal and co-sale. These additional rights were terminated prior to the Merger.

Pursuant to 9the Esaote OEM Agreement, Esaote provides engineering and design support and original equipment manufacturing prototype equipment and supplies to the Company. ~~STOCKHOLDERS~~Under Supplement One, Esaote agreed to provide additional components, development services and miscellaneous costs to support the further development of the Company's ~~DEFICIT~~ products ("Supplemental Services"). The Supplemental Services are valued at $1,008,417. Pursuant to Supplement One, Esaote has the choice to be compensated for the value of the Supplemental Services in cash or shares of the Company's common stock in an amount as determined once the Supplemental Services are completed or terminated. The term of the Esaote OEM Agreement commenced on February 11, 2008, continues in effect for a period of 24 months, and has automatically been renewed for a further period of 36 months. As of March 25, 2011, Esaote has not requested any payment for Supplemental Services.

~~Effective~~In connection ~~October 9,~~with ~~2009,~~a European Market Development Agreement that the Company's ~~Board~~entered ofinto ~~Directors~~during ~~authorized~~October a2008 2with ~~for~~Esaote, 1the ~~forward~~Company ~~stock~~has ~~split~~delivered ~~and~~two anprototype ~~increase~~systems inand ~~the~~Esaote ~~number~~has paid ofthe ~~authorized~~Company ~~shares~~an aggregate of ~~common stock to 150~~$650,000~~,000~~. The ~~par~~Company ~~value~~has ~~amount~~recorded $240,000 ~~additional~~of ~~paid-in~~other ~~capital~~research revenues for the period from January 1, ~~loss~~2002 ~~per~~(date ~~share~~of inception of development stage) through December 31, ~~and~~2010, in conjunction with the ~~amounts~~shipment of ~~shares~~prototype ofsystems ~~common~~per ~~stock~~the ~~outstanding~~terms ~~and~~of ~~authorized~~a ~~have~~product ~~been~~development ~~retroactively~~agreement. ~~adjusted~~The ~~for~~remaining ~~all periods~~balance ~~presented~~is recorded in ~~the~~related-party ~~accompanying~~customer ~~financial statements~~deposits.

From August 9, ~~Preferred~~2010 ~~Stock~~ through September 8, 2010, the Company received $135,000 by issuing short-term notes to two related parties. The notes bear interest at 8% per annum. The principal amount of the notes and accrued interest are due upon the earlier of: (1) the Company receiving cash proceeds from equipment sales, loans, investments or otherwise from Esaote in excess of an aggregate of $135,000; (2) the closing of a public sale of the Company's securities for gross proceeds of not less than $2,000,000; or (3) January 31, 2011 (see Note 13). If payment is not made pursuant to provisions set forth in the short-term notes, the related parties have the right and are entitled to: (1) declare the entire unpaid principal balance and all accrued but unpaid interest be due and payable; and (2) pursue any and all other available remedies for the collection of such principal and interest.

During 2009, all shares of preferred stock were converted into shares of common stock. On February 11, 2008, the Articles of Incorporation of the Company were amended to change the number of shares of preferred stock authorized. As of December 31, 2008, there were 8,525,570 shares of Series D Preferred Stock ("Series D") authorized and outstanding. As of December 31, 2008, there were 20,000,000 shares of Series E Preferred Stock ("Series E") authorized and 4,949,175 shares of Series E outstanding, respectively.

Conversion Privileges

Prior to the Merger, the holders of Series D and Series E had the right to convert their preferred shares, at any time, into shares of common stock of the Company. As of December 31, 2008, the conversion rate was 1 to 1. Each share of Series D and Series E would have been automatically converted into shares of common stock, based upon the current conversion rate, immediately upon the affirmative election of the holders of at least 60 percent of the outstanding shares of preferred stock or at the closing of a fully underwritten public offering under the Securities Act of 1933, as amended, in which the price per share was at least twice the original offering price (adjusted for stock splits and the like) and that resulted in gross proceeds to the Company of at least $10,000,000. The conversion rate of Series E would have decreased if the Company had issued or was deemed to have issued shares of common stock without consideration or for a consideration per share less than the applicable conversion rate then in effect, which was $0.90 as of December 31, 2008.

Common Stock

As of December 31, 2009 and 2008, the Company had 14,921,542 and 11,455,830 shares, respectively, of its common stock reserved for the exercise of outstanding stock options and warrants. In connection with the Merger, all warrants were converted to common stock of the Company.

F-20

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

910. ~~STOCKHOLDERS'~~CONVERTIBLE ~~DEFICIT~~NOTES ~~(Continued)~~PAYABLE AND DERIVATIVES

March 2010 Offering

On March 30, 2010, the Company entered into a Note and Warrant Purchase Agreement ("Note Purchase Agreement") with five accredited investors pursuant to which the investors purchased senior secured convertible notes ("Notes") in the aggregate amount of $1,850,000. Of this amount, $500,000 was received from members of the Company's Board of Directors. During the period from May 13, 2010 through May 27, 2010, the Company issued Notes in the aggregate amount of $700,000 to nine accredited investors. Of this amount, $100,000 was received from a member of the Company's Board of Directors.

The Notes were originally due on September 30, 2010, and were extended to October 31, 2010. On October 28, 2010, the due date of the Notes was extended to January 31, 2011 (see Note 13). The Notes accrue interest at the rate of 10% per annum, unless the principal amount of a note is converted into shares of common stock of the Company, in which case the interest is payable on the principal at a rate of 12% per annum. The Company is recording interest at 12%. In connection with the extension of Notes to January 31, 2011, the Company issued 275,000 restricted shares of its common stock and warrants to purchase 1,026,126 shares of its common stock. At its option, the Company may prepay all of the outstanding principal and accrued interest on the Notes, subject to a prepayment charge of 10% of the principal amount of the Notes. The Notes are convertible in whole or in part at any time at the option of the holder of the Note into the number of shares equal to the principal amount of the Note and all accrued interest divided by $2.68, subject to customary adjustments as set forth in the Notes for stock splits, stock dividends, etc. In addition, in the event that the Company receives cash investments from one or more investors in one or more transactions for gross proceeds of not less than $5,000,000 in exchange for the issuance of shares or any other securities that are convertible into or exercisable for shares at any time between March 30, 2010 and January 31, 2011, the Notes are convertible into shares at the same price and on the same terms as the investors.

In conjunction with the Notes, the Company issued warrants ("Warrants") to investors to purchase an aggregate of 951,499 shares of the Company's common stock. The exercise price per share is $2.68, subject to customary adjustments as set forth in the Warrants for stock splits, stock dividends, etc. The Warrants expire five years from the date of issuance.

The Notes and Warrants contain a provision which adjusts the conversion price and exercise price of the Notes and Warrants, respectively, if the Company issues or sells common stock or securities convertible into common stock at a price per share, or equivalent price per share lower than $2.68. The Company assessed the terms of the Notes and Warrants in accordance with ASC Topic 815 - 40, and determined that the underlying terms of the Notes and Warrants are not indexed to the Company's common stock. Therefore, the conversion option and the warrants are accounted for as an embedded derivative and as a derivative, respectively, and are valued at fair value at the date of issuance and each subsequent reporting date.

Pursuant to certain prepayment provisions set forth in the Notes, the investors have the right, at the investors' option to require the Company to prepay all or a portion of the Notes in cash at a price equal to the greater of (1) 125% of the aggregate principal amount of the Notes plus all accrued and unpaid interest and (2) the aggregate principal amount of the Notes plus all accrued and unpaid interest, divided by the conversion price on the date the investor demands payment, pursuant to this provision or the date the payment is actually made by the Company to the investor pursuant to this

F-21

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

10. CONVERTIBLE NOTES PAYABLE AND DERIVATIVES (Continued)

provision, whichever is less, multiplied by the daily volume weighted average price of the Company's common stock on the greater of either of the two dates used to determine the conversion price in connection with a payment pursuant to this provision. The prepayment provisions are embedded derivatives and the fair value of the prepayment penalties are included in the embedded derivative liability.

July 2010 Offering

During the period from July 29, 2010 through August 24, 2010, two members of the Company's Board of Directors purchased senior secured convertible promissory notes in the amount of $200,000. In conjunction with the notes, the Company issued warrants to purchase an aggregate of 74,627 shares of its common stock. Except as adjusted for the later issuance date, the note and warrant have the same material terms as the Notes and Warrants, respectively, the Company issued pursuant to a Note Purchase Agreement and other investment documents in connection with the March 2010 Offering.

November 2010 Offering

From November 29, 2010 through December 17, 2010, two members of the Company's Board purchased senior secured convertible promissory notes in the amount of $100,000. In conjunction with the notes, the Company issued warrants to purchase an aggregate of 37,314 shares of its common stock. Except as adjusted for the later issuance date, the note and warrant have the same material terms as the amended senior secured convertible promissory notes and the amended common stock purchase warrants, respectively, it issued pursuant to a Note and Warrant Purchase Agreement and other investment documents in connection with the March 2010 Offering.

Derivatives

On March 30, 2010 (date of issuance) and on March 31, 2010, the fair value of the embedded derivatives and warrant liability was $1,016,897 and $2,001,864, respectively. As a result, the Company recorded an inception loss on derivatives of $1,168,761 and a discount of $1,850,000 on the Notes.

During May 2010 (date of additional issuance), the fair value of the embedded derivatives and warrant liability for the additional issuance was $180,566 and $501,174, respectively. As a result, the Company recorded a discount of $681,740 on the Notes issued during May 2010.

During July 2010 and August 2010 (date of additional issuance), the fair value of the embedded derivatives and warrant liability for the additional issuance was $9,239 and $84,329, respectively. As a result, the Company recorded a discount of $93,568 on the Notes issued during July 2010 and August 2010.

Between October 2010 and December 2010 (date of additional issuance), the fair value of the embedded derivatives and warrant liability for the additional issuance was $13,761 and $294,815, respectively. As a result, the Company recorded a discount of $308,576 on the Notes between October 2010 and December 2010.

F-22

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

10. CONVERTIBLE NOTES PAYABLE AND DERIVATIVES (Continued)

The revaluation of the derivatives as of December 31, 2010 resulted in the fair value of the liabilities of $36,952 and $41,798 for the embedded derivative liability on the Notes and the common stock warrant liability, respectively. The decrease in the fair value resulted in a net gain on derivatives of $2,855,134 for the year ended December 31, 2010. The Company uses the Black-Scholes option-pricing model to estimate the value of its embedded derivatives, and the Company uses the Black-Scholes and Binomial option-pricing models to estimate the value of its common stock warrant liability. The assumptions used in the Black-Scholes and Binomial option-pricing models for the year ended December 31, 2010 are set forth in the following table. The expected volatility is based on the volatility of public companies that are similar to the Company's industry, size, financial leverage and stage of life cycle. The Company calculated the historical volatility of these companies using the weekly or monthly closing total returns for a period of time equal to the expected term of the embedded derivatives and common stock warrant liability, respectively, as of the valuation date. The expected term represents the period of time that the embedded derivatives and common stock warrant liability are expected to be outstanding. The risk free rate is based on the U.S. treasury securities constant maturity rate that corresponds to the expected term.

Embedded Derivative Liability



December 31, 2010	72.6	%	0.29	0.0	%	0.16	%
December 17, 2010	65.5	%	0.33	0.0	%	0.16	%
November 29, 2010	76.0	%	0.38	0.0	%	0.22	%
October 28, 2010	78.9	%	0.46	0.0	%	0.22	%
September 30, 2010	64.1	%	0.34	0.0	%	0.23	%
July 29, 2010 - August 24, 2010	64.1	%	0.10	0.0	%	0.21	%
June 30, 2010	88.1	%	0.25	0.0	%	0.24	%
May 13, 2010 - May 27, 2010	84.3	%	0.35	0.0	%	0.24	%
March 31, 2010	46.1	%	0.50	0.0	%	0.28	%

Common Stock Warrant Liability



December 31, 2010	78.6	%	4.25	0.0	%	1.59	%
December 17, 2010	78.7	%	4.28	0.0	%	1.60	%
November 29, 2010	78.0	%	4.33	0.0	%	1.18	%
October 28, 2010	75.7	%	4.42	0.0	%	0.96	%
September 30, 2010	74.0	%	4.50	0.0	%	1.16	%
July 29, 2010 - August 24, 2010	73.6	%	4.60	0.0	%	1.23	%
June 30, 2010	78.1	%	4.75	0.0	%	1.83	%
May 13, 2010 - May 27, 2010	76.4	%	4.84	0.0	%	2.14	%
March 31, 2010	79.6	%	5.00	0.0	%	2.63	%

F-23

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

11. STOCKHOLDERS' DEFICIT

Retroactive Presentation for Reverse Common Stock Split

Effective June 28, 2010, the Company implemented a 1-for-4 reverse stock split of its issued and outstanding common stock. All common share and per share information in the accompanying financial statements have been retroactively restated to reflect the reverse common stock split.

Common Stock

As of December 31, 2010 and 2009, the Company had 3,874,400 and 3,730,400 shares, respectively, of its common stock reserved for the exercise of outstanding stock options and warrants. In connection with the Merger, all warrants outstanding at that time were converted to common stock of the Company.

Stock Warrants

A summary of warrant activity and related information as of December 31, 2010 and 2009 is presented below:

		December 31, 2009					December 31, 2008
		2010					2009
		Warrants			Weighted Average Exercise Price		Warrants			Weighted Average Exercise Price
Outstanding—beginning of period			~~2,565,287~~—		$	~~0.25~~—		32,~~287~~565,~~895~~287		$	0.0525
	Granted		12,~~722~~089,~~466~~566			02.7568		~~724~~1,~~000~~722,466			0.75
	Exercised		~~(4,168,953~~—	)		~~0.46~~—		(14,~~446~~168,~~608~~953	)		0.0546
	Canceled		~~(118,800~~—	)		~~0.05~~—		—(118,800	)		—0.05
Outstanding—end of period			—2,089,566			—2.68		~~2,565,287~~—			~~0.25~~—
Exercisable—end of period			—2,089,566			—2.68		~~2,565,287~~—			~~0.25~~—

1012. STOCK-BASED COMPENSATION

Stock Options

The Company has granted options to employees under the Company's Comprehensive Management Incentive Plan (the "Plan"), which was established in 2001. The Plan was amended in January 2008 to limit the number of options authorized to 18 percent of the total outstanding common and preferred shares. As of December 31, ~~2009~~2010, the number of options authorized was 143,~~921~~874,~~542~~400.

The Board authorized Company management to grant to eligible participants either non-qualified stock options or incentive stock options to purchase shares of common stock. The non-qualified stock options have been granted with an exercise price at 70% of the stock price of the most recent private placement offering, while incentive stock options have been granted with an exercise price equal to the stock price of the most recent private placement offering. Options granted under the Plan vest over periods ranging from six months to four years. The options will expire ten years from the grant date or from three to six months after termination of employment.

On December 15, 2009, the Company's Board of Directions approved the acceleration of all unvested stock options outstanding as of October 9, 2009, in connection with the Merger. Options to purchase 12,284,778 shares of common stock were subject to the acceleration. No incremental compensation costs resulted from this option modification. F-24

As of December 31, 2009 and 2008, there was $1,427,128 and $43,979, respectively, of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Plan. The total fair value of shares vested during the years ended December 31, 2009 and 2008 was $193,566 and $15,483, respectively.

The Company uses the Black-Scholes option-pricing model to estimate the calculated value of its share-based payments. The assumptions used in the Black-Scholes option-pricing model for the years ended December 31, 2009 and 2008 are set forth in the following table. The expected volatility is based on the volatility of the Dow Jones Small Cap Medical Equipment Index. The Company calculated the historical volatility of that index using the daily closing total returns for that index for a period of time

F-21

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

1012. STOCK-BASED COMPENSATION (Continued)

~~equal~~ On toDecember 15, ~~the~~2009, ~~expected term of~~ the ~~options immediately prior to the grant date. The~~ Company's ~~uses~~Board ~~historical data to estimate option exercise and employee termination patterns. The expected term~~ of ~~the options~~Directions ~~granted~~approved ~~represents~~ the ~~period~~acceleration of ~~time~~all ~~that~~unvested stock options ~~granted are expected to be~~ outstanding. ~~The~~as ~~risk~~of ~~free~~October 9, ~~rate~~2009, ~~for~~in ~~periods~~connection ~~within~~with the Merger. ~~contractual~~Options ~~life~~to ofpurchase ~~the~~6,792,122 ~~option~~shares isof ~~based~~common onstock ~~the~~were ~~U.S. treasury~~subject ~~securities constant maturity rate that corresponds~~ to the ~~expected~~acceleration. ~~term~~No inincremental ~~effect~~compensation atcosts ~~the~~resulted ~~time~~from ofthis ~~grant~~option modification.

	Year Ended December 31,
	2009		2008
Expected volatility		22.67 - 22.80%		20.19 - 20.50%
Expected life, range in years		6.25 - 9		9
Expected dividend yield on stock		0.00%		0.00%
Risk free interest rate range		3.40 - 3.60%		3.46 - 3.95%

As of December 31, 2010 and 2009, there was $845,539 and $1,427,128, respectively, of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Plan. The total fair value of shares vested during the years ended December 31, 2010 and 2009 was $1,115,850 and $193,566, respectively.

AThe ~~summary~~Company ofuses the ~~status~~Black-Scholes ofoption-pricing model to estimate the ~~Company's~~value ~~stock~~of its share-based payments. The assumptions used in the Black-Scholes option-pricing ~~plan~~model asfor ofthe years ended December 31, 2010 and 2009 are set forth in the following table. Subsequent to the Merger, the expected volatility is based on the volatility of public companies that are similar to the Company's industry, size, financial leverage and ~~changes~~stage ~~during~~of life cycle. Prior to the ~~periods~~Merger, the expected volatility is based on the volatility of the Dow Jones Small Cap Medical Equipment Index. The Company calculated the historical volatility of these companies using the daily closing total returns for a period of time equal to the expected term of the options immediately prior to the grant date. The Company uses historical data to estimate option exercise and employee termination patterns. The expected term of the options granted represents the period of time that options granted are expected ~~presented~~to be outstanding. The risk free rate for periods within the contractual life of the option is based on the U.S. treasury securities constant maturity rate that corresponds to the expected term in effect at the ~~table~~time ~~below:~~of grant. The fair value of common stock is based on closing stock quotes for the Company's common stock.

			Years Ended December 31, 2009
		Year Ended December 31,
			Number of Options Outstanding			Weighted Average Exercise Price		Weighted Average Contractual Term (Years)		Aggregate Intrinsic Value
		2010		2009
Options outstanding as of December 31, 2007				6,901,278		$	0.39
Expected volatility		89.36% - 91.04%		22.67 - 22.80%
	Granted			1,960,000			0.45
Expected life, range in years		6.25		6.25 - 9
	Exercised			—			—
Expected dividend yield on stock		0.00%		0.00%
	Forfeited			(118,000	)		0.44
Risk free interest rate range		3.56% - 3.85%		3.40 - 3.60%
Options outstanding as of December 31, 2008				8,743,278			0.39
Fair value of common stock		$3.36 - $3.44		$1.50 - $6.00
	Granted			5,980,000			0.38
	Exercised			—			—
	Forfeited			(338,500	)		0.39
Options outstanding as of December 31, 2009				14,384,778			0.39		6.17	$	5,221,297
Options exercisable as of December 31, 2009				12,284,778			0.39		5.93		4,433,797

F-25

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

12. STOCK-BASED COMPENSATION (Continued)

A summary of the status of the Company's stock option plan as of December 31, 2010 and changes during the periods are presented in the table below:

		Years Ended December 31, 2010

		Number of Options Outstanding			Weighted Average Exercise Price		Weighted Average Contractual Term (Years)		Aggregate Intrinsic Value
Options outstanding as of December 31, 2008			2,185,820		$	1.54
	Granted		1,495,000			1.50
	Exercised		—			—
	Forfeited		(84,625	)		1.56

Options outstanding as of December 31, 2009			3,596,195			1.56
	Granted		10,000			2.62
	Exercised		—			—
	Forfeited		(405,750	)		1.90

Options outstanding as of December 31, 2010			3,200,445			1.38		3.15	$	—

Options exercisable as of December 31, 2010			2,958,659			1.42		3.15		—

A summary of the Company's non-vested options for the year ended December 31, 2010 is presented below:

			Weighted Average Grant- Date Fair Value

Nonvested as of December 31, 2009	525,000		$	3.34
Granted	10,000			2.62
Vested	(278,906	)		(4.07	)
Forfeited	(13,750	)		(2.60	)

Nonvested as of December 31, 2010	242,344			4.06

The following is the stock-based compensation expense recognized in the Company's statements of operations:

					For the Period From January 1, 2002 (inception of development stage) Through December 31, 2009
					For the Period From January 1, 2002 (date of inception of development stage) Through December 31, 2010
	Year Ended December 31,
	2009		2008
	2010		2009
Selling, general and administrative	$	~~212~~869,~~984~~981	$	3212,~~661~~984	$	~~474~~1,~~037~~344,018
Research and development		261,~~421~~818		1426,~~170~~421		6365,~~630~~448
	$	~~239~~871,~~405~~799	$	17239,~~831~~405	$	~~537~~1,~~667~~409,466

F-2226

Table of Contents

TECHNISCAN, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

1113. SUBSEQUENT EVENTS

~~Subsequent~~On ~~to December~~February 3117, ~~2009~~2011, the Company ~~received~~and ~~$750~~Womens3D,~~000~~ Inc. in("Womens3D") ~~connection~~entered ~~with~~into ~~the~~(1) a ~~issuance~~Manufacturing Agreement of ~~convertible~~the ~~notes.~~products Ofdeveloped ~~this~~pursuant ~~amount,~~to ~~$500,000~~the ~~was~~Product Development ~~received~~Agreement ~~from~~(the ~~members~~"PDA") of the ~~Company's~~ ~~Board~~parties ofentered ~~Directors.~~into ~~These~~on ~~notes~~January 11, ~~bear~~2011; ~~interest~~(2) a atTrademark ~~10%,~~and ifCopyright ~~paid~~License inAgreement ~~cash,~~governing oreach ~~12%~~party's ifrespective ~~converted~~use toof ~~common~~the ~~stock.~~other ~~The~~party's marks ~~notes~~and ~~have~~copyrights; ~~100%~~and ~~warrant~~(3) a ~~coverage~~Subscription Agreement to ~~purchase~~which ~~common~~Womens3D ~~stock~~will ofissue ~~the~~shares ~~Company~~of ~~at the~~its ~~exercise~~common ~~price~~stock ofto ~~$0.67~~the ~~per~~Company ~~share,~~in ~~exercisable~~an ~~for~~amount ~~five~~equal ~~years~~to ~~from~~20% of the ~~date~~fully ofdiluted ~~the~~equity ~~notes~~of Womens3D.

~~Subsequent~~On ~~events~~February 14, ~~were~~2011, ~~evaluated~~the ~~through~~Company ~~March 19~~issued as part of its private debt offering additional Notes in principal amounts totaling $75,000 ~~2010~~to a member of the Board. As part of the purchase of the Notes, the ~~financial~~Company ~~statement~~issued ~~issuance~~Warrants exercisable for five years from the date of grant to purchase an aggregate of 27,986 Shares, at an exercise price of $2.68 per share.

F On January 31, 2011, the Company amended the maturity date on the short-23term notes to two related parties from January 31, 2011 to April 15, 2011.

On January 31, 2011, the Company amended the Note Purchase Agreement. Pursuant to the amendment, the Company issued an aggregate of $275,000 of Notes due and payable April 15, 2011. Of this amount $100,000 was received from a member of the Company's Board of Directors. As part of the amendment of the Notes, the Company issued an aggregate of 27,500 shares of its restricted common stock. Also as part of the amendment of the Notes, the Company issued Warrants exercisable for five years from the date of grant to purchase an aggregate of 102,614 shares of its common stock. Except as adjusted for the later issuance date, the note and warrant have the same material terms as the amended senior secured convertible promissory notes and the amended common stock purchase warrants, respectively, it issued pursuant to a Note and Warrant Purchase Agreement and other investment documents in connection with the March 2010 Offering.

Effective January 31, 2011, with the payment of $275,000 to the first lien holders, the maturity date of all Notes was extended to April 15, 2011(the "Extension"). As part of the Extension, the Company issued an aggregate of 285,000 shares of its common stock. Also as part of the Extension, the Company issued Warrants exercisable for five years from the date of grant to purchase 1,063,439 shares of its common stock to all current note holders.

On January 11, 2011, the Company entered into an Equity Purchase Agreement ("EPA") with Southridge Partners II, LP ("Southridge") which provides that Southridge is committed to purchase up to an aggregate of $10,000,000 of the Company's shares of common stock over a two-year period, as and when the Company determines appropriate in accordance with the terms and conditions of the EPA. The Company issued Southridge 150,000 shares of its common stock as consideration for entering into the EPA with the Company.

On January 11, 2011, the Company entered into the PDA with Womens3D, pursuant to which the Company will design, jointly with Womens3D, and develop ultrasound products for sale by Womens3D to providers of women's healthcare services and products in the United States and certain countries in the Middle East who perform breast imaging, other than providers (1) registered with and/ or licensed by the FDA that derive at least 51% of their annual revenue from breast cancer screening and diagnostic imaging under the Mammography Quality Standards Act; and (2) that derive a material portion of their annual revenue from cosmetic surgery involving breast implants.

Subsequent events were evaluated through March 25, 2011, the issuance date of the financial statements.

F-27

Table of Contents

EXHIBIT INDEX

		Description
2.1*		Agreement and Plan of Merger, by and between TechniScan, Inc., Castillo, Inc., TechniScan Acquisition, Inc., and Emilia Ochoa, dated October 9, 2009
2.1	(1)	Agreement and Plan of Merger, by and between TechniScan, Inc., Castillo, Inc., TechniScan Acquisition, Inc., and Emilia Ochoa, dated October 9, 2009
2.2*		Agreement and Plan of Merger by and between Castillo, Inc., a Delaware corporation and Castillo, Inc., a Nevada corporation, dated September 4, 2009
2.2	(1)	Agreement and Plan of Merger by and between Castillo, Inc., a Delaware corporation and Castillo, Inc., a Nevada corporation, dated September 4, 2009
2.3*		Plan of Merger by and among TechniScan, Inc. and TechniScan Acquisition, Inc., dated October 9, 2009
2.3	(1)	Plan of Merger by and among TechniScan, Inc. and TechniScan Acquisition, Inc., dated October 9, 2009
2.4*		Plan of Merger by and among Castillo, Inc. and TechniScan, Inc., dated October 9, 2009
2.4	(1)	Plan of Merger by and among Castillo, Inc. and TechniScan, Inc., dated October 9, 2009
3.1*		Certificate of Incorporation, filed with the Secretary of State of the State of Delaware
3.1	(1)	Certificate of Incorporation, filed with the Secretary of State of the State of Delaware
3.2*		Bylaws
3.1.1	(9)	Certificate of Amendment to the Certificate of Incorporation filed June 18, 2010
3.3*		Certificate of Merger of Castillo, Inc., a Nevada corporation with and into Castillo, Inc., a Delaware corporation, filed with the State of Delaware on October 8, 2009
3.1.2	(9)	Certificate of Correction filed June 22, 2010
3.4*		Certificate of Ownership and Merger of TechniScan, Inc., with and into Castillo, Inc., filed with the State of Delaware on October 9, 2009
3.2	(1)	Bylaws
4.1		Specimen Stock Certificate
3.3	(1)	Certificate of Merger of Castillo, Inc., a Nevada corporation with and into Castillo, Inc., a Delaware corporation, filed with the State of Delaware on October 8, 2009
9.1*		Voting Agreement by and among TechniScan, Inc. and the Series E Preferred Stock holders dated February 11, 2008*****
3.4	(1)	Certificate of Ownership and Merger of TechniScan, Inc., with and into Castillo, Inc., filed with the State of Delaware on October 9, 2009
10.1*		Office Building Lease by and between Shupe Investments, LTD, as landlord, and TechniScan Inc., as tenant, for lease of premises located at 3216 South Highland Drive, Salt Lake City, Utah, dated April 11, 2008*****
4.1	(8)	Form of Senior Secured Convertible Promissory Note of TechniScan, Inc., as amended
10.2*		Lease Agreement by and between 1011 LLC, as landlord, and SafeScan Medical Systems, LLC, as tenant, for lease of premises located at 1011 East Murray-Holladay Road, Salt Lake City Utah, dated September 1, 2003*****
4.2	(7)	Form of Common Stock Purchase Warrant of TechniScan, Inc.
10.3		2001 Employee Stock Option Plan, as amended
4.3	(5)	Specimen Stock Certificate
10.4**		Employment Offer Letter with Steven K. Passey, dated November 9, 2009
9.1	(1)	Voting Agreement by and among TechniScan, Inc. and the Series E Preferred Stock holders dated February 11, 2008
10.5*		Employment Offer Letter with Barry K. Hanover, dated February 4, 2002
10.1	(7)	Note and Warrant Agreement dated as of March 30, 2010 by and among TechniScan, Inc. and the investors party thereto.
10.6*		Form of Confidentiality, Inventions Assignment and Non-Competition Agreement between TechniScan, Inc. and employees of TechniScan, Inc.*****
10.2	(10)	Amendment to the Note and Warrant Purchase Agreement by and Among TechniScan, Inc. and Biotex Pharma Investments LLC as Lead Investor.
10.7*		Form of Lock-Up Agreement
10.2.1	(12)	Amendment to the Note and Warrant Purchase Agreement by and Among TechniScan, Inc. and Biotex Pharma Investments LLC as Lead Investor.
10.8*		General Consulting Agreement by and between TechniScan Medical Systems, Inc. and The Anson Group, dated May 1, 2006*****
10.2.2	(13)	Amendment to the Note and Warrant Purchase Agreement by and Among TechniScan, Inc. and Biotex Pharma Investments LLC as Lead Investor.
10.9*		Client Confidentiality & Non-Disclosure Agreement by and between TechniScan Medical Systems, Inc. and The Anson Group, dated May 3, 2006
10.2.3	(14)	Amendment to the Note and Warrant Purchase Agreement by and Among TechniScan, Inc. and Biotex Pharma Investments LLC as Lead Investor.
10.10*		Original Equipment Manufacturing Agreement and Engineering Support Agreement by and between TechniScan, Inc. and Esaote S.p.A., dated February 11, 2008*****
10.2.4	(15)	Amendment to the Note and Warrant Purchase Agreement by and Among TechniScan, Inc. and Biotex Pharma Investments LLC as Lead Investor.
10.11*		Distribution Agreement by and between TechniScan, Inc. and Esaote S.p.A., dated February 11, 2008*****
10.2.5	(16)	Amendment to the Note and Warrant Purchase Agreement by and Among TechniScan, Inc. and Biotex Pharma Investments LLC as Lead Investor.
10.12*		European Market Development Agreement, between Esaote S.p.A., and TechniScan Inc., dated October 28, 2008*****
10.2.6	(19)	Amendment to the Note and Warrant Purchase Agreement by and Among TechniScan, Inc. and Biotex Pharma Investments LLC as Lead Investor.
10.3	(7)	Registration Rights Agreement dated March 30, 2010 by and amount TechniScan, Inc. and the investors party thereto.

Table of Contents

		Description
10.13*		Letter of Understandings on Possible Amendment Agreement, between Esaote S.p.A. and TechniScan, Inc., dated October 28, 2009*****
10.4	(8)	Amendment to the Registration Rights Agreement by and among TechniScan, Inc. and the stockholders party thereto.
10.14****		Manufacturing Letter of Intent between TechniScan, Inc. and Esaote S.p.A., dated November 12, 2009
10.4.1	(12)	Amendment to the Registration Rights Agreement by and among TechniScan, Inc. and the stockholders party thereto.
10.15		Supplement Number One to Original Equipment Manufacturing Agreement and Engineering Support Agreement by and between TechniScan, Inc. and Esaote, S.p.A., dated November 10, 2009**
10.4.2	(13)	Amendment to the Registration Rights Agreement by and among TechniScan, Inc. and the stockholders party thereto.
10.16*		Amendment and Restatement of The License Agreement Between University of Utah Research Foundation and TechniScan, Inc., Successor-in-Interest to Dr. Steven A. Johnson Dated August 28, 1984, dated January 10, 2002*****
10.4.3	(14)	Amendment to the Registration Rights Agreement by and among TechniScan, Inc. and the stockholders party thereto.
10.17*		Professional Services Agreement, by and between TechniScan, Inc. and PCOF Partners, dated October 9, 2009
10.4.4	(15)	Amendment to the Registration Rights Agreement by and among TechniScan, Inc. and the stockholders party thereto.
16.1***		Letter dated December 7, 2009 from George Stewart, CPA to the Securities and Exchange Commission
10.5	(7)	Security Agreement dated as of March 30, 2010 by and between TechniScan, Inc. and Biotex Pharma Investments LLC as Collateral Agent for the holders of the Senior Secured Convertible Promissory Notes.
31.1		Certification of Principal Executive Office pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
10.6	(7)	Patent, Trademark and Copyright Security Agreement dated March 30, 2010 by and between TechniScan, Inc. and Biotex Pharma Investments LLC as Collateral Agent for the holders of the Senior Secured Convertible Promissory Notes.
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
10.7	(6)	Form of Indemnification Agreement between TechniScan, Inc. and its Officers and Directors.
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
10.8	(1)	Office Building Lease by and between Shupe Investments, LTD, as landlord, and TechniScan Inc., as tenant, for lease of premises located at 3216 South Highland Drive, Salt Lake City, Utah, dated April 11, 2008
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
10.9	(1)	Lease Agreement by and between 1011 LLC, as landlord, and SafeScan Medical Systems, LLC, as tenant, for lease of premises located at 1011 East Murray-Holladay Road, Salt Lake City Utah, dated September 1, 2003
10.10	(5)	2001 Employee Stock Option Plan, as amended
10.11	(2)	Employment Offer Letter with Steven K. Passey, dated November 9, 2009
10.12	(1)	Employment Offer Letter with Barry K. Hanover, dated February 4, 2002
10.13	(1)	Form of Confidentiality, Inventions Assignment and Non-Competition Agreement between TechniScan, Inc. and employees of TechniScan, Inc.
10.14	(1)	Form of Lock-Up Agreement
10.15	(1)	General Consulting Agreement by and between TechniScan Medical Systems, Inc. and The Anson Group, dated May 1, 2006
10.16	(1)	Client Confidentiality & Non-Disclosure Agreement by and between TechniScan Medical Systems, Inc. and The Anson Group, dated May 3, 2006
10.17	(1)	Original Equipment Manufacturing Agreement and Engineering Support Agreement by and between TechniScan, Inc. and Esaote S.p.A., dated February 11, 2008*
10.18	(1)	Distribution Agreement by and between TechniScan, Inc. and Esaote S.p.A., dated February 11, 2008
10.19	(1)	European Market Development Agreement, between Esaote S.p.A., and TechniScan Inc., dated October 28, 2008
10.20	(1)	Letter of Understandings on Possible Amendment Agreement, between Esaote S.p.A. and TechniScan, Inc., dated October 28, 2009

Table *Attached as Exhibit to Company's Form 8-K filed October 9, 2009 and incorporated by reference. **Attached as Exhibit to the Company's Form 8-K filed November 4, 2009 and incorporated by reference. ***Attached as Exhibit to Company's Form 8-K filed December 7, 2009 and incorporated by reference. ****Attached as Exhibit to Company's Form 8-K filed December 9, 2009 and incorporated by reference. *****Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of ~~Regulation S-K. The Company undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission.~~ Contents

		Description

10.21	(2)	Manufacturing Letter of Intent between TechniScan, Inc. and Esaote S.p.A., dated November 12, 2009

10.22	(4)	Supplement Number One to Original Equipment Manufacturing Agreement and Engineering Support Agreement by and between TechniScan, Inc. and Esaote, S.p.A., dated November 10, 2009

10.23	(11)	Supplement Number Tow to Original Equipment Manufacturing Agreement and Engineering Support Agreement by and between TechniScan, Inc. and Esaote, S.p.A., dated November 10, 2009

10.24	(1)	Amendment and Restatement of The License Agreement Between University of Utah Research Foundation and TechniScan, Inc., Successor-in-Interest to Dr. Steven A. Johnson Dated August 28, 1984, dated January 10, 2002

10.25	(1)	Professional Services Agreement, by and between TechniScan, Inc. and PCOF Partners, dated October 9, 2009

10.26	(17)	Professoinal Services Agreement, by and between TechniScan, Inc. and PCOF Partners, dated December 8, 2010

10.27	(17)	Placement Agency Agreement, by and between TechniScan, Inc. and Stonegate Securities, Inc. dated December 7, 2010

10.28	(18)	Equity Purchase Agreement, by and between TechniScan, Inc. and Southridge Partners II, LP, dated January 11, 2011

10.29	(18)	Registration Rights Agreement by and between TechniScan, Inc. and Southridge Partners II, LP dated January 11, 2011

10.30	(18)	Product Development Agreement by and between TechniScan, Inc. and Womens3D, Inc. dated January 11, 2011

10.31	(20)	Manufacturing Agreement by and between TechniScan, Inc. and Womens3D, Inc. dated February 16, 2011

10.32	(20)	Trademark and Copyright License Agreement by and between TechniScan, Inc. and Womens3D, Inc. dated February 16, 2011

10.33	(20)	Subscription Agreement by and between TechniScan, Inc. and Womens3D, Inc. dated February 16, 2011

16.1	(3)	Letter dated December 7, 2009 from George Stewart, CPA to the Securities and Exchange Commission

31.1		Certification of Principal Executive Office pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350

(1): Attached as Exhibit to our Form 8-K filed with the SEC on October 16, 2009 and incorporated by reference.
(2): Attached as Exhibit to our Form 8-K filed with the SEC on November 12, 2009 and incorporated by reference.

Table of Contents

(3): Attached as Exhibit to our Form 8-K filed with the SEC on December 7, 2009 and incorporated by reference.
(4): Attached as Exhibit to our Form 8-K filed December 9, 2009 and incorporated by reference.
(5): Attached as Exhibit to our Form 10-K filed with the SEC on March 22, 2010 and incorporated by reference.
(6): Attached as Exhibit to our Form 8-K filed with the SEC on March 25, 2010 and incorporated by reference.
(7): Attached as Exhibit to our Form 8-K filed with the SEC on April 5, 2010 and incorporated by reference.
(8): Attached as Exhibit to our Form 8-K filed with the SEC on May 14, 2010 and incorporated by reference.
(9): Attached as Exhibit to our Form 8-K filed with the SEC on June 25, 2010 and incorporated by reference.
(10): Attached as Exhibit to our Form 8-K filed with the SEC on August 4, 2010 and incorporated by reference.
(11): Attached as Exhibit to our Form 8-K filed with the SEC on September 8, 2010 and incorporated by reference.
(12): Attached as Exhibit to our Form 8-K filed with the SEC on October 1, 2010 and incorporated by reference.
(13): Attached as Exhibit to our Form 8-K filed with the SEC on October 11, 2010 and incorporated by reference.
(14): Attached as Exhibit to our Form 8-K filed with the SEC on October 19, 2010 and incorporated by reference.
(15): Attached as Exhibit to our Form 8-K filed with the SEC on November 3, 2010 and incorporated by reference.
(16): Attached as Exhibit to our Form 8-K filed with the SEC on November 18, 2010 and incorporated by reference.
(17): Attached as Exhibit to our Form 8-K filed with the SEC on December 13, 2010 and incorporated by reference.
(18): Attached as Exhibit to our Form 8-K filed with the SEC on January 18, 2011 and incorporated by reference.
(19): Attached as Exhibit to our Form 8-K filed with the SEC on February 4, 2011 and incorporated by reference.
(20): Attached as Exhibit to our Form 8-K filed with the SEC on February 23, 2011 and incorporated by reference.

Filing Compare · TechniScan, Inc.